Housing still searching for its 'mojo'

by Adam Smith24 Jan 2012

The housing sector may take some time to "get its mojo back", with 2012 likely to be another weak year.

That's according to the latest Business Outlook report from Deloitte Access Economics. The company has forecast another difficult year for housing. While interest rate cuts and population growth in many areas of the country could spur some demand, Deloitte said recover is some way off.

"The pace of housing construction is going nowhere in a hurry. Indeed, that trend has been evident in leading indicators such as approvals and loans for a while now," the report said.

Deloitte pointed to lingering effects from 2010's rate increases, along with fears of falling house prices and development roadblocks, saying activity in the housing market had been "sidelined" by the factors.

There is cause for optimism, however. The company said there had been recent stirrings in demand for housing credit, which had risen to a four-year high. Successive Reserve Bank rate cuts would also renew appetite for housing, Deloitte predicted. Housing construction could also begin to reawaken in the months ahead.

"Although that gap between the demand for housing and its supply doesn't imply a surge in construction tomorrow, it does add important upward pressure. So although the next few months will see construction remain under pressure, the long awaited upturn may finally become evident by late in 2012," the report said.

New entrants into the Australian mortgage market could also prove a boon to lenders, though major banks may face the year with "trepidation", Deloitte said.

"It has finally sunk in that weak credit growth may be the 'new normal'. With the Eurozone crisis also haunting the horizon and rumours of Japanese competition in mortgage markets, 2012 may be a tough year for the finance sector," the report forecast.

House prices are also set to face added pressure in the year ahead. Though median prices saw a modest lift at the end of 2011, Deloitte predicted prices will still see drops in 2012.

"Although we don't see housing prices as a bubble, we did take a vow a couple of years ago to avoid saying that there was no problem with housing prices in this nation. On the contrary, Australian housing prices are indeed too high, and that's part of the reason why they are already falling," Deloitte said.

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