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Australian Residential Property Prices Increasingly Unaffordable
Though it may be far easier to find a job in Australia, it is expected that being a home owner is expected to become more difficult.
As Australia moves into an environment of declining unemployment, house prices and interest rates are rising, and some analysts say this points to signs that house prices are going to become increasingly unaffordable during the next few years.
Last week the results of housing surveys that were released suggested that residential property prices may rise by as much as 20 per cent during the next three years in cities such as Adelaide, Perth and Sydney, with other state capitals expected to post more moderate growth.
Whilst property prices continue to rise, many economists are predicting that the unemployment rate will decline to as low as four per cent, and interest rates may even exceed even nine per cent.
Rob Mellor, managing director of BIS Shrapnel says that the strong economy, low unemployment and robust growth in incomes is expected to produce steady growth in residential property prices.
“The big risk is affordability, that’s the part of the equation that certainly suggests over the next three years affordability will become a major issue.” Mr. Mellor said.
Strong migration trends and tight housing supply were a drivers for growth in residential property prices in Sydney, whilst the impact of the resources boom were expected to drive property prices in Perth Mr. Mellor said.
“Affordability will deteriorate as we go to a higher interest rate environment by 2013, It will deteriorate back to the sort of poor affordability that we had during 2008, when interest rates got to 9.5 per cent. So it’s certainly a negative.” he said.
Mr. Mellor says that affordability will continue to remain a serious issue as mortgage payments as a percentage of income rises.
“It will be a critical issue over a three year period, we do expect interest rates to rise in 2011/12. They’ll probably be back at around 8.3 per cent or so by June 2012 and more like 9.1 per cent by June 2013.” He said.
According to data released by the Australian Bureau of Statistics (ABS), nearly 50,000 full time jobs were created in September, keeping the unemployment rate at 5.1 per cent.
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NAB Australian House Price Survey Suggests Sentiment Weak
According to the results of a new survey, prices of houses located in Australian capital cities are set to remain weak.
The survey which was commissioned by National Australia Bank found that the average expected annual price rise 1.5 per cent during the September quarter.
The results are similar to the result obtained during the June quarter survey, but down significantly from the 6.0 per cent expected average rise recorded during the March quarter survey.
House prices in Canberra posted the highest expected gain of 5.0 per cent, whilst Brisbane posted the weakest expected gain of just 0.1 per cent.
According to the results of the survey, houses with a price of less than $500,000 were expected to post the biggest rise in prices, whilst those with a price tag in excess of $2,000,000 were expected to appreciate by the least.
Overseas buyers were expected to account for 5 per cent of existing property purchases and 7 per cent of new development sales, down from 9 per cent in both segments during the June quarter.
Rising interest rates and access to credit were listed as the top reasons for constraining demand, although current prices levels and economic uncertainty were also significant.
The survey results suggest that residential property was the best performing category, with all other categories performing only reasonably.The survey also found residential rents were expected to rise by “around 2.5 per cent” over the coming year on average across Australia.
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Ageing Population Likely To Moderate Australian Property And Stock Prices
According to the Switzerland based Bank of International Settlements (BIS) the pace at which Australian house prices appreciate will slow down, and in about 40 years will be about 30 per cent less than they otherwise would have been, largely as a result of an ageing population.
The results of the study also suggest that as the population begins to retire and starts living of their capital accumulated, which will also result in declining equity prices.
The study did however reject the assertion that retiring baby boomer’s will result in a crash of asset prices, but did say that capital appreciation will become much more difficult to achieve.
The study, which sought to examine the impact of an ageing population globally, suggests Australian property prices had up till now been the fourth fastest growing in the world during the last 40 years growing by just under 200 per cent during that time frame.
Spain and the UK, two markets where house prices had tripled during the same time frame have also suffered price crashes in the last couple of years.
The BIS also added that if a house price crash occurred in Australia, it would not be as a result of demographic factors alone.
“They suggest that in the next 40 years, house prices in advanced economies will face a more difficult environment than in the past 40 years,” the study says.
The bank says that changes to demography will not dictate prices in the property market, but does have the ability to influence the. The study suggests that demographic factors helped propel Australian property prices up by 33 per cent higher than they otherwise would have been from between 1979 and 2009.
The study also suggests that the pressure on property prices will also have an effect on equity prices, by as much as a full percentage point and is likely to occur far more rapidly than the impact on property prices.
“Ageing is likely to affect future asset prices substantially negatively, though asset price declines, let alone a meltdown, are unlikely,” the study says.
“Advanced economies, households, private institutions and the public, have accumulated substantial debt in the past few years. The results suggest that the assets financed by this debt could come under long-run pressure.”
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Australian Housing Grows More Unaffordable
According to the findings of a new report, housing in Australia has gotten increasingly unaffordable over the last year, with first time buyers needing stump up 10 per more for a deposit.
The report which was released by Bankwest suggests that a couple in Australia now needs to raised $85,800 as a deposit for a median priced home, which compares with $78,100 just a year earlier.
It now takes 4.5 years for a young couple to save enough cash for a 20 per cent deposit on a new home, up from the 3.7 years the report predicted last year.
The major cities experienced and even more acute situation with buyers in the more expensive parts of Melbourne, Perth and Sydney having to spend as long as a decade saving up for deposits just to be able to enter the property market.
Saving for how that was priced in the median range requires less effort with first time buyers needing at least four years to save the $76,900 deposit.
Saving for a median-priced unit was marginally less daunting, with first-home buyers needing to find $76,900 for a deposit – a four-year task.
Bankwest Retail chief executive Vittoria Shortt said a growing army of first home buyers were being locked out as established property owners benefited.
“This is the stark reality of a strong Australian property sector,” she said.
Still, home borrowers are likely to have some relief on Tuesday.
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