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No drop in site – expert says housing prices set to rise

With interest rates at an all time low and signs of life in the global stock markets, we often hear now’s a good time to invest in property. But just what is your home, or the one you’ve got your eye on, really worth?

To get a full run down of where property prices are right now and where they’re probably headed, Peter Switzer spoke with Robert Mellor of BIS Shrapnel.

Mellor, who has been ‘counting houses’ for the statistics business BIS Shrapnel for close to three decades, has a very positive outlook for our precious property assets.

Growth to continue

Mellor denies the popularly held belief that once the boost to the First Home Owners Grant drops, prices will follow, and instead tips that the modest growth of the last four months was not simply a passing trend. He cites positive signs it will continue even once the incentives expire, pointing out the bust wasn’t as bad as initially anticipated.

“Compared to six months or nine months ago, people are probably taking a big sigh, saying, ‘gee, it wasn’t as bad as we expected’. Property prices haven’t fallen through the floor, they’ve stabilised. We’ve even seen some modest prices growth in the last three to four months, and I think there are positive signs that that’s going to continue beyond even the end of this calendar year when this first homebuyers scheme ends. We’ll just see modest price growth across the board probably through to the middle of next year and possibly beyond that.”

Mellor predicts a rise in growth of above five per cent for 2010-2011, and up to a 10 per cent rate in the next two or three years time, particularly in the Sydney market.

While Mellor acknowledges some odd markets in Queensland and Western Australia where mining investments might have been cut back could suffer price declines thanks to dwindling populations, “…with the exception of those, really in the major capital cities, the likelihood of prices declining now are really fairly minimal.”

He continues: “We are through the worst. The next disaster that we’ll be worried about is really high interest rates somewhere down the track.”

City prices

In the cities, Mellor says Sydney will continue to be a stand out market. Looking around the country, this is what Mellor expects city by city:

  • Sydney is tipped to be rising by seven to eight per cent per annum in two years from now and might peak around 10 per cent growth. Over four to five years there could be 35 per cent growth! This is a very under-supplied market given its stock of properties and the population growth as well as tightest vacancy rates in the country. Mellor says you have to wonder where all of these people are living!
  • Melbourne will be sluggish over the next year, but then he sees a period of three years or so at five to eight per cent growth. “I think will do quite well,” says Mellor, “in Melbourne, you’d have to say, ‘what recession?’”
  • Hobart not as strong as Melbourne but a three to four per cent average growth was expected.
  • Adelaide is seen as a bit of a surprise to market watchers and Mellor thinks five per cent growth per annum over a five-year period is on the cards.
  • Perth has a question mark because it went up 200 per cent in a seven-year period! Price growth is expected to be modest but the market is not over-supplied and he thinks a four to five per cent increase per annum is still likely.
  • Darwin has been a great out-performer but Mellor says the stats are not as readable there. He still expects out-performance for the capital of the Northern Territory.
  • Canberra will depend on the Rudd Government’s plans for the public service and Mellor thinks there could be some price restraint in the nation’s capital. However, it has been a great market for landlords or property investors.
Building the future

Mellor’s key focus is on construction, tipping it will kick in to ramp up the economy.

The last decade has seen an average of 150,000, but March forecasts from BIS Shrapnel see dwelling commencements rising from a staggeringly low 130,000 to an acceptable 160,000 in 2009/10.

Mellor says, though, this is still not enough to copy without increasing population, and that a safe number is closer to 170,000.

He is confident this boost is on the way, citing that the growth rate in loans for the construction of new dwellings (up 35 per cent) hasn’t had the time to show up in building figures yet.

While owner-occupiers are fuelling this growth, Mellor says the big question is: how long before you see investors back in the market?

First timers

Federal government incentives have been heeded by hoards of first timers – with a 90 per cent spike in first homebuyers. But what will happen when the First Home Owners Grant returns to its established point in October?

Mellor denies the popularly held belief that once the boost drops, prices will follow. He tips that the modest growth of the last four months was not simply a passing trend, citing positive signs it will continue even once the incentives expire.

“It’s not just additional funding,” says Mellor. “It’s also low interest rates, the lowest interest rates in 40 years. Interest rates are not going to go up tomorrow.”

Mellor says they may rise in the second half of next year, at the earliest.

“There’s still going to be significant numbers of first homebuyers in the market this time next year … Compared to what we’ve had in the last five years or so, these are very strong numbers.”

 

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, August 14, 2009

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