Australia's Property Market
Throughout 2009 we have seen that housing affordability has continued to improve.
Research has shown that it is at its most affordable since late 2003. It is also believed that this is due to low interest rates, rather than prices falling.
Currently, interest rates are around 5.54% which are likely to rise up to 7.54% in 2011 if current trends continue.
Demand for residential property has continued to increase thanks to attractive first home buyer's grants available as well as low interest rates. There has also been a lower level of vacancy which has pushed rents higher and in return is also attracting tenants into potential home ownership.
Following past trends, it is likely that we will see prices starting to increase in 2010 when there are signs of economic recovery.
Trends right across Australia are fairly consistent, so for the purposes of this article we'll look at the three biggest cities/states:
New South Wales (Sydney)
Following interest rate hikes in late 2007 and early 2008, we found that finance dropped in the first three quarters of 2008. Finance commitments fell by 27% in 9 months. Despite interest rates falling between September and December 2008, demand only lifted approximately 7%.
We saw in October when the Federal Government announced additional grants to the existing First Home Owners Grant that the market started to improve for the lower end of the market.
NSW also saw no stamp duty for properties under $500,000 and reduced rates for under $600,000.
By the final quarter of 2008 finance to first home owners increased by over 30%.
With low interest rates to continue throughout 2009 we saw house prices stabilising and expect interest rates to remain low into 2010.
Victoria (Melbourne)
Victoria's population growth continued to set new records throughout 2008 and grew by 1.8% or almost 93,000.
We saw house prices falling in some areas by 24% and investors also fell by 9%.
However we saw in the final quarter of 2008 and into early 2009 that house prices rose by 4%.
First home buyers moved into the market increasing finance commitments by 38%.
Although mortgage rates have fallen significantly, there still remains a short supply of dwellings to supply the demand of new people moving into the area.
Queensland (Brisbane)
Population grew by almost 98,000 people toward the end of 2008 and early 2009. This is the highest level on record since 1982. Much of this growth has been due to interstate migration.
There was a surge of FHOG with over 50% of people buying into the property market taking advantage of the grants available.
The measure of affordability using household income against repayments reached record highs in 2008 as mortgage rates reached almost 10%. When interest rates dropped in 2009, households were using 32% of their income to service an average mortgage.
So what does all this mean?
Regardless of where you are in Australia, the property market is following the same trends Australia wide. Top end properties may be taking longer to sell, and may also be taking a price dive, however the lower end of the market attracting first home buyers is booming.
With unemployment predicted to peak at 8 or 9 % in 2010, it could lead to trouble for the property market if interest rates were to increase. This is something that the Reserve Bank is aware of and another reason why interest rates aren't on the increase yet.
