RP Data’s newest Property Pulse has pointed to capital city council areas where time on market is skyrocketing as vendors find it increasingly difficult to sell their properties. Analyst Cameron Kusher said vendors now have to readjust expectations with an increase of unsold stock on the market.

“There are record number of properties available for sale in every state and very few are being sold through Auctions with most being offered privately. When there is a private sale situation there is more scope for price negotiation and the buyer will generally save more than in an Auction purchase.

Premium properties are spending the longest time on the market before finding a buyer. Perth’s prestige suburb Mosman Park experienced a 59% increase in time on market for houses, with the average house now taking 123 days to sell. Cottesloe units also have struggled to find buyers, and the average time on market has risen to 160 days.

Now with rates for home loans coming down and property prices coming down as well – it is an excellent time for buyers who can afford it, to make a property purchase.

We have already seen 2 rate cuts in late 2011 and further cuts are expected in early 2012. This will undoubtedly boost demand for home loans as well as property.

It generally takes several months for the results of any economic action to reflect in the property market.

State by state, NSW has performed better than any other state, plus 4.2 per cent, though perhaps flattered by home loans approvals being brought forward ahead of the January 1 increase in state stamp duty.

“New South Wales had a very bad start to 2011 but has shown improvement each month since then.

“Oversupply of property in Victoria seems to be hurting the state, minus 0.2 per cent for a third consecutive decline.

“Queensland remains sluggish, up 0.9 per cent, only after two declines while WA held up with a 0.9 per cent gain.”

First-home buyers accounted for 20 per cent of total owner-occupied home loans taken out in November, up from 19.1 per cent for the previous month.

This trend is likely to continue into the new year.

Construction work in chain volume terms, seasonally adjusted, was valued at $47.467 billion in the September quarter, compared with $42.191bn in the June quarter, the ABS said today.

The median market forecast was for total construction work done to have risen 2 per cent in the September quarter.

The ABS said total building work done in the September quarter was $19.414bn, seasonally adjusted, from $19.303bn in the June quarter.

Engineering work done was up to $28.053bn in the September quarter, from $22.888bn in June.
This is not necessarily housing or residential construction. It seems that non-residential building bounced from the lowest level in two years, but residential construction has actually fallen away. Nonetheless statistics suggest that the demand for commercial business loans and personal loans is also on the increase, while home loans are falling out of favour.

For the Reserve Bank the data indicates a very strong increase for capex for third quarter GDP and shows that the investment boom is driving growth in the face of increasing uncertainty from European sovereign debt concerns.

On a state-by-state basis, WA rose, NSW rebounded, Victoria bounced Queensland was flat and South Australia dropped.

According to a survey of potential property buyers by the  Commonwealth Bank/MFAA Home Finance Index for September, only 16.9% of respondents are considering purchasing a property over the next 12 months.

Families are continuing to save money and pay down debts, however property investment in not the strategy for most. More than a quarter of respondents said they were saving more than 20% of their take home earnings. The result was up from 21.8% who said they were saving in January.

Mortgage stress is certainly down. In September, even before the RBA rate cut, 78.3% of the survey’s respondents said they were comfortable with their levels of debt and were easily meeting home loan repayments. The result was up from 68.3% in May.

It is clear that when the property market turns around there will be many people who will be able to afford to make a purchase and qualify for a home loan.

“With a recent interest rate cut, high savings and reduced mortgage stress, prospective home buyers are in a relatively good position. Reticence about buying property seems linked to the perceived state of the economy, not to the personal financial state of consumers,” he said.

Almost half the people surveyed believe that property prices will fall further over the next few months.

RP Data’s Property Pulse has reported that housing stock is piling up, with 7.4 months of effective supply on the market.

Research analyst Cameron Kusher said that while the number of property sales remain around the same level as last year, there are a larger number of properties on the market and this larger number is not matched by the number of property buyers.

“A spike in recent property listings data acquired by RP Data suggests that available stock is at near-to record levels and is being driven by unsold properties re-listed while new properties continue to enter the market. This result is indicative of slower market conditions and longer than normal selling periods,” Kusher said.

Kusher suggested that housing stock levels may have reached peak levels in some capital cities, though housing stock continued to grow in Melbourne and Adelaide. He said that, while he expects the recent RBA rate cut to see increase in demand fro quality properties and potential better sales volumes.

