Hello Friends, Clients and Associates,
The following is for your perusal and information only. Cheers.
Residex released it’s first property price statistics for the year showing a 0.53% rise in national house prices over the month of December 2012 and a -0.67% fall in unit values.
Over the year, house values nationally lifted by 0.49%, whereas unit values fell by -0.40%.
This comes at much the same time Australian Property Monitors released more bullish figures which you can read here – Property markets bounce back in 2012: Australian Property Monitors
In his first report for the year John Edwards, CEO of Residex said:
Overall, 2012 was a better year for Australian property compared to the prior 12 month period. Additionally, the past few weeks will have helped consumers gain higher levels of optimism as there has been positive news surrounding the US economy and little negative news out of Europe. Lifted confidence should flow into higher levels of housing market activity.
On the other hand, the floods currently being experienced in Northern NSW and Queensland will be having a dampening influence on these markets. Some slowing in the economy will drive unemployment, which will also have some moderating impacts. However, we shouldn’t get too carried away with moderate increases in unemployment as we are coming off all but full employment.
On an Australia wide basis, capital growth in the house and land market achieved its best performance in the last 18 months. Weekly rentals also increased, with rentals for houses and land maintaining real value while units outperformed inflation by about 3%. Rental increases are good news and much needed as the sector’s capital value is either stagnant or just maintaining real value. This should be expected to continue.
In my opinion, strong growth in the next few years is unlikely despite low interest rates and the likelihood of further rate reductions simply due to affordability issues. I believe the RBA will be forced to reduce the cash rate to as low as 2.25%, or perhaps even 2% over the next 12 months due to a slowing economy and a need to maintain employment in an environment where the resource sector moves from a development phase to a production phase.
I am hopeful that the RBA will recognise the need to cut rates in one significant move in the immediate future rather than via a number of small cuts throughout 2013. I take this view as consumer sentiment is currently driving the economy and retail economies. Multiple reductions simply reinforce the fact that an economy is in trouble, which in turn undermines consumer sentiment.
My overall view for 2013 is that, with any luck, average growth across Australia will be above inflation. Given the state and position of the housing cycle and normal trends from here, this growth outcome should be easily achievable.
However, it will depend on the unfolding global economic developments in the next 12 months and consumer sentiment. This year also brings a significant amount of distraction as a period of political exaggeration and cross claims are entered in preparation for the late year Federal Election. The recent past political environment has been one of the most self-interested, venomous and arguably politically driven part-truth manipulated periods in the last 50 years. Naturally, the public has and continues to react to this and the outcome of the election will impact on the confidence in our future.
The year ahead will be driven by:
§ Affordability in housing markets
§ Employment conditions
§ Consumer Sentiment
Over the course of the next few months, I will look at the above issues closely. In this newsletter, I focus on the first issue; Affordability.
Despite the interest rate reductions, affordability is still an issue for many Australians. Even at current interest rate levels, a large proportion of people cannot afford to make the loan repayments needed to allow them to compete for and buy a property that suits their needs, let alone their dreams. Competition for property has been reduced and with that there has been a reduction in demand. This is not the case in all Australian markets. It is, however, most certainly true for houses and land in major markets.
Graph 1 displays the House Price Growth Rate (HPI) on an annual basis compared to a measure of affordability (Affordability Indicator) for Australia’s largest market – Sydney. The measure of affordability is the percentage of gross income it takes for a household’s income to make home loan repayments. It assumes that the home loan interest rate is as quoted by the Reserve Bank for each year, and assumes an 80% loan to fund the median house value for each year.
There are a number of relationships evident in the graph:
§ The current measure of affordability (MA) is quite high by historical standards and has been increasing for the full term of the data set.
§ The median MA over the last 50 years is about 30%
§ Once the MA exceeded 50% (1987) HPI has gradually become lower.
§ Once MA exceeds 50% the market retreats and negative HPI eventuates in most cases.
§ For the last decade, MA has been at or above 40%. During this period it is clear that capital growth has been at its lowest level. In fact, Sydney HPI was the lowest on average of any capital city in Australia, providing an annual average rate of growth of just 3.46%.
