Housing market predicted to grow strongly

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Housing market predicted to grow strongly

Early signs are beginning to show that property markets are beginning to rise. Auction clearance rates are increasing in Melbourne and all early signs are pointing to some good growth numbers in the housing market.

Yes, residential property prices are rising. Yes, households are willing to carry high debt levels and, yes, property prices are historically expensive but this is not a price bubble.

According to the experts, most property markets are just in a typical bull-market phase, before an expected return to more modest price growth.

However, if you are a keen investor or want to get a first toehold in the market, now may be your best chance for a while. Bubble or just hot air, prices are heading up and are unlikely to fall.

“Next year house prices will go up a fairly solid rate — we’re looking at about 5 to 10 per cent over the year ahead but after that price increases will settle back down to more modest gains,” AMP chief economist Shane Oliver says.

Investment bank UBS is of a similar mind, lifting its residential price rise forecast to 10 per cent this year and another 5 per cent next year.

For would-be first home buyers, a 10 per cent increase could mean scraping together an extra $4000 to $7000 to meet the deposit requirements just to buy the same type of house.

For investors, it will mean jacking up the rental income by at least half that amount each year just to achieve the same return.

Either way — owner-occupier or investor — a 10 per cent jump, followed by another 5 per cent will mean an extra big mortgage burden, regardless of current low interest rates, compared with prices today.

According to Dr Oliver, house prices are already expensive in most markets, with the average cost now equal to six times annual net household income.

This compares with a traditional level of house prices at three times after-tax household income. But he says that doesn’t mean the market is in a bubble.

“Yes, house prices are overvalued and prices are still rising but they are not rising at bubble pace,” Dr Oliver says.

“In cities like Melbourne and Sydney, auction clearance rates are high but then we still don’t have a high number of transactions. The volumes are still a bit low and nowhere near boom-time levels. And most of all, I don’t see any of the frenzy that you have when a bubble is on.”

However, a flurry, if not quite a frenzy, may not be far away.

THE election result is expected to be the main trigger for a surge in confidence, with the key to the outcome being a decisive result for one party and not a minority government.

David Morrell, director of buyers advocacy firm Morrell and Koren, also says the election is holding back momentum.

“Talk of a bubble pre-election is rubbish. Everyone is clearly cooling their jets at the moment. There are no runaway results or evidence of a bubble,” Mr Morrell says.

“Most vendors, or would-be vendors, are waiting for the election to get some direction. And in my view there will be a window of confidence post-election but how long that’s going to last is not known.

“However, we have seen evidence of investors and self-managed super funds shying away from equities and that’s likely to cause a stir in the property markets.

“Obviously, if you’re buying as an investor out of a super fund then you’ve got a bit more fire power than a young couple gearing themselves up. But anyone talking of a bubble now is taking rubbish, they’re delusional.”

Mortgage Broker What If We Finance believes the property market is on the rise but tree is no sign of a bubble at the moment. As spring approaches and more houses are placed on the market this will be the real test. 

Higher prices at the start of the year were largely driven by lower supply of houses on the market.

The spring selling season will provide some interesting insights and now may eb a time to act and buy in to the property market before prices move.

 

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