While the green shoots of recovery appear to be emerging in a number of Australia’s residential markets, property industry analyst and economic forecaster BIS Shrapnel anticipates that the improvement will be uneven across the country.
According to the company’s report Residential Property Prospects, 2013 to 2016, the resilience in the New South Wales market in should continue over the next three years, with Queensland joining in from 2013/14.
The emerging strength in Western Australia and the Northern Territory is likely to continue in the short term, but residential activity is expected to slow with state economic prospects weakening as the resource boom winds down. Conditions in the remaining states and territories are forecast to continue to be dampened by underperforming economies and an excess supply.
BIS Shrapnel senior manager and study author Angie Zigomanis said the general improvement in residential markets since the latter half of 2012 has been initiated by the low interest rate environment. Since October 2011, the official cash rate has fallen by 200 basis points, translating to a 160 basis point fall in variable rates.
“Also, outside of 2009, home loan affordability in all capital cities is at its best level since the first half of the 2000s”, Zigomanis said.
“As a result, we are seeing some improvement in some residential market indicators.
“Lending to both owner-occupiers and investors has been trending upwards in the nine months 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.”
However, the research shows that further improvement is likely to be slow to gain momentum.
As a result, BIS Shrapnel still expects only a modest improvement in residential market conditions in 2013/14, assisted by the potential for further cuts to interest rates.
The residential market should become more buoyant over 2014/15 as the non-resource sectors of the economy improve and take over as the main drivers of economic growth.
Over 2013/14 and 2014/15, the strongest conditions are forecast for New South Wales, Western Australia, Queensland and the Northern Territory. While BIS Shrapnel estimates a sizeable deficiency of 83,000 dwellings nationally, or around half a year’s demand, at June 2013, all of the deficiency is confined to these states.
“The deficiency in their state capitals has driven up rents which, together with recent weak price growth, have resulted in improved yields,” Zigomanis said.
“In this environment, the lower interest rates are providing the impetus for greater purchaser demand, as is becoming evident in Sydney, Perth and Darwin house prices, while we expect Brisbane will eventually follow.”
In contrast, conditions in Victoria, South Australia, Tasmania and the Australian Capital Territory are forecast to continue to be tough, mainly because these states have all experienced strong peaks in construction in recent years that well exceeded demand for new dwellings. The result has been an erosion of their dwelling deficiency and/or an emerging excess of dwelling stock.
“While some pockets may do well in the current low interest rate environment, without any supply pressures, median house prices overall in Melbourne, Adelaide, Hobart and Canberra are forecast to show little change and decline in real terms over the next three years”, Zigomanis predicted.
The Perth and Darwin markets have already commenced their recovery and while there should be enough momentum to continue solid purchaser activity into 2013/14, the rate of price growth is forecast to begin to slow from 2014/15.
The full report is available for download on the BIS Shrapnel website.