Economic growth is expected to support residential prices this year, resulting in increased turnover, particularly from owner-occupiers, according to a report released this week by PMI Mortgage Insurance Ltd (PMI).
Findings from the PMI Residential Property Update for the December 2005 quarter reveal that the robust economy will support residential prices in 2006, as business investment spending begins to pick up, taking over from the recent consumer-led growth.
With only a modest rise in interest rates forecast in the June quarter 2006, market confidence could begin to pick up through the year, resulting in increased turnover, particularly from owner-occupiers in the first half of 2006.
The findings also revealed that modest increases in prices in Perth, Brisbane and Darwin over the next 12 months are expected, with the economies in these markets driven by a booming resources sector.
Little change is expected in prices in Sydney, Melbourne, Adelaide, Canberra and Hobart.
An expected interest rate rise in mid 2006 could result in modest price declines in most capital city markets during 2006/07. Across most states, finance for owner occupied dwelling has begun to lift compared to previous years, supported primarily by a resurgence from first home buyers.
Chief Executive Officer of PMI, Ian Graham, said that as interest rates are forecasted to rise marginally over the next year, the impact for home buyers is likely to be modest.
"Not withstanding this, home owners are still in a strong position to maintain mortgage repayments on their homes due to low unemployment. Further improvements in affordability are expected to bring first home buyers back into the market", Mr. Graham said.
Rob Mellor, Director, Building and Construction of BIS Shrapnel said that "in 2005, residential housing prices nationally did not rise. In fact, the cities of Sydney, Melbourne and Canberra recorded price declines while Perth and Darwin showed solid growth in the first nine months of 2005. The increase in interest rates should further limit the ability of any further price rise."
The December 2005 PMI Residential Property Update is produced by PMI in conjunction with BIS Shrapnel. The key findings of the December 2005 PMI Residential Property Update are:
New South Wales
Affordability constraints in New South Wales have been reflected in weaker demand and below average financial activity. Prices are expected to decline further over the next 12 months as the small stock deficiency relieves any previous pressure on prices. Sydney's median house price fell by 4.8% to $495,000 in the year to June quarter 2005, and this trend continued with a further fall of 2.6% to $487,000 in the September quarter.
Victoria
Prices in the Melbourne residential market fell slightly in the year to June 2005. This continued into September quarter 2005, with the median house price of $360,000 being 1% below the June quarter median.
Housing prices in Melbourne are expected to stabilise in the short term as solid economic conditions offset the negative impact on demand, particularly in the inner Melbourne apartment market.
Queensland
The sharp rise in Brisbane's median house price (a 92% increase in the three years to June 2004) slowed during 2004/05 to grow by only 1.7% to $312,500 by June 2005, and declined marginally to $310,000 in September quarter 2005.
With strong demand still in the market as a result of high levels of migration, the September quarter median is likely to be upgraded and there will still be some scope for further modest rises of 4-5% in the next year. However, affordability issues are expected to prevent more substantial increases.
South Australia
Growth in Adelaide's median house price was lower in 2004-05 than the previous year, although the region still recorded the third highest growth of 8% compared to other state capitals in the same period.
Price growth is expected to be limited in the short term with no strong population growth to drive demand.
Tasmania
Hobart's median house price nearly doubled between June 2002 and June 2004, benefiting from the complete reversal of a persistent net interstate migration outflow to a net inflow over these two years.
Without the employment drivers necessary to encourage a continued high net migration inflow however, the scope for further growth is expected to be limited.
ACT
Canberra's median house price has dropped by 5% over 2004/05 as high construction and weakening demand has affected dwelling prices. This is expected to continue to influence prices over the next 12 to 18 months, highlighted by the September quarter 2005 median of $350,000 being a further 1% below the June quarter median.
Northern Territory
Although Darwin house prices have been relatively weak in recent years, a booming resources sector is encouraging demand and price growth. This has been highlighted by the 36% growth in the median house price in the last two years and the 7% growth to $300,000 in the September quarter 2005.
This trend is expected to continue with further price growth of 12 to 13% expected over the next 12 months.
