However, the recovery is not a smooth one and a reversal of fortunes from recent years characterises the market. The strength of the top-end has largely evaporated and the low to median range, dominated by first home owners, is leading the recovery. This is anticipated to continue not only due to the continuation of the Federal Government First Home Owner’s Grant, but also now a bonus from the State Government in addition to significant stamp duty concessions.
The State Government bonus focused on stimulating desperately needed new housing. The Sydney market faces the challenge of economic underperformance over the coming year. As such we anticipate only a consolidation of recent price gains over the medium-term, yet still see considerable upside over the longer term.
The Melbourne market continues to be the most solid of the major capital cities. This has been driven by strong demand, with Melbourne the fastest growing capital city in the country, adding 70,000 residents last year. On average, Melbourne median house prices have been down around 4-5% over the past 12-months.
However, activity particularly at the median level has been very solid recently, led by first homebuyers that accounted for almost 50% of the owner occupier market in April. As a result, house sales numbers have remained elevated, more than 30% higher than in previous recessions and unit sales have plateaued at near record highs.
These sales levels have been supported by the highest levels of building activity in the country. Further, the recent Victorian budget announced measures to further stimulate new house building via the State’s first homeowner bonus scheme. In some suburbs, lack of trading supply may be holding the market back and adding to upward price moves, with clearance rates in the high-70s to low-80s now commonplace.
Renewed activity has pushed median prices 3-4% higher in the last three months, recovering much of the falls over the past year, with best performing suburbs having prices near median levels. The influx of first homebuyers into the market has marginally eased the squeeze in rental markets but vacancy rates remain very low at 1.4%, still putting upward pressure on rents.
The Victorian economy should remain relatively solid, amidst strong demand.
The Queensland economy and property market have been hit hard by the slowdown in the global economy and the reversal of the commodity boom. The market has in some ways been a victim of its own success. Median prices rose over 90% between 2002-2007 suggesting the market became overheated and now median price falls in the
past year have been around 5-6%, with price weakness greater at the top end of the market. Transaction numbers have fallen sharply, down around 25% in both the house and unit markets.
However, activity, as in other states, is increasingly being supported by the first home buyers. Yet partly due to demographic differences, the proportion of first home buyers in the market is relatively low. Additional first home buyer assistance, in the form of grants from the State Government, is also less (but stamp duty paid is relatively low compared to other states).
Much of the recovery in activity is centred around the median price, with over 80% of recent sales taking place below $500,000, and due to lower relative prices the unit market is outperforming detached houses. Housing finance approvals are up 20% over the past six months but growth has slowed in recent months along with the economy.
Nonetheless, prices have been showing signs of consolidation in recent months with south east Queensland and Brisbane performing best, with the latter reportedly seeing median price increases around 1-2% over the last three months. The state economy
will continue to weaken in the short term, but strong fundamental drivers, including ongoing strong population growth, should shield the market from any further significant falls.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
