House prices may surge about 20 per cent or more in some of Australia's largest cities over the next three years, driven higher by on-going shortages.
Adelaide - previously considered among the more affordable cities - may lead the advances, with prices likely to be 23 per cent higher by June 2012 from a base of June 2009, according to the QBE LMI Housing Outlook.
Sydney prices may jump 21 per cent in that period, while Melbourne prices may be 19 per cent higher, the report said.
The increases are likely even with the expected rebound in interest rates as the economy recovers. The Reserve Bank last week lifted official interest rates from near half-century lows to 3.25 per cent and signalled more rate rises to come.
''While interest rates are forecast to rise over 2010-2012, the outlook for the Australian housing market looks positive,'' said QBE LMI chief Ian Graham.
''The current low interest rates will be the main driver for house price increases, which are expected to accelerate through to 2012, particularly in those markets with positive affordability and continuing undersupply of housing.''
Perth, Canberra lag
The report, prepared by real estate industry research group BIS Shrapnel, predicts Perth and Canberra, which have both seen huge rises in home values, will grow only 12 per cent in that time.
Brisbane can expect a 15 per cent rise, as can those living in Hobart, while Darwin prices may rise 17 per cent.
''Price growth in Perth is forecast to be influenced by a decline in investment in the resource sector after the record levels of recent years,'' said Mr Graham. ''Softer residential demand is also envisaged in Canberra due to weaker employment growth.''
Prices in the Australian housing market have been driven up by a chronic shortage of homes, estimated be about 56,600 in 2009.
The projected price increases will add to a huge run-up over the past decade.
Based on calculations from data contained in the report, provided by the Real Estate Institute of Australia and BIS Shrapnel, the median house price in Sydney increased by 101 per cent from June 1998 to June 2008.
Over the same 10-year period the median house price in Melbourne more than doubled, rising 116 per cent.
Brisbane values soared 202 per cent while Adelaide's increased 208 per cent during the same 10-year stretch. Perth's rose 211 per cent and Hobart's soared 203 per cent. The median house prices of Canberra increased 191 per cent, while in Darwin they increased 135 per cent.
In 2008, home prices eased about 3 per cent nationwide, bucking the trend of price drops of nearly 20 per cent in the US, UK, Ireland and Spain.
A bubble?
The shortages have been driven by a variety of factors including population growth, tax advantages favouring home ownership and real estate investment, and price speculation by home buyers and investors. Also, bottlenecks in the approval process for home building have been blamed.
Other factors driving prices include the First Home Owners Buyer's grant which was reduced this month, but won't be phased out until the end of the year.
Rising home prices, along with the economy's strength has prompted the Reserve Bank to warn of the risk of a housing bubble forming.
Runaway home price rises ''pose elevated risks of problems of over-leverage and asset price deflation down the track,'' RBA governor Glenn Stevens said in July.
Housing affordability
The current household debt to income ratio is around 155 per cent, up from about 130 per cent at the time of the last RBA rate rising cycle in 2003, Westpac said today, in releasing the September consumer confidence number.
Rising home prices have been a contributor to household debt, analysts say.
According to Morgan Stanley's Gerard Minack, the ratio of average house prices to average income in Australia is now just under 5 compared with around 3.5 times at the top of the US housing cycle.
Bis Schrapnel senior project manager Angie Zigomanis said that even if a housing price bubble popped, a correction would not necessarily mean huge price falls.
The median Sydney home price in 2009 is $544,000, lower than the 2004's median house price of $552,000.
''Corrections are not like share market corrections, where people sell off all their shares,'' he said.
''People just sit in the property and wait for things to improve. You don't have this turnover, aside from people who are forced to sell.''
Mr Zigomanis said anything that had an impact on Australia's overall economy could affect home prices.
Publication: smh.com.au Date: Wednesday, 14 October 2009 Author: Chris Zappone
Comments
Post has no comments.