Overall, 2012 was a better year for Australian property compared to the prior 12 month period, according to the latest Residex housing market data.
Residex founder John Edwards says the past few weeks will have helped consumers gain higher levels of optimism following positive news surrounding the US economy and little negative news out of Europe.
He says the resulting heightened confidence-levels should flow into higher levels of housing market activity.
“On the other hand, the floods currently being experienced in Northern NSW and Queensland will be having a dampening influence on these markets. Some slowing in the economy will drive unemployment, which will also have some moderating impacts. However, we shouldn’t get too carried away with moderate increases in unemployment as we are coming off all but full employment.”
On an Australia wide basis, Edwards says capital growth in the house and land market achieved its best performance in the last 18 months.
Sales activity also increased in 2012, with the unit market becoming ‘almost as important and significant’ as the house and land market.
“Market share of unit sales is now in the order of 44%. In Sydney, unit sales are now almost equal in importance with the difference between volumes only being about 4,000 dwellings for the full year.”
However, Edwards predicts that ‘strong growth’ in the next few years is ‘unlikely’, despite low interest rates and the likelihood of further rate reductions simply due to affordability issues.
“I believe the RBA will be forced to reduce the cash rate to as low as 2.25%, or perhaps even 2% over the next 12 months due to a slowing economy and a need to maintain employment in an environment where the resource sector moves from a development phase to a production phase.”
Edwards says he hopes the RBA will recognise the need to cut rates in ‘one significant move’ in the immediate future, rather than via a number of small cuts throughout 2013.
“I take this view as consumer sentiment is currently driving the economy and retail economies. Multiple reductions simply reinforce the fact that an economy is in trouble, which in turn undermines consumer sentiment.”