House prices are expected to rise substantially over coming years as a result of a shortage of new housing for Australia’s growing population according to a report by BIS Shrapnel.
The BIS Shrapnel report was prepared on behalf of insurance company QBE LMI.
Greek Australian senior project manager for BIS Shrapnel, Angie Zigomanis explained to Neos Kosmos English Edition that house prices will increase Australia wide by 20 percent over the next three years.
The report uses the median house price indicator and especially for Melbourne this increase is estimated at 19 percent.
The leading city for the house price jump is Adelaide with a 23 percent, followed by Sydney with 21 percent, Brisbane and Hobart with 15 percent, Darwin with 17 percent while Perth and Canberra house values can expect a 12 percent rise.
This increase reflects the lack of building enough new dwellings to accommodate population growth, according to Mr Zigomanis.
“This means there is a shortfall that is flowing through to low vacancy rates and stronger rental growth,” Mr Zigomanis said.
For the the next 12 months he anticipates that price growth will be fairly subdued because of the weak economic conditions but this trend will reverse upwards.
The estimate is also factoring in the potential increases in interest rates.
“We expect interest rate rises to be fairly limited over the next 12 months but by 2012 we expect the housing variable rates to be 1.25-1.50 percent higher than where they are now,” Mr Zigomanis pointed out.
The Reserve Bank only recently decided to increase the interest rate by 0.25 percent bringing the official rate to 3.25 percent.
Mr Zigomanis suggested that the current environment with the interest rates still at low levels is encouranging for first home buyers to enter the market.
He further stressed that people who have the extra cash should be looking at paying more than what their minimum repayments are for their house loans.
As to the question if first home buyers are stretching the limits of the market, Mr Zigomanis was reassurring:
“A lot of people are saying that first home buyers are paying at the limit of what they can afford and they’ll be impacted by rising interest rates, but I suspect that you’ll find a lot of the banks have been fairly conservative in terms of what they have been lending and how much deposit they’ve been requiring from first home buyers.”