A
Anonymous
Guest
From: Anonymous
How much further will property markets run?
Dec 21
Robert Harley
Back in 1989-90, every home owner's psyche was scarred by the bust that followed the boom. House price euphoria was followed by the pain caused by rampant interest rates.
Which is why the outlook for 2002 is so hard to grasp. After an epic boom - with prices soaring from Point Lookout on Stradbroke Island in Queensland to Mindarie on the coast north of Perth - the markets looks like plateauing, although prices may rise in places.
Interest rates show no sign of an upward spike; the economy is holding its surprising strength; and household formation - the fundamental driver of housing demand - is continuing apace.
Sure, pockets of oversupply and weakness exist, particularly in a number of apartment markets. Pointers to further weakness can be seen in the To Let signs on apartments in Sydney and Melbourne and the way the First Home Owner Grant scheme is dragging forward demand.
Buyers and sellers should take care in markets where FHOG is the major factor driving prices, and should realise that, while prices surged across the board in 2001, 2002 will be far more selective. A particular house, suburb or region will shine, while others will simply hold their own.
But overall the outlook for 2002 is surprisingly upbeat. The Reserve Bank Governor, Ian Macfarlane, sees signs that the housing market is cooling and he is right. It has moved from red hot in August to tepid in late October, and then up a notch in December to pleasantly warm.
"If the end of 2001 is any indication, 2002 is going to be a very strong year in real estate," says the president of the Real Estate Institute of Australia, Michael Davoren. "The keys are the low interest rate, the First Home Owner Grant and a general acceptance of real estate as a very attractive investment compared with its competitors."
But let's admit it, most of us picked 2001 wrong. "Things have not gone to expectation," says BIS-Shrapnel director Robert Mellor. "No-one would have expected interest rates to fall 2 percentage points. And after all that has happened to the economy, no-one would have expected it to be so strong."
Few realised what a significant impact the First Home Owner scheme would have - it injected $1.8 billion into the market. And we forgot that at some point in the cycle - earlier this year, as it turned out - investors would finally lose confidence in the stockmarket and turn to residential property with a vengeance.
The result was dramatic. Melbourne and Sydney, where prices had risen for years, kicked once again - and so did places such as the Gold Coast and Ballarat, which had not seen an upturn since 1989.
Melbourne has now had five years of price growth. According to the Home Price Guide, the median price of properties auctioned in Port Melbourne has risen from $182,500 in 1995 to $468,000. Similar huge gains, of 130 per cent-plus, have been seen at auctions in Albert Park, Coburg, Mt Eliza, Black Rock and Footscray.
"A lot of people think it [the Melbourne market] has peaked and cannot go any further," says the managing director of the property consultancy Charter Keck Cramer, Scott Keck. "But it can for the lower-priced inner urban houses on their own blocks of land and also for the million-dollar stuff in suburbs like Toorak and Hawthorn.
"Those values will continue to rise over the next 18 months to two years. There are simply more people to buy than ever before and you cannot build new blocks of land."
Sydney has seen similar gains. On the Home Price Guide numbers, the median price in Sandringham - a forgotten pocket of beachfront where the Georges River opens into Botany Bay - has risen from $222,000 in 1995 to $625,000 this year.
Also in the Home Price Guide's top 10 - all places with five-year growth of more than 130 per cent - are the inner-city precincts of Forest Lodge, the South African home-away-from-home of Dover Heights, Kogarah Bay (on the Georges River close to Sandringham) and Chittaway Point on the surprisingly strong Central Coast.
Sydney is not finished yet, according to the managing director of the consultancy LandMark White, Brad Piltz. "I think 2002 will be a lot better than people are predicting," he says.
"If we just focus on the number of household formations - 22,500 over the next four years - they will drive values. There may be oversupply in some places but others, like Sydney's eastern beaches, will not be able to supply enough stock."
The REIA's Davoren expects to see the house price cycle slow first in Melbourne and Sydney while it gathers pace elsewhere. If that is the case, buyers in other areas should be looking for those pockets of lower-priced inner urban or waterfront sanctuary that have proved so rewarding in the big cities.
After years of seeming stagnation, south-east Queensland is "just starting to go" says Davoren, and Gold Coast real estate agents are looking forward to the strongest January sales since 1989.
