What's in store over the next three years
Despite a year characterised by ups and downs, our property market has remained relatively strong and stable. PMI's Annual Property Overview report highlighted both sides of the story for owner-occupiers, investors and renters alike.
Strong economic conditions in 2007/08 are expected to support continued price growth in most capital city residential markets. The favourable economic conditions have created strong wage growth and record levels of net overseas migration, which should drive stronger underlying demand at the national level while keeping unemployment at long-term low levels.
The economy looks set to exceed its speed limit, and a pick-up of inflation and a further interest rise (or rises) seems inevitable.
Affordability remains an issue. Interest rate increases totalling 0.75% in 2006 continue to place a strain on households at the margins. While growth in the median house price has been apparent in the eastern states (with the exception of Sydney), this does not reflect the weaker conditions in many of the outer suburban areas, where households are more highly geared and influenced by interest rate rises. With the Reserve Bank of Australia maintaining a tightening bias toward interest rates, aspiring homebuyers are likely to delay their purchase or seek more affordable housing.
Economic growth is likely to begin slowing toward the end of 2008/09 as the boom in resources investment begins to taper off. Together with a forecast interest rate rise in the first quarter of 2008, this will have a further moderating effect on price growth during the year. However, solid underlying demand across the board and a deficiency of dwelling stock in all markets is expected to maintain upward pressure on prices. The economic slowdown is also forecast to prompt a loosening of monetary policy in 2009/10, which could support further price growth.
Strong economic conditions in 2007/08 are expected to support continued price growth in most capital city residential markets.
It is expected that the residential markets in Perth and Darwin will be most affected by the decline in mineral investment during the forecast period. Affordability issues have already come to the fore in Perth as first homebuyer demand has weakened considerably, and the median house price fell in June quarter 2007. Darwin also appears to be heading toward an affordability threshold. As a result, house values in Perth are projected to decline by 5% in the three years to 2009/10, while Darwin is anticipated to see a fall of 1.2% during the same period.
However, in the other capital cities, a projected 0.25% fall in interest rates over 2009/10 is likely to improve affordability and promote activity. House price growth in 2009/10 is forecast to increase in Sydney, Melbourne and Canberra, while remaining solid in Brisbane, Adelaide and Hobart.
Conclusions
* Rental market tightening, rents accelerating (but yields still low). Rental pressure emerged first in Brisbane, now in Sydney and Melbourne.
* Affordability to remain a constraint - especially in Sydney and now Perth. Price rises to be more aligned with wages growth.
* Jobs growth to slow in FY2009, but cycle in residential building to pick up.
The information in this report has been sourced from the PMI Australia Property Report, which is produced in conjunction with BIS Shrapnel. A full copy of the report can be downloaded from PMI's website www.pmigroup.com.au