“My reasoning behind this is because while demand for home loans is fairly flat, consumers show low levels of optimism when it comes to property purchases and retail trade continues to be slow, at a macro level the property market is likely to be subdued until we see a significant reduction in the number of homes for sale,” Kusher said.

Once rates start moving down more and demand for home loans improves, so should property sales.

For the first time in over two years the mortgage broker has had over 51 per cent of their home loans inquiries coming from First Home Buyers.

First Home Buyers in every state of Australia were looking for home loans and trying to determine what they can afford to buy.

Tasmania had the highest number of home loan enquiries with 71 per cent followed by Queensland on 54 per cent, Victoria 53 per cent, the Australian Capital Territory 50 per cent, South Australia 48 per cent, Western Australia 44 per cent and the Northern Territory 41 per cent.

First Home Buyers are undoubtedly encouraged by declining property prices with some areas loosing as much as 20% on the prices of a year ago. Furthermore the cheap home loans fixed interest deals on offer through most lenders during October are making it easier for First Home Buyers to afford to purchase.

Mr Rushton said the end of stamp duty concessions for first home buyers in New South Wales from the end of 2011 are boosting activity in that state.

There are finally some signs of optimism and more confidence from that segment of the market. Further rate cuts from the RBA predicted in months to come, would help to build First Home Buyer confidence.

Australians for Affordable Housing (AAH) – which is made up of 60 community and housing groups – launched the report today as part of a push to provide more affordable housing for Australians.

“Australian households are paying more than they can afford for housing, with over 740,000 renters and more than 380,000 home owners with hefty home loans suffering from significant financial stress,” spokeswoman Sarah Toohey said.

In Sydney, it takes 8.1 times the average annual income to afford the median house, up from 5.6 times in 2001, according to the report.

The group is concerned that increased property prices will see first-time buyers to stay in the rental market for longer, competing for properties and pushing up rental prices. Since 2005, rents in Australian cities have risen at twice the rate of inflation, according to the report.

It should be noted that while government was talking up interest rates and banks are making it very difficult for developers to access construction loans – demand will exceed supply in the premium areas of Australian capital cities including Melbourne and Sydney.

The report also found that 50 per cent of low-income home owners are having a hard time keeping their heads above water with many behind in their home loans.

“The NSW housing system is failing too many people. We need the NSW Government to commit to working with federal and local governments to solve this crisis.”

Last week, the NSW Government was called on to implement an emergency housing plan after figures showed new-home starts had plummeted.

The 20.1 per cent fall, which was worse than the 16.3 per cent recorded by flood-hit Queensland, prompted calls from the Urban Taskforce for an emergency housing supply plan by Christmas.

“NSW’s housing supply is clearly in dire trouble,” said the organisation’s chief Aaron Gadiel.

The Australian reports that according to documents they were able to access at least 61 projects across Australia have been tagged as having retail or commercial areas that are “unacceptable” when it comes to meeting criteria for an investment loan.

The documents were made available to mortgage brokers pinpoint close to 1400 existing and future developments nationwide where the bank will offer home loans only up to 80% LVR.

A large number of these of developments included on the list appear to have caught the bank’s attention as they have apartment sizes of less than 50sq m.

This is not a new situation as banks have been averse to providing home loans for the purchase of small city apartments for quite some years.

Of the 61 developments with retail components that are on the list as being deemed unacceptable for loans, 15 are in NSW and the ACT, 17 are in Melbourne, another 17 in Brisbane, seven in Western Australia, four in South Australia and one in the Northern Territory.

In Melbourne, notable developers with developments on the list include Pan Urban, which has two projects on the list in the Docklands, and MAB Corporation, which has five buildings in New Quay.

In Sydney, the largest developments to appear on the list as having retail or office components that are “unacceptable” for home loans include a Meriton building and a Winten Property Group building.

The retail components of a Citimark project in Brisbane, and Southport Central on the Gold Coast, which was developed by the failed Raptis Group, among other smaller developments, caught the attention of the bank.

All of the listed projects have already been completed and are no longer held by the developer but by institutional or retail investors.

Speaking to The Adviser, Century 21 chairman Charles Tarbey said first home buyers and first time upgraders will dominate the market during the traditionally hot spring selling season.

Significant purchasing activity is expected from both investors and first home buyers who are looking for properties sub $800,000 mark.

