House prices on the rise? No way!

by Mackenzie McCarty10 Jan 2013

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.”





  • by BradQ 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....

  • by GB 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.

  • by BradQ 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.