Bubble fears dismissed
Economists have shrugged off fears of a housing bubble and point to rent increases as a key driver of property growth over the next 18 months.
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'Until you see decent wage growth, it's going to be very difficult for first home buyers entering this property market, given the property prices that we've seen,' CommSec economist Savanth Sebastian told AAP.
Mr Sebastian said home buyers were likely to delay the purchase of their first home until wages growth improved.
He expects five to eight per cent residential property growth in 2010 and around the same growth in 2011.
'Over the next 12 months we still believe that property will be a good investment because of strong population growth, job security and we're expecting trend or above trend growth for the Australian economy and wage growth will certainly factor into the mix over the coming 12 months,' Mr Sebastian said.
He said the nation was now seeing a consolidation in property prices which would continue into 2011.
'I think what will drive the market higher is going to be rental yields, with rents forecast to rise quite sharply.'
Commsec says the proportion of first home buyers entering the residential property market has almost halved from its high of 28.5 per cent in May 2009 to reach a six-year low of 15.3 per cent in August this year.
It comes as Australian city home prices were virtually unchanged in September this year while city dwelling values fell 0.4 per cent in the quarter, according to the RP Data Rismark Hedonic home value index, released on Friday.
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Westpac has rebuked predictions of a housing bubble, saying Australian house prices were being sustained by supply shortages not 'speculative excess'.
While housing may be relatively expensive, affordability was 'not as stretched' as some estimates suggest, the bank said in a statement.
'Affordability measures that take into account all dwelling types, after-tax income and financing costs show prices have broadly tracked income growth since 2003,' Westpac economists said.
Typical mortgage repayments were above long run averages as a proportion of income, but still well below the peaks seen in the late 1980s and in 2007-08.
Westpac says a bubble would have been 'very unlikely' to have survived the stress test of 2008 during the financial crisis.
Westpac chief economist Bill Evans said pricing and affordability reflected imbalances which emerged over the past decade as new building failed to keep pace with strong increases in demand.
'Australia's population growth has nearly doubled, yet we're building more or less the same number of new dwellings each year,' Mr Evans said.
'The shortage is acute and is likely to worsen.'
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