Affordability issues flow across the total market as different income groups purchase different properties in terms of price and location. For example, those who would normally aspire to purchase a house given their income level would not easily move to purchase a unit, therefore the affordability of each category and area is important. Table 1 demonstrates this; even though units are around $200,000 less in cost and hence the median income takes MA to a realistic level of 32%, this segment still failed to produce capital growth that was better than the more expensive house and land segment in the last decade. Growth on average over the last 10 years for units was just 3.35% pa.
It seems to me that the MA has to be in the low 30% band for there to be reasonable levels of capital growth. We have some way to go to get to that yet.
For the investor, the year ahead should be one of developing future quality rental streams. This is probably best done by looking for well situated renovation opportunities. With careful selection and with the help of Residex, you should be able to identify investments that achieve this goal.
Remember, when you are seeking investment opportunities, you must look forward. What is currently performing well is not necessarily an indicator of what is to come.
Australian house prices to rise 2.1% over next two years: NAB
Thursday, 31 January 2013
Expectations for house price growth improved marginally in the final quarter of 2012 but remain very modest, with just 2.1% growth tipped for the next two years, according NAB’s December 2012 quarterly residential property index survey.
This compares with September quarter expectations of a 1.7% gain in house prices over the next two years.
The expectations are based on the sentiments of around 270 property markets participants, predominantly estate agents (39% of respondents), property owners and investors (20%) and developers (17%).
They indicate that despite rate cuts and improving housing affordability, there is still much caution among those directly involved in the property market about medium-term prospects, though they have brightened.
The survey found that concerns over housing affordability are falling slowly as interest rates fall but are still “significant”.
In addition, property professionals remain concerned about the domestic economy and a weakening labour market, with “employment security entrenched as the biggest impediment to purchasing existing property in all states”.
“Access to credit also seen as a ‘significant’ impediment to purchasing existing property,” NAB says of the survey results.
Property professionals expect “good” capital growth prospects in the sub-$500,000 market next year, but the outlook for premium stock is still “poor”.
The strongest outlook is for the mining-states of Western Australia and Queensland, where house prices are expected to increase by 3.6% and 2.2% respectively over the next two years, driven by strong state economic growth, migration and rental growth.
Click to enlarge
Perth will be the strongest performing capital city market with capital growth forecast to run at around 3.5% through the year to end-2013 and 5% in the year through to end-2014, “underpinned by improved affordability, population growth and above average state economic growth”.
Brisbane house prices are forecast to increase by 1.7% over 2013 and then by 3.5% over 2014.
Stronger price growth is also tipped for NSW (1.8% over the next two years compared with 1.5% in the previous quarter), with Sydney set to outperform with growth of 2.1% in 2013 and 3.7% in 2014.
Expectations also improved in Victoria, where property professionals now expecting house prices to grow by 1.9% in the next two years, having previously forecast 0.9% growth.
Melbourne house prices are expected to continue to tread water over 2013 – rising just 0.4% – but are expected to pick up slightly in 2014, rising by 2%.
Expectations for house price growth over the next two years for the combined South Australia/Northern Territory market were scaled back to 1.5%, from 2.4% previously.
Melbourne along with Adelaide (growth of 0.1% in 2013 and 2% in 2014) are forecast to be the worst-performing markets for house price growth in 2013 and “will continue to lag the capital city average with state economic conditions and employment prospects in both these states also expected to remain tougher”.
The overall index rose 4 points in the final quarter to sit at 8 points attributed to the rate of decline in national house prices slowing and rents growing.
Please contact 07 3263 6085 for all your Property Investment Sales & Management needs as we aim to remove the hassle from Sales & Rentals. As we are a dedicated family business, we continue to offer and provide a personalised service Brisbane Wide.
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Linda-Jane Debello has sent you a link to a blog:
For your perusal and information with best regards for the New Year 2013.
Post: RP Data Rental Market Analysis
Linda J. & Carlos Debello, LJ Gilland Real Estate Pty Ltd
Tel: (07) 3263 6085 | Mobile: 0409 995 578 & 0400 833 800
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