On the Home Price Guide numbers, some Queensland owners have already done very well. Since 1997, the median price in Shorncliff - a hamlet on the Moreton Bay mudflats - has almost doubled to $280,000.
It's the same low-price inner-city waterfront story. Other strong Home Price Guide performers - all with four-year price growth of more than 60 per cent - have been Amity Point and Point Lookout on North Stradbroke Island and, close to the city, South Brisbane, Woolloongabba and Fortitude Valley.
So what is going to stop this real estate run? A rise in interest rates? Weakening economic confidence? Investors becoming disillusioned with poor returns? Or simple exhaustion of demand as the country runs out of first home buyers?
Domestic housing rates look particularly benign. On average the 15 economists polled by Dow Jones for the Australia & New Zealand Economic Survey expect the Reserve Bank's key cash rate to be only 25 basis points higher in December 2002 than it is today.
But Australian rates may not be the trigger. "We are looking for signs of interest rate increases in the US because then an adjustment may not be far away," says Ray White Real Estate's chairman, Brian White.
At the same time, Sydney and Melbourne investors are experiencing a level of residential vacancies, and rental weakness, not seen since 1989. For some analysts, such as Gerry van Wyngen, that is a sign of price weakness to come.
LandMark White's Piltz has a different view. Sure rents are under pressure - he knows of an apartment on the north shore in Sydney where the rent has dropped from $550 to $450 a week - but with lower interest rates, investors can accept lower returns.
For BIS Shapnel's Mellor, the key to the future is just how much demand has been pulled forward by the FHOG. On average first home buyers account for about 110,000 loans a year but in the 12 months to June 2001 the figure was 127,000 and, according to BIS-Shrapnel, this financial year's number is soaring towards 150,000. "You would think that would be balanced out," he says.
Mellor believes 2002 could again surprise but this time on the downside. He still expects median price growth, perhaps 4 per cent, with Brisbane a little better, but he is downbeat. "There's not a lot of upside. You would have to say Melbourne is pretty well-valued and doesn't have much further to go (a different view to Keck's), Sydney has vacancy rates at 4 per cent, Adelaide is oversupplied and Perth has pockets of oversupply."
How much further will property markets run?
Dec 21
Robert Harley
Back in 1989-90, every home owner's psyche was scarred by the bust that followed the boom. House price euphoria was followed by the pain caused by rampant interest rates.
Which is why the outlook for 2002 is so hard to grasp. After an epic boom - with prices soaring from Point Lookout on Stradbroke Island in Queensland to Mindarie on the coast north of Perth - the markets looks like plateauing, although prices may rise in places.
Interest rates show no sign of an upward spike; the economy is holding its surprising strength; and household formation - the fundamental driver of housing demand - is continuing apace.
Sure, pockets of oversupply and weakness exist, particularly in a number of apartment markets. Pointers to further weakness can be seen in the To Let signs on apartments in Sydney and Melbourne and the way the First Home Owner Grant scheme is dragging forward demand.
Buyers and sellers should take care in markets where FHOG is the major factor driving prices, and should realise that, while prices surged across the board in 2001, 2002 will be far more selective. A particular house, suburb or region will shine, while others will simply hold their own.
But overall the outlook for 2002 is surprisingly upbeat. The Reserve Bank Governor, Ian Macfarlane, sees signs that the housing market is cooling and he is right. It has moved from red hot in August to tepid in late October, and then up a notch in December to pleasantly warm.
"If the end of 2001 is any indication, 2002 is going to be a very strong year in real estate," says the president of the Real Estate Institute of Australia, Michael Davoren. "The keys are the low interest rate, the First Home Owner Grant and a general acceptance of real estate as a very attractive investment compared with its competitors."
But let's admit it, most of us picked 2001 wrong. "Things have not gone to expectation," says BIS-Shrapnel director Robert Mellor. "No-one would have expected interest rates to fall 2 percentage points. And after all that has happened to the economy, no-one would have expected it to be so strong."
Few realised what a significant impact the First Home Owner scheme would have - it injected $1.8 billion into the market. And we forgot that at some point in the cycle - earlier this year, as it turned out - investors would finally lose confidence in the stockmarket and turn to residential property with a vengeance.
