House Prices Could Jump
October 12, 2010 at 2:25 PM
House prices could jump 20%, forecasts show
Update: House prices will continue to grow by up to 20 per cent over the next three years despite interest rates hitting a peak of 9.1 per cent, a respected business forecaster said today.
A QBE Housing Outlook 2010-2013 survey compiled by BIS Shrapnel forecasts house-price growth between 9 and 20 per cent in Australian capital cities over the next three years.
Perth, Sydney and Adelaide are forecast to grow the most while Melbourne, Darwin and Canberra will grow the least.
"Price growth is forecast to be strongest over the next three years in Perth, Sydney and Adelaide - all experiencing forecast rises of around 20 per cent in median house prices," the report states.
Melbourne would be the weakest market over the next three years, with about 9 per cent growth, because affordability had become strained after significant price rises in 2009-10.
Australia's housing market has so far held up much better than in most rich nations, with demand fanned by rising population and the fact that the economy largely dodged the global economic slowdown. That said, some analysts have begun to question whether house price growth is sustainable, with The Economist magazine among those suggesting Australia's real estate prices are among the most over-valued in the world.
''What I think you might find is that in the next decade, real house prices actually might not match the inflation rate,'' St George Bank chief economist Justin Smirk said in an interview last week. The headline consumer price index rose 3.1 per cent in the year to June, with a similar level expected in coming years.
Rismark managing director Christopher Joye, meanwhile, sees home prices remaining flat for the rest of 2010, after they slid 0.2 per cent in August to a national city median dwelling price fell to $457,000, on RP Data figures.
QBE and BIS, though, expect investors to help propel prices higher.
"We expect price rises will be underpinned by a deficiency of dwelling stocks across most capital cities, which in turn will lead to tight vacancy rates and solid rental growth, flowing through to increased investor demand," said QBE chief executive Ian Graham.
Among other state capitals, price growth over the period is expected to be 15 per cent in Brisbane and 13 per cent in Hobart.
''Price growth is expected to generally peak in 2012-13 as economic growth also peaks,'' the report said.
BIS Shrapnel attributes the overall house price growth to a stronger economy, with growth picking up a ''healthy'' 2.3 per cent last financial year.
''The national accounts data is further evidence that the economy is well into a sustained recovery, with private sector activity taking up the slack from waning public sector growth impetus,'' the report said.
BIS Shrapnel forecasts a variable interest rates will peak at 9.1 per cent in 2013, compared with about 7.4 per cent now. The Reserve Bank's official cash rate sits at 4.5 per cent.
"This will ultimately have a slowing effect on the economy and prices, although there may be one last gasp for price growth in some cities in 2012-13 where there is a large deficiency, or affordability is not strained," the report says.
The decline in first-home buyer demand has bottomed out, today's report found. Official data out yesterday showed the relative share of first-home owners fell to a six-year low in August.
BIS Shrapnel warns, though, that the outlook for the world economy remains a concern. The US housing sector continues to languish and America's employment recovery remains elusive, the report states.
Australia's real estate industry may also be distorting the local economy, according to Joseph Healy, National Australia Bank's business banking chief. He told a finance conference in Sydney today that lending to companies was being squeezed out by a ''bias'' in lending to the housing sector.
Managing Director of New Home Building Brokers