House prices to grow 20%

Written by Paul Kounnas | Tuesday, 17 November 2009

The strong housing market activity in Australia is set to continue into 2010 and beyond. According to QBe Lenders’ Mortgage Insurance (QBe LMI), house prices may surge 20% or more over the next three years, driven primarily by the on-going shortage of new housing.

“While interest rates are forecast to rise over 2010-2012, the outlook for the Australian housing market looks positive” said Ian Graham, CeO of QBe Lenders’ Mortgage Insurance.

According to the report which was prepared by the property research group BIS Shrapnel, low interest rates, solid growth in rents and housing shortages will ...

create favourable conditions for a strong recovery in residential property prices.

Prices in the Australian housing market have been driven up by a chronic shortage of houses. The shortage is the result of a variety of factors, mainly population growth, first home buyer grants, low interest rates but also the loss of confidence in the share market and a growing confidence in the property market by investors.

Rising home prices have prompted the Reserve Bank to warn of the risk of a housing bubble forming. When house prices increase faster than wage growth, the price levels become unsustainable and if the differential becomes too great you end up with a bubble.

Angie Zigomanis, BIS Shrapnel senior project analyst believes that even if a housing price bubble popped, a correction would not necessarily mean huge price falls. “Corrections are not like share market corrections, where people sell off all their shares. People just sit in the property and wait for things to improve”, Mr. Zigomanis said. Apart from those who are forced to sell, you don’t get the huge turnover like you do with shares.

However nothing is certain, as house prices could be affected by anything that has an impact on our economy.

Market update - September quarter 2009

Written by Paul Kounnas | Tuesday, 03 November 2009

The Melbourne median house price for the September quarter has surged to $480,000. This is an increase of 6.7% and represents a rise of $30,000 over the previous three months.

Individual monthly results show that September had a record increase which indicates the current strong demand will continue to push prices further over the coming months.

The recovery in the property market is widespread with record demand being driven by a rising population, low interest rates and improved consumer confidence.

The property market has clearly recovered from a very challenging 2008. Now there is mounting pressure on the Government to do ...

something about increasing housing construction and affordability.

Median house prices in the Manningham area for the quarter ranged from a drop of 29.2% in Warrandyte to a rise of 16% in Doncaster East. This is the reverse from the previous quarter where Warrandyte recorded a rise of 52.2% and Doncaster East a drop of 6.7%.

The annual house price increase for the whole of Melbourne was 10.3%.

Median house price record

Written by Paul Kounnas | Tuesday, 27 October 2009

According to the REIV’s September property update the median price of a house in Melbourne has increased to a record $520,000. This is a historic increase of 6.4% in any given month.

Increases such as these are not sustainable and if they continue will inevitably lead to a financial disaster for many homeowners.

It has been well documented that Australia’s population growth is booming while our housing construction starts remain at historic lows. As I have previously stated, the most significant factor in the rate of growth in house prices is not the low interest rates but the fastest population ...

growth in 40 years. There is simply not enough new homes being built to provide the accommodation needed for our growing population. It is a simple case of demand outstripping supply and as a result, prices are escalating.

If prices were only rising in the cheaper suburbs or the lower end of the market you could put the rise down to the Government grants. But prices in the upper end of the market are rising just as fast.

The forthcoming interest rate increases by the Reserve Bank are intended as a means to restrain growth in house prices, but an urgent increase in residential building is required otherwise the population growth will continue to outstrip housing supply and push prices up.

Federal and State Governments need to come together with various industry bodies to address the barriers that exist to increasing housing construction. If something is not done to increase the supply of housing than the Reserve Bank’s fear of a housing bubble could end up becoming a reality.

We simply cannot continue to have an undersupply of housing whilst the country’s population is growing at a faster rate than any other country in the Western world without a catastrophic ending.

A cruel tool to use

Written by Paul Kounnas | Tuesday, 20 October 2009

The Reserve Bank’s recent interest rate increase makes Australia the first developed country to reverse the cycle of interest rate cuts triggered by the GFC. Concerns about rising house prices seemed to contribute to the decision.

It’s disgraceful the only tool we can use to control our economy is interest rates.

I totally agree the growth of house prices needs to be slowed down, but the low interest rate is not the only driver pushing prices up. The prime driver of price growth is the shortage of available housing.

Increasing interest rates will hurt the very people the Government has been helping with ...

the home owners grants. Interest rate increases hurts all homeowners with a mortgage, as well as just about every other business in the country. Addressing the shortage of housing on the other hand, can have a positive flow-on effect.

With increasing interest rates borrowers will have to allocate more of their income to paying off their mortgage which means they will have less disposable income.

The Government should do more to improve public transport and infrastructure to encourage development. According to TonyRichards, head of economic analysis at the Reserve Bank, one reason for the housing shortfall is the difficulty and cost of developing land.

The Government is spending billions of dollars as part of their economic stimulus package. If Government spending can be directed at alleviating the housing shortage they will also be making housing more affordable for all Australians.

The small improvement we had in housing affordability was due to low interest rates. The ratio of house prices to incomes, currently at more than seven times, is still very high compared to other countries. (For 30 years prior to 1990 it was only three times). Housing can be made more affordable by either low interest rates, or falling house prices. Controlling our economy by increasing interest rates is a cruel tool to use.