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.

Compare Australian Balance Transfer Deals

Related posts

• Suncorp In Talks To Sell LJ Hooker Unit (0)
• No Last Minute Rush To Take Advantage Of Federal Home Loan Grant (1)
• NAB Australian House Price Survey Suggests Sentiment Weak (0)
• Moody’s Says Outlook For Australian Mortgage Backed Securities Stable (0)
• Investors Expected To Become Key Driver In Australian Property Market (0)

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.

Compare Australian Personal Loan Deals

Related posts

• Suncorp In Talks To Sell LJ Hooker Unit (0)
• No Last Minute Rush To Take Advantage Of Federal Home Loan Grant (1)
• Moody’s Says Outlook For Australian Mortgage Backed Securities Stable (0)
• Investors Expected To Become Key Driver In Australian Property Market (0)
• Australian Residential Property Prices Increasingly Unaffordable (0)

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.”

Compare Australian Home Loan Deals

Related posts

• Suncorp In Talks To Sell LJ Hooker Unit (0)
• No Last Minute Rush To Take Advantage Of Federal Home Loan Grant (1)
• NAB Australian House Price Survey Suggests Sentiment Weak (0)
• Moody’s Says Outlook For Australian Mortgage Backed Securities Stable (0)
• Investors Expected To Become Key Driver In Australian Property Market (0)

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.

Compare Australian Home Loan Deals

Related posts

• Wizard Founder Pushes For Publication of Bank Funding Cost Benchmark (0)
• Westpac Strongly Defends “Excessive” Rate Hike (0)
• Westpac Executives Come Out Swinging In Defense Of Rate Increase (0)
• Westpac Defends Excessive Rate Hike (0)
• Westpac Chief Believes Interest Rates Have Bottomed And Outlook for Australian Economy Improving (0)

According to the Housing Industry Association/Commonwealth Bank affordability index, the average first home monthly mortgage payment rose by 4 per cent to $2629 in the first quarter of the year, rising by $786 from the same period in the previous year.

The index was compiled using data before the Reserve Bank of Australia tightened interest rates by a further 25 basis points at the start of April, and including the hike in May, means the index is based on data which is 50 basis points lower than today’s borrowing cost.

It is more than likely that when the index is next published in June, that housing affordability will be at record low levels.

“With the Reserve Bank insistent on further rate rises, housing affordability will once again be a key issue in the mortgage belt regions of Australia,” Ben Phillips, senior economist at HIA said.

Housing prices in Australia continue to surge despite the fact that the central bank has raised interest rates six times since October last year, many analysts believe that the gains are a result of a supply shortage, or demand and supply mismatch.

Data released yesterday by property market analyst Residex showed that Australian house prices rose by 13.9 percent in the past year.

The HIA which acts as a lobby for the building industry warned that unless the government undertakes strong measures, housing affordability will continue to decline.

“Higher interest rates, exorbitant infrastructure charges, an overly restrictive and time consuming planning system continue to fuel Australia’s affordability crisis.

Overcoming these issues will go a long way towards restoring housing affordability in Australia.” Mr. Phillips said.

Compare Australian Home Loan Deals

Related posts

• Investors Expected To Become Key Driver In Australian Property Market (0)
• Australian Property Market Continues To Recover (0)
• Australian Housing Increasingly Unaffordable (3)
• Wizard Founder Pushes For Publication of Bank Funding Cost Benchmark (0)
• Westpac Strongly Defends “Excessive” Rate Hike (0)

The Australian Bureau of Statistics (ABS) says that house prices rose by 4.8 percent during the last quarter. Melbourne home values grew the most rising 6.7 per cent whilst Sydney house prices rose by 5.3 per cent.

That takes the annual growth rate to 20 percent in the 12 months to the end of March 2010.

The figures increase the likelihood that the central bank the Reserve Bank of Australia (RBA) will tighten interest rates when it meets again today.

The RBA says it is worried about the impact of inflation and the threat of a property market bubble, as demand for housing outstrips supply.

Last week market analyst Australian Property Monitors (APM) suggested that housing prices has risen 16 per cent over the last year, and that the average home now costs $542,000.

The average house price in Sydney was the highest in the nation, costing $609,353, whilst according to APM, Melbourne housing prices grew the most, surging 27 per cent in the last 12 months.

Perth and Brisbane were the only two state capitals to register growth below 10 percent.

APM says it believes that housing prices with register growth of between 8-10 percent over the next 12 months.

Last week the National Housing Supply Council (NHSC) said the difference between housing demand and the supply of units had grown by 100,000 over the last year, and issued a stark warning, by saying that Australia needed to build at least 300,000 new properties to be able to meet demand.

“There is a very, very substantial increase in population. It’s just simply unmatched on the production side of the housing market. It defies the laws of economics. It’s not what should be happening in any well-run marketplace, but it’s certainly what’s happening in Australia and we need to understand a whole lot better why.” said Dr Donald Owen, NHSC chairman.

Compare Australian Home Loan Deals

Related posts

• Australian Housing Increasingly Unaffordable (3)
• Westpac Thaws Frozen RMBS Market (0)
• Westpac Executives Come Out Swinging In Defense Of Rate Increase (0)
• Westpac Defends Excessive Rate Hike (0)
• Westpac Chief Believes Interest Rates Have Bottomed And Outlook for Australian Economy Improving (0)

The survey suggests that the decline in affordability was not limited to a single city and was felt in all the major Australian cities as well as regional areas.

Affordability fell by 18.4 per cent during the December quarter and was a remarkable 22.3 per cent lower than a year earlier.

The association’s senior economist Ben Phillips said prior to the December quarter, first home buyers had a small window of favourable affordability conditions to enter the market.

