what's happening in our housing market?
19 Dec 2011
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money
Investing in residential property has been a popular way for Australians to build long-term wealth but like everything there is a time for growth usually followed by a period of slowing down. So what’s on the horizon - will property prices boom again?
There is no simple answer because every property is different and its value depends on its location, individual characteristics and local demand. For instance, in the 12 months to September 2011, house prices fell in all capital cities with the biggest losses being in Brisbane (-5.2%), Darwin (-4.4%) and Perth (-4.2%). Nationally, over the course of the year to September, house prices decreased by 2.2%.
Will we get another upturn in prices?
Prices are all about supply and demand and government forecasts suggest we are not building enough new homes to keep up with demand. Rental vacancy rates of below 2.0% nationally are very low and as rents increase, demand for investment property may increase.
Is housing affordable?
Even with assistance packages new home buyers are finding housing still too expensive. Housing affordability has been falling since 2000 and is at its lowest level since the early 1990s when interest rates were in the high teens. With lower interest rates and some slight easing in housing prices, affordability has improved slightly but with uncertainty around interest rate movements first home buyers are wary.
Is housing overvalued?
Compared to average wages, average house prices are very high. In Sydney, for example, average cost of house prices was 4.5 times average income in 1986 but was over 6.2 times by mid-2010. All other capital cities have experienced a similar sharp rise in this multiple particularly since 2001.
Is property attractive to investors?
Average rental yields for 2011 were around 4.3% for three bedroom houses and around 5.4% for units, however, this level of return is not attractive unless capital gains are more probable.
Will superannuation make a difference?
With the significant tax advantages available to superannuation, investors may consider super to be relatively more attractive than residential property and move their money to super. As usual it all depends on the individual investor.
Whilst there may be local residential property opportunities available, the conclusion seems to be that housing in Australia is over-valued and there may be better opportunities in overseas property or in other asset classes.
Sources:
http://www.facs.gov.au/ “National Housing Supply Council State of Supply Report 2008” (Chapter 2, Demand)
www.abs.gov.au “House Price Indexes: Eight Capital Cities” (6416.0 March 2011)
www.abs.gov.au “Labour Force, Australia, Feb 2010” (6202.0 February 2010)
www.demographia.com “6th Annual Demographia International Housing Affordability Survey: 2010”
www.rpdata.com “RP Data – Rismark Home Value Index (20 March 2011)