RP Data is forecasting that improvements to the national housing market will continue at a slow pace in 2013, with values expected to rise in line with inflation at best. The forecast comes as figures reveal Australian home values fell for the second year in a row, marking the worst run for the national property market in 16 years.
RP Data reports that capital city dwelling values fell 0.4 per cent in 2012, following a 3.8 per cent fall in 2011. Home values continued to fall in 2012 despite repeated cuts to interest rates and subsequent reductions in mortgage rates.
“We have already seen that aggressive cuts to interest rates and subsequent reductions in mortgage rates are not resulting in the same response in the housing market as they have in the past,” says RP Data senior research analyst, Cameron Kusher.
“The main reason why consumers haven’t responded to interest rate cuts as they have in the past is that they are taking a more conservative approach to debt,” Mr Kusher said.
“Households have been saving around 10 per cent of their income for five years now and consumers repeatedly report that putting money in the bank and paying off debt is the wisest place for savings,” he said.
“When consumers are showing higher levels of pessimism they are likely to act more conservatively and save money rather than spend, particularly spending on high value assets such as houses.
The median price of a dwelling across the country is $483,000.
“Housing credit growth continues to grow at record low levels, however, there has been an increase in demand for housing finance over the second half of 2012,” Mr Kusher said.
The better news in 2012 was that national sales volumes improved over the second half of the year, albeit from a very low base, and that rental growth increased across most capital cities.
Across the country, capital city home rents increased by 3.0 per cent, house rents increased by 3.1 per cent and unit rents were up by 2.6 per cent. The level of discounting by vendors and the average time it takes to sell in 2012 also improved compared to 2011.
“It currently takes an average of 50 days to sell a capital city home and initial listing prices are typically being discounted by 6.3 per cent in order to make sale. At the same time in 2011, it took an average of 60 days to sell a home and they were typically being discounted by 7.2 per cent,” Mr Kusher said.
“The results show that there has been a noticeable improvement across these vendor metrics. Auction clearance rates also largely remained above 50 per cent each week throughout 2012, where as they were consistently below 50 per cent over the second half of 2011,” he said.
Mr Kusher said while pessimistic consumer sentiment had largely outweighed optimism for most of the past two years, there were some positive movements in consumer confidence readings more recently.
“It is looking more likely that we will see year-on-year value growth in 2013, following value falls in 2011 and 2012. However, in comparison to conditions that most have become accustomed to over the last 15-20 years, the rate of value growth is likely to disappoint,” Mr Kusher said.
“Overall we anticipate that the housing market performance will be slightly better than it was in 2012 throughout 2013. As always, individual capital cities will experience differing conditions,” he said.
“Conditions are likely to remain quite tough in markets such as Melbourne, Adelaide, Hobart and Canberra. On the other hand, value growth is more likely in Sydney, Brisbane, Perth and Darwin, albeit those values are still likely to increase in line with household income growth at the most.”
Mr Kusher expects conditions in regional markets to be again quite mixed, with regional markets linked to the mining and resources sector set to outperform those linked to tourism and lifestyle markets.
“Value growth in these resource sector markets is unlikely to be as strong as it was over the last year due to lower commodity prices,” he said.
“The tourism and lifestyle markets are largely unlikely to see growth in values. However, a number have seen value falls of more than 20 per cent and we feel that it is unlikely these markets will see any significant further value declines.”