House prices on the rise? No way!

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Some economists may be predicting an average house value rise of up to 10% in 2013, but not everyone is convinced.

In an article published in Australian Broker earlier this week, we noted that the decline in home prices has already showed signs of slowing down, with some industry commentators pointing to recent RBA rate cuts as likely to ‘continue to feed through to the economy and have an impact, particularly on housing’.

But the Herald Sun’s National Economics editor, Jessica Irvine, says investors shouldn’t be swayed by trend.

“To claim housing affordability has dramatically improved is kind of like saying today is stinking hot, so winter will never happen again. Interest rates move in cycles and the historical average for mortgage rates is about 7.5%.”

Irvine says that, though they won’t be getting any cheaper, house prices aren’t going to rise substantially either. She says a more “sober” look at the country’s property market shows prices have struck a wall, although they remain historically expensive.

The latest Residential Mortgage Briefing, published by credit agency Finch, predicts the Australian housing market will be among the more stable global markets in 2013, but also says house prices won’t rise.

“Fitch expects stable house prices in 2013, although some areas may still continue to decline…Despite the RBA recently cutting the policy rate, home buyers remain cautious and have been deleveraging.”

RP Data reports show capital city house prices peaked in November 2010 and Irvine says that, just over two years later, they remain at almost 6% below that peak.

“Over the past five years, home prices have clocked average annual growth of just 1.9%. You would have been better with your money in the bank.”

The Fitch report depicts Australia’s mortgage lending market in a positive light, describing it as being “characterised by relatively low default probability assumptions”.

“Arrears are likely to remain low, in-line with low unemployment and recent policy rate reductions. Australia benefits from a low and relatively stable recent history of unemployment, due to strong global demand in commodities. The recent cut in policy rates aims at stimulating the non-mining sectors of the economy.”

However, Irvine says housing in Australia remains expensive and says we ‘only have ourselves to blame’.

“A lucky generation of older Australians grew wealthier as house prices rose. But they did so at the expense of their children. It's hard to see property prices rising much this year, unless something radically new happened to boost people's capacity to borrow.”




  • Damon on 3/03/2013 1:15:50 AM

    What is wrong with the people here? Smart people are not getting into property at the moment. They are getting out. Are these the smart people that purchased their SUV on credit, in the meantime justifying massive debt levels because of temporary interest rate reductions? Dont sound too SMART to me.
    In fact they sound like the dopes that contributed heavily to this bubble in the first place. Delusionally optimistic. They can't see what is coming? Don't bother. Focus on the new features of the impending new iPhone and your shallow existence based around keeping up with the Joneses. Sheep.

  • Rugosa on 11/01/2013 4:33:40 PM

    Returns in excess of 6.0%?

    Not after all the costs associated with holding a property - rates, intrest, repairs, agents fees, stamp duty...

    Not to mention all the time and energy it takes and the risk associated with bad tennents.

    And what if the value is decreasing?

    Property is not an attractive option.

  • Tony South Coast on 10/01/2013 2:57:02 PM

    There are a lot of "Doom-sayers" out there - who don't believe there has been any growth or inflation for some time. For the record, the CPI has risen from 137.6 to 180.4 in the last 10 years (an increase of 42.8) and from 157.5 only 5 years ago (an increase of 22.9).

    With interest rates in the low to mid 5% range and falling and gross rental returns in excess of 6.0% and rising in many areas of Australia, then property is definitely an atractive option, both for investors and owner/occupiers.

    That, my friends, is economics.

    And most of my "smart" friends and clients are also getting into (not out of) the market.

  • mortgage road warrior on 10/01/2013 12:43:27 PM

    Hey Brad , guess when the property market peaked in my part of the world , ( W.A ) , 2006 . Yep , almost 7 years ago . But every year we hear "property guru's" telling us house prices will increase blah , blah . When will people of your mindset finally get it that the vast majority of Australian property is out of the economic reach of the vast majority of the Australian population. Take a minute to ponder economics Brad it may help .

  • Qindows on 10/01/2013 11:59:18 AM

    Sorry Brad, have to aggree with both GB & the author here. To say that inflation is an issue (bec there is none) is certainly wrong & to mention that we will see real wage growth over the coming period is just being silly.

  • BradQ on 10/01/2013 10:39:15 AM

    Yep...based on inflation. The RBA has inflation targets. Everyone panics if the word recession is uttered. Profits are expected to grow every year. Salaries are expected to increase every year. The economy is based on growth and inflation. All the smart people I know are getting into property now, not getting out.

  • GB on 10/01/2013 9:52:11 AM

    to Brad, in an economy based on growth and inflation, eh? well there is no growth and there is no inflation?

    You dont have to be IN the property market to write sensible articles. The fact she isnt IN the property market confirms she is actually quite smart as all the smart money has either been getting out or staying out.

  • BradQ on 10/01/2013 9:29:24 AM

    "To claim housing affordability has dramatically improved is kind of like saying today is stinking hot, so winter will never happen again".... kind of like saying houses cost too much, so they will never increase in value again... in an economy based on growth and inflation, prices will always increase. Why would we listen to Jessica Irvine anyway, she isnt even IN the property market and doesnt own a home....

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