A report released by property industry analyst and economic forecaster BIS Shrapnel has forecast an “uneven” improvement in Australia’s residential markets over the next three years.
The report, released earlier this month, has found while a number of Australia’s recovering residential markets will continue to strengthen from 2013 to 2016, others will “tail off” or “remain flat” throughout this period.
BIS Shrapnel senior manager, and the study’s author, Mr Angie Zigomanis, attributes the general improvement in residential markets since mid-2012 to a low interest rate environment.
“The current standard variable rate of 6.2 per cent is the lowest level since 2001 – outside of the GFC-induced low interest rates in 2009,” Mr Zigomanis said.
According to Mr Zigomanis, this environment has resulted in “some improvement” in some residential market indicators, with lending to both owner-occupiers and investors experiencing an upwards trend in the nine months leading up to March 2013.
“Lending to first home buyers has also been trending upwards outside of declines in New South Wales and Queensland, where changes to first home buyer incentives have created a short term dip in demand,” he said.
Further improvement within the residential markets, however, is likely to be slow. According to BIS Shrapnel, this is due to a “transition from an economy driven by resource investment to one driven by consumption and business and residential investment”, the effects of which will take time to appear. At present, investment in the resource sector is estimated to have peaked, or will soon peak, while the rest of the economy remains subdued. The low interest rates are expected to eventually drive a stronger pick up in retail spending, new dwelling construction and business investment – and consequently the economy – which will take time to filter through to greater purchaser confidence.
In light of this economic forecast, BIS Shrapnel expects only a “modest” improvement in residential market conditions over the 2013/14 period, supported by the possibility of further cuts to interest rates. Over 2014/15, as the non-resource sectors of the economy increasingly become the main drivers of economic growth in Australia, the residential market is expected to become more buoyant.
How this affects:
Melbourne
While Melbourne’s median house price experienced a seven per cent decline over the 2011/12 period, it appears to have stabilised in 2012/13. As of June 2013, Melbourne’s median house price is estimated to be $545,000, representing a four per cent rise for the year.
BIS Shrapnel largely attributes this improvement to the reductions in interest rates over 2012/13, however, as opposed to being the result of “any fundamental drivers creating upwards pressure on prices”.
Vacancy rates are expected to rise in Melbourne following “record levels of new dwelling construction from 2009/10”, with the ongoing supply of new apartments in the city exceeding the current demand.
Brisbane
Brisbane’s estimated median house price of $440,000 in June 2013 represents a two per cent increase for the year – its first annual increase since 2009/10. Brisbane has suffered from a run up in house prices and construction through the first resources boom, followed by weak migration and population growth since 2009 that has impacted negatively on underlying demand and prevented any excess supply being absorbed. Weak state economic conditions have also impacted on sentiment.
However, conditions in Brisbane are slowly turning around. With new dwelling construction in Queensland collapsing to below GFC levels, Zigomanis estimates the Queensland residential market now has an emerging deficiency, as indicated by rent vacancies tightening from 3.9 per cent in 2010 to 2.1 per cent in March 2013. As a result, rents have started to rise. After being flat in 2011/12, the median three bedroom house rent in Brisbane increased by four per cent in the nine months to March 2013.
Affordability has also improved.
Sydney
Sydney’s estimated median house price of $670,000 in June 2013 represents a four per cent increase over 2012/13. The Sydney residential market now appears to be gaining some momentum after being weak for the best part of the last decade.
The strength in the Sydney market has been the result of a sustained period of underbuilding that has resulted in low vacancy rates and strong rental growth since 2007. Demand has been encouraged by improved home loan affordability, with BIS Shrapnel’s measure of affordability indicating that – apart from when variable interest rates were at record lows in 2009 – it is at its best level since 2001.
For more information, visit www.bis.com.au/news/