According to economic forecaster BIS Schrapnel, Australia will experience steady house prices through 2011, and some capital cities will even show moderate growth over the following two years. They are definitely not expecting a property crash.
In their Residential Property Prospects, 2011 to 2014 report, Sydney, Perth and Brisbane will show the strongest price growth through to 2014. Brisbane is expected to achieve a total rise of 15% forecast over three years, representing an average rise of 4.7% per annum.
In his comments on the report, BIS Schrapnel senior manager and study author, Mr Angie Zigomanis, noted that the 2010/11 market was hit by a ‘perfect storm’ of falling first home buyers. This flowed through to weaker demand from upgraders. It all coincided with the stalling economic conditions and increases in interest rates to further dampen demand.
Mr Zigomanis, says while the focus of the fall in first-home buyer demand (down 50 per cent in 2010) has been higher interest rates, the main reason was actually a substantial ‘pull forward’ of first-home buyers into 2009 due to expiring government incentives. This then flowed through to weaker upgrader demand as there were fewer purchasers in the market for their existing dwellings.
“These movements in the property market coincided with the economy stalling due to government stimulus tapering off, and the resources boom yet to gain traction,” says Zigomanis. “The combination of weaker demand, a more uncertain economic outlook, weak consumer confidence and prospects of further interest rate rises has resulted in weaker house prices.”
BIS Schrapnel expects the situation to improve from 2011/12.
“Economic growth is forecast to regain traction through 2011, and continue to accelerate in 2012 and 2013 as resources investment flows through to the rest of the economy,” says Zigomanis. “Strengthening employment growth – the unemployment rate is forecast to fall below four per cent in 2013 – will also see net overseas migration inflows turn around, and the underlying demand for new dwellings begin to rise.
“With new dwelling starts currently declining, the corresponding fall in completions means the underlying deficiency of dwellings nationally will increase,” adds Zigomanis. “This will underpin the strength of residential conditions, causing rental markets to tighten and rental growth to pick up, particularly in those markets where it has been weakest in the last couple of years.”
Interest rates are noted in the report as a key to the outlook for the residential market. It is their view that moderate rate rises will still allow confidence to start returning as economic strength grows associated with employment and income growth.
In the short term, BIS Schrapnel’s forecast is for the cash rate to increase by 50 basis points in 2011/12.
The report also sees investors returning to the market in greater numbers as a result of increased purchaser activity, strengthening employment and income, improvement in sentiment and rising rents.
In relation to Brisbane according to BIS Schrapnel, the residential property market has arguably been the weakest of the state capitals, with the forecast median house price of $440,000 in June 2011 representing a four per cent decline for the year. The state economy has weakened considerably due to the completion of a number of big non-residential and engineering projects related to the mining sector and, more recently, flooding. Strong growth in house prices up to 2008 has also impacted on affordability relative to the other eastern state capitals. As a result, underlying demand in the Queensland market has been weakened by lower overseas and interstate migration inflows that have fallen to long term lows.
New dwelling construction in Queensland has collapsed back to pre-GFC levels, and while BIS Shrapnel estimates the Queensland residential market is roughly in balance, the decline in supply will result in a rising dwelling deficiency. This will see vacancy rates tighten to below the balanced market rate of three per cent and underpin a recovery in rental growth.
“The next round of investment in new resource projects is expected to commence in 2011, economic conditions are also forecast to rapidly improve, and the ensuing employment and income growth will create a greater level of purchaser confidence,” says Zigomanis.
“As a result, a mild improvement in prices is forecast in 2011/12, and this will pick up in 2012/13 as the economic upturn gains traction and the underlying dwelling deficiency becomes more pronounced. Nevertheless, the impact of rising interest rates will continue to dampen the magnitude of price growth, with a total rise of 15 per cent forecast over the three years to 2014, representing an average rise of 4.7 per cent per annum.”
Read the full report at the BIS Schrapnel web site.
Find out about new home opportunities in Brisbane in the New Home Options section of our web site.