No price crash as predicted, growth ahead

No price crash as predicted, growth ahead

Posted on Friday, January 13 2012 at 2:41 PM

Prices may have softened in 2011, but not to the extent of a “collapse” or “bloodbath” as predicted by some commentators, according to the Housing Industry Association senior economist Andrew Harvey.

While prices did soften in the year to November 2011 as house prices in the capital cities declined by 4.3 per cent (year on year) and unit prices in the capital cities fell by 1.1 per cent, they didn’t fulfil the doom and gloom expectations, said Harvey.

The prices in fact swung back in RP Data-Rismark’s seasonally adjusted hedonic price series for November 2011 and signalled that “the worst of the residential property market slump may now be behind us”, he said.

In reflection, Harvey said that the price softening of 2011 wasn’t entirely unexpected, particularly in an environment of “tightening interest rates, yacking by the RBA (Reserve Bank of Australia) that more rate hikes were likely, the removal of fiscal stimulus, widespread concern over the carbon tax, the perceived instability of the Federal Government, increasing volatility in the world economy, and increasingly cautious consumers in the post-GFC environment”.

“The dwelling price outcomes in the face of such a tough period demonstrates the resilience of the Australian residential property market when compared with the sector in many other open-market economies,” he said.

However the November 2011 results did vary across the states and territories, and their regions, he said.

“At present, dwelling prices are rising, steady, falling, and dropping quite sharply, depending on the local geographical market and dwelling type observed. There are certainly markets that have felt considerable pain from falling prices, such as the Gold Coast for example, but this has been the exception not the rule,” Harvey said.

Looking forward, with back-to-back interest rate cuts in November and December, dwelling price growth is likely to happen this year, he said.

“Of course, the variation across regions will continue to be marked – and what happens in Europe will matter – developments there have the prospect of being a game changer. The reality is that nobody can predict exactly how the European debt and deficit fiasco will pan out – there are simply too many variables.”

However the strong fundamentals underpinning the Australian housing market only further support the prospect for price growth in 2012, he said.

These fundamentals include the housing shortage, low rental vacancy rates, the ability of Australians to service mortgage repayments, and the surging mining sector continuing to boost a healthy job market, said Harvey.

“The bottom line is that a lack of rental properties, cheaper borrowing costs and relatively healthy employment levels are likely to combine to push up housing demand, rents and dwelling prices in 2012.”

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