The result was dramatic. Melbourne and Sydney, where prices had risen for years, kicked once again - and so did places such as the Gold Coast and Ballarat, which had not seen an upturn since 1989.
Melbourne has now had five years of price growth. According to the Home Price Guide, the median price of properties auctioned in Port Melbourne has risen from $182,500 in 1995 to $468,000. Similar huge gains, of 130 per cent-plus, have been seen at auctions in Albert Park, Coburg, Mt Eliza, Black Rock and Footscray.
"A lot of people think it [the Melbourne market] has peaked and cannot go any further," says the managing director of the property consultancy Charter Keck Cramer, Scott Keck. "But it can for the lower-priced inner urban houses on their own blocks of land and also for the million-dollar stuff in suburbs like Toorak and Hawthorn.
"Those values will continue to rise over the next 18 months to two years. There are simply more people to buy than ever before and you cannot build new blocks of land."
Sydney has seen similar gains. On the Home Price Guide numbers, the median price in Sandringham - a forgotten pocket of beachfront where the Georges River opens into Botany Bay - has risen from $222,000 in 1995 to $625,000 this year.
Also in the Home Price Guide's top 10 - all places with five-year growth of more than 130 per cent - are the inner-city precincts of Forest Lodge, the South African home-away-from-home of Dover Heights, Kogarah Bay (on the Georges River close to Sandringham) and Chittaway Point on the surprisingly strong Central Coast.
Sydney is not finished yet, according to the managing director of the consultancy LandMark White, Brad Piltz. "I think 2002 will be a lot better than people are predicting," he says.
"If we just focus on the number of household formations - 22,500 over the next four years - they will drive values. There may be oversupply in some places but others, like Sydney's eastern beaches, will not be able to supply enough stock."
The REIA's Davoren expects to see the house price cycle slow first in Melbourne and Sydney while it gathers pace elsewhere. If that is the case, buyers in other areas should be looking for those pockets of lower-priced inner urban or waterfront sanctuary that have proved so rewarding in the big cities.
After years of seeming stagnation, south-east Queensland is "just starting to go" says Davoren, and Gold Coast real estate agents are looking forward to the strongest January sales since 1989.
On the Home Price Guide numbers, some Queensland owners have already done very well. Since 1997, the median price in Shorncliff - a hamlet on the Moreton Bay mudflats - has almost doubled to $280,000.
It's the same low-price inner-city waterfront story. Other strong Home Price Guide performers - all with four-year price growth of more than 60 per cent - have been Amity Point and Point Lookout on North Stradbroke Island and, close to the city, South Brisbane, Woolloongabba and Fortitude Valley.
So what is going to stop this real estate run? A rise in interest rates? Weakening economic confidence? Investors becoming disillusioned with poor returns? Or simple exhaustion of demand as the country runs out of first home buyers?
Domestic housing rates look particularly benign. On average the 15 economists polled by Dow Jones for the Australia & New Zealand Economic Survey expect the Reserve Bank's key cash rate to be only 25 basis points higher in December 2002 than it is today.
But Australian rates may not be the trigger. "We are looking for signs of interest rate increases in the US because then an adjustment may not be far away," says Ray White Real Estate's chairman, Brian White.
At the same time, Sydney and Melbourne investors are experiencing a level of residential vacancies, and rental weakness, not seen since 1989. For some analysts, such as Gerry van Wyngen, that is a sign of price weakness to come.
LandMark White's Piltz has a different view. Sure rents are under pressure - he knows of an apartment on the north shore in Sydney where the rent has dropped from $550 to $450 a week - but with lower interest rates, investors can accept lower returns.
For BIS Shapnel's Mellor, the key to the future is just how much demand has been pulled forward by the FHOG. On average first home buyers account for about 110,000 loans a year but in the 12 months to June 2001 the figure was 127,000 and, according to BIS-Shrapnel, this financial year's number is soaring towards 150,000. "You would think that would be balanced out," he says.
Mellor believes 2002 could again surprise but this time on the downside. He still expects median price growth, perhaps 4 per cent, with Brisbane a little better, but he is downbeat. "There's not a lot of upside. You would have to say Melbourne is pretty well-valued and doesn't have much further to go (a different view to Keck's), Sydney has vacancy rates at 4 per cent, Adelaide is oversupplied and Perth has pockets of oversupply."
Last edited by a moderator:
