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Is Australia’s Property Bubble About to Burst?

Posted: June 29th, 2014 | Author: | Filed under: Australian Home Prices | Tags: , , , | Comments Off on Is Australia’s Property Bubble About to Burst?

Is Australia's Property Bubble About to BurstIs the Australian property market ‘in danger of overheating’ According to New York-based ratings agency Moody’s it’s getting mighty close to bursting, and could seriously affect the country’s economy.

Moody’s warns that the Australian property market is in danger of ‘overheating’ and rising housing prices could also jeopardise the country’s economic and financial stability, the agency blames low interest