“Rents are rising but property prices, in many instances, are tracking sideways, which is in turn encouraging first home buyers to get their foot on the property ladder.”

Australian Property Monitors senior economist Andrew Wilson agreed and said the extended period of rate stability was helping to push first home buyers back into the market. Prospective purchasers who spent 12 months or so sitting on the sidelines are now seeing fixed rate cuts and are expecting that variable home loans will be next. This in conjunction with annual spring buying activity is likely to generate more business for Mortgage Brokers and Estate Agents.

“Interest rates have been stable for about nine months now and, by all accounts, they will remain stable for the foreseeable future. When interest rates are stable or falling, the property market tends to attract younger buyers,” Mr Wilson told The Adviser.

But, according to Mr Wilson, it is not just interest rate stability that is encouraging young buyers to take the plunge.

“With little buyer activity and lots of properties for sale, its means there is less competition at the moment, which activates entry level buyers and first time change up buyers. In addition, incomes are rising and property prices are falling, which is helping first time buyers save their deposit quicker.”

“If you want to target a particular market, the best market to target is first home buyers because I believe they will be most active moving forward.”

Mr Wilson also said it was time for first home buyers to engage the market, as the market segment has been notoriously quiet for the past six months.

Data from the Australian Bureau of Statistics found just 7,481 home loans were approved for first home buyers in Victoria during the first four months of 2011.

This was the lowest number recorded over the same period of the year since 2004 and is 48.5 per cent less than the 14,529 first home buyer home loans recorded over the first four months of 2009.

This situation may well worry foreign investors who have poured more than $20 billion into the market every year since 2004, on average, according to data from Australia’s Foreign Investment Review Board.

While many overseas investors are still optimistic one can well ask the question of how long this will last?

“That said, at this point, it has to feel like a long-term investment.”

The combined average price of homes and apartments in Australia’s capital cities is off 2 per cent from a year ago and 2.7 per cent this year, checking in at $462,500, according to property research firm RP Data-Rismark. This comes as Australia’s economy starts to cool, with the central bank recently downgrading its average growth forecast for the year to 2 per cent from 3.25 per cent.

Home Loans in arrears by 30 days or more reached an all-time high in the first quarter of 1.8 per cent, according to ratings firm Fitch Ratings. However, that level is still well under  the home loan arrears experienced by the US, which saw 8.4 per cent in the June quarter, according to the US Mortgage Bankers Association.

According to the Australian Bureau of Statistics, new-home construction in Australia has jumped 26 per cent in just the last year, as of June, to about 165,549 units, and is up 10 per cent from 2006. A large part of this increase comes from Victoria, where home construction is up 40 per cent since 2006 at 54,476 units last year in the state capital, Melbourne, Australia’s second-largest city.

About 10 per cent of the 120,000 new homes approved for construction by city governments in Australia in the past year were apartments in Melbourne, according to city administrators and the bureau of statistics.

Home and apartment prices in Melbourne are down 3.9 per cent this year to $485,000. In the Western Australian capital of Perth, prices are down 2.4 per cent to $461,000, according to RP Data-Rismark. Sydney has side-stepped some of the weakness, up 0.5 per cent over the past 12 months, but still off 1.3 per cent since the start of this year to $515,000.

So far, Australia’s big four banks – ANZ, Commonwealth Bank of Australia, Westpac and National Australia Bank – appear to be weathering the turn, though scrutiny could increase if the market worsens. The four hold more than $850 billion, or more than 80 per cent, of Australia’s home loans, though Fitch estimated last year that they could withstand a price drop of up to 40 per cent.

“The big question is where does unemployment go, that’s when you get the forced selling,” said Ivan Colhoun, head of Australian economics and property research at ANZ, who finds solace in Australia’s still-low 5.1 per cent unemployment rate.

Locally, buyers have already started to wane. In the last year, there were 90,210 first-home buyers across Australia, 35 per cent lower than the previous year and a seven-year low, according to BankWest, a Western Australia-based lender and unit of Commonwealth Bank.

Mr Donnelly, whose firm has sold residential property in Australia worth more than $1.2bn to mostly overseas investors, says the market in Sydney and Brisbane could sidestep some of the weakness, largely because both fell behind in the recent development push.

Brisbane has also been weak, with prices off more than 6 per cent this year, but much of the drop stems from the devastation to the capital of Queensland state earlier in the year from a series of floods.