Bank predicts modest house price growth

Posted on 30/06/2007  
Australia’s housing market is in for modest growth over the next 18 months amid subdued investor demand, according to Macquarie Bank’s 2007 Real Estate Market Outlook. Macquarie also expects moderate demand from owner occupiers, first for established housing and then for new stock.  


In 2007-2008, all Australian markets will be supported by improving economic conditions, a relatively moderate interest rate outlook, healthy wages growth and high levels of net overseas migration, Macquarie says. 

Expect Melbourne to outperform most capital city markets, with solid inward migration and relative affordability underpinning demand. However, as Macquarie predicted 12 months ago, Perth’s housing market has overshot the mark, after rising 40% in the year to September 2006 and another 20% to the end of the year, before tailing off sharply. Perth’s biggest problem now is declining affordability, putting WA’s capital city in the same place as Brisbane in 2003, when prices were rising at 43% a year.     

Brisbane’s housing market, which has slowed, will continue to stabilise, in part due to the closing of the gap between Brisbane house prices and southern capital cities. In Sydney, moderate growth will be limited to inner and some middle-ring suburbs. In the city’s western and south-west outer suburbs, there are signs that the labor market is stabilising, helping to reduce the twin problems of higher unemployment and forced sales. 

Macquarie has its own affordability index, which considers the portion of wages it takes to meet mortgage payments on the purchase of a median-priced house with a loan-to-value ratio of 75%.

“In every capital city except Perth, housing affordability is nowhere near the dire levels of the late 1980s, when it took 58% of wages to meet mortgage payments in Sydney,” the 2007 Macquarie Real Estate Market Outlook says. Macquarie’s report states that when factoring in interest rate increases in 2006, the average Sydney mortgage now consumes 39% of wages.  

Exceptionally low rental vacancy rates (below 2% nationally) are changing the dynamic in Australia capital cities. Subdued investor activity means the tight rental situation (rising rents and scarce letting opportunities) is likely to continue this year. Macquarie says the situation arose as a result of investors deserting the east coast markets just as many potential first home buyers became renters. 

As a result of the slowdown, (NSW construction levels are at 30-year lows) it is difficult to achieve sufficient pre-sales to attract construction finance. Macquarie sees little chance of a quick fix in Melbourne or Sydney, saying: “We expect solid rental growth in the high demand inner-city areas of Sydney and Melbourne to continue.”  

Macquarie says that investment housing construction is looking more feasible in Perth and South East Queensland. 



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