“The window is now closing with affordability retreating to 2008 levels when interest rates were significantly higher,” HIA’s Ben Phillips said whilst releasing the report on Monday.

The HIA expects that there will be a moderate recovery in the housing market this year, and is forecasting 152,000 starts in 2010, which is still well below the 190,000 starts required to keep pace with the country’s population growth.

“Without the required new home building to keep up with underlying requirements, house prices and rents are expected to continue pushing upwards through 2010,” Mr. Phillips said.

Housing policy must be “front and centre” of debate heading towards the federal election, likely later this year.

Compare Australian Home Loan Deals

Related posts

• Westpac And NAB Lift Rates In Line With RBA (0)
• RBA Lifts Rates For Second Time In 2010 (0)
• NAB Sparks Home Loan Price War (0)
• NAB Embarks On Aggressive Mortgage Lending Strategy (0)
• Major Lenders Not Expected To Raise Rates Out Of Synch With RBA (0)

AFG, which says it wrote as much as 10 per cent of all Australian residential mortgages last year arranged the finance for as much as $650 in property investor loans in December.

Speaking to The Australian, AFG’s general manager, Mark Hewitt said that property investment accounted for nearly $6.5 billion of mortgage approvals during December.

Mr. Hewitt added that compared with the previous three months in the run up to December, the end of the year was a relatively quiet month.

Mr. Hewitt says AFG arranged $ 3 billion worth of home loans during September, compared with December where it helped source financing for home loans totaling $1.9 billion.

“We’ve been warning for months that three rate rises in a row was overkill for a vulnerable market, and the latest figures confirm our fears. We saw a 20 per cent fall last month, compared with an 8 per cent fall in (the corresponding month in) 2008.”

Mr. Hewitt says he believes that the market will begin to become more active in February and that investors rather than first home buyers will be the key driver for the market.

“We don’t expect first-home buyers to be as active as in 2009 when they were driven by various government grants to buy their homes. The first-home buyer market peaked in 2009.”

Mr. Hewitt added that property investors account for some 34 per cent of all mortgages whose finance was sourced through AFG, compared with 25 per cent in the previous year.

“I expect the figure to continue to rise to around 38 per cent, and possibly 40 per cent, which would be a record level. Investors are returning to property investment. They have been coming back since the middle of last year to take advantage of a tight rental market.”

Compare Australian Home Loan Deals

Related posts

• Australian Property Market Continues To Recover (0)
• Australian Housing Increasingly Unaffordable (3)
• Australian Housing Affordability At Record Low Levels (0)
• Wizard Founder Pushes For Publication of Bank Funding Cost Benchmark (0)
• Westpac Strongly Defends “Excessive” Rate Hike (0)

Detached home sales rose by 0.8 per cent, but that increase was offset by a 4.9 per cent fall in multi-unit sales.

Harley Dale, chief economist for the HIA says the moderate increase in detached home sales suggests that investment properties and owner occupied upgrades did not provide the same level of strong support for volume builders as they usually do.

“The multi-unit sector, meanwhile, continues to look extremely weak as the medium/high density end of the sector faces an ongoing lack of available credit. This situation does not auger well for an easing in very tight rental market conditions over 2010.” Dr Dale said in a statement.

Leading indicators have suggested that there will be a recovery in the construction of new residential properties this year. However the new home sales result, according to Dr. Dale shows that a broader based recovery is required.

“A big question mark hangs over the magnitude and sustainability of the recovery. There are a considerable number of obstacles blocking the prospect of a strong up-cycle in new home building including costly planning delays, the re-emergence of land and skilled labour shortages and rising interest rates. “ he said.

Compare Australian Home Loan Deals

Related posts

• Australian Housing Increasingly Unaffordable (3)
• Australian Home Prices Surge By 20 Per Cent (0)
• Westpac To Up The Ante In War For Australian Term Deposits (0)
• Westpac Thaws Frozen RMBS Market (0)
• Westpac Executives Come Out Swinging In Defense Of Rate Increase (0)

First time mortgage borrowers declined to 20 per cent in September, compared with 20.9 per cent in August, according to the Australian Finance Group (AFG) Mortgage Index.

The proportion of first time home buyers has declined from its peak level of 28.1 per cent in March.

Mark Hewitt, AFG’s general manager for sales and operations said that there was no rush by first time home buyers to take advantage from the extended subsidy before the deadline expires on September 30th.

“There was a lot of anticipation about a surge of first home buyer activity in September – but this never materialized. It suggests that most of the demand had already been pulled forward as a result of speculation prior to the federal budget that the increased grants would not continue.” Mr. Hewitt said.

As part of its fiscal response to the global economic slowdown and threat of recession tripled the subsidy made available to first time home buyers purchasing brand new properties to $21,000, and doubled it for those purchasing existing homes to $14,000.

In May, the Federal Government extended the increased subsidy for an additional 3 months, ending on September 30th, after which it would be phased downwards from the 1st of October.

From October 1st the subsidy will be revised downwards to $14,000 for brand new homes, and $10,500 for existing homes, and from December 31st, the subsidy will be scaled back to $7,000 for both categories.

Mortgages written by AFG hit a record average of $360,000 in September, up from the previous high two months earlier of $354,000.

The increase in average home loan value reflects the general trend of increases in consumer confidence and property prices the mortgage broker said.

The index said the share of investment loans rose to 29.8 per cent in September from 27.1 per cent in August, signaling a return of confidence amongst property investors.

Compare Australian Home Loan Deals

Related posts

• Australian Property Market Surges During June Quarter (0)
• Australian Property Market Continues To Recover (0)
• Australian Housing Increasingly Unaffordable (3)
• Westpac Strongly Defends “Excessive” Rate Hike (0)
• Wayne Swan Warns Banks Not To Raise Interest Rates In Excess Of RBA Rate Hike (0)