Newsletter June 2010

After a very buoyant first quarter, the Australian Residential Property market beginning to slow. Auction clearance rates are not what they were a couple of months back, when anything at all hitting the auction trail was ‘going like hotcakes’.

The RBA did what it could to put some brakes on a market out of control. After six consecutive interest rate increases, home buyers started showing caution which translated into more properties being passed in and a growing number of private sales. As always, most of the pain is felt initially in the outer suburbs. First home buyers who have entered the market when rates were low and First Home Owner Grants were high are now feeling the pinch of increased mortgage repayments.

In the most recent Australian Bureau of Statistics (ABS) Housing Finance figures, the number of first homebuyers, as a percentage of total owner occupied housing commitments, decreased to 16.1 per cent in March 2010, compared to 18.1 per cent in February. This is the lowest for some five years, and compares to the long-run average of 20.1 per cent. ( read more )

The inner suburbs tend to be more resilient to interest rate increases than the new outer communities. These are suburbs like Armadale, Malvern and Camberwell in Melbourne or Neutral Bay, Balmain and Mosman in Sydney. Here residents enjoy the convenience of only a short drive to the city, lots of public transport, local shopping centers and schools. When home-buyers can not longer afford home ownership in such suburbs, and choose to walk away, property investors generally step in.

The outer suburbs are not as popular with property investors. Here we begin to see a flood of mortgage auctions without the investor demand to prop-up the home values.

THE RBA is clearly downplaying any concerns in the media over an Australian house price bubble. We have seen a number of statements issued by the RBA recently to indicate that our real estate market is strong and healthy.

Overseas experts are telling us that Australian house prices are massively out of whack and will be brought back to earth in the near future. These experts are comparing the Australian Real Estate Market with markets in the US and Europe and are analysing property values in relation to income.

Reports issued by the RBA as well as many local Australian experts suggest that certainly looking at property values in relation to local income levels is over-simplifying the real estate situation in Australia.

Australia is in the grips of a serious housing shortage, one that is getting worse by the week. There is simply not enough housing for the number of people who would like to ‘call Australia Home’.

A recent report by the Federal Government’s National Housing Supply Council, estimates a current national housing shortage of at least 178,400 dwellings.
The Council further estimates that by 2014 the gap in Australia between housing supply and demand will increase to 308,000 dwellings nationally. ( read more )

It may well be that not everyone who would like to live the Australian dream of home ownership will necessarily be able to afford it. However in order to ensure that there are enough real-estate investors and developers interested in putting their hard-earned dollars into the creation of additional housing, the Australian government is likely to do whatever it can to ensure that our housing market is alive and kicking goals.

Certainly in this climate it would be difficult to claim that our real-estate market is akin a bubble that will burst any week now. What may be true is that an adjustment to the number of property investors vs property owners in the marketplace is in order.