ABS data puts some balance in debate over prices

Posted on 14/08/2008  

Property prices are higher now than a year ago in all state and territory capital cities, except Perth.

The latest data from the Australian Bureau of Statistics shows that the House Price Index for Adelaide is 16% above the same time last year, while Melbourne and Brisbane remain 14% higher than a year ago. Across the eight capital cities, prices have risen an average of 8%.

This follows the results for the June Quarter, which show prices rose (a little) in four of the state and territory capitals, and declined in four. Across the eight capitals the weighted average was a decline in the House Price Index of 0.3%.

The only cities with a significant downward trend in prices are Perth, still adjusting after its spectacular price boom, and Hobart.

The ABS House Price Indexes are the most reliable of the research sources on house prices and put some balance in the mix, following claims by one analyst that prices are trending seriously south and are likely to fall 10% across the board.

There's been an overwhelmingly emphasis in print media on analysts claiming a major downturn in residential property, including one research company which predicted a 1-in-100-year market slump.

Less column space has been given to the larger number of credible analysts who have forecast another rise in property prices in the near future. The various predictions have ranged up to suggestions of "the mother of all price booms" from ANZ Bank.

Most analysts have been more moderate in their predictions than ANZ, but basically agree that high population growth levels (boosted by big overseas migration numbers) at a time of a growing under-supply of dwellings is likely to continue to push up home prices. Analysts holding that view include BIS Shrapnel, Access Economics and CommSec.

In addition to the basic supply-demand equation (high demand through population growth versus low supply through under-building of new homes), positive factors pointing to a resilient property market include recent tax cuts, solid wages growth, the downward trend in petrol prices and strong indications from the Reserve Bank that the next interest rate movement will be a cut, possibly as early as next month.

The latest measure on consumer sentiment, the Westpac-Melbourne Institute index, showed a 9.1% rise in consumer sentiment, the third biggest increase in the past five years. This balances earlier surveys showing public confidence was waning.

Overall, the residential market is struggling with high levels of listings of properties for sale but few buyers. This is reflected in the general slowdown in price growth.

However, we are likely to see investors coming back into the market, given low vacancies, improving yields through rent rises and the general climate of a buyers market.

I don't expect anything more than moderate price growth in the next year or so, but nor do I expect a serious slump in the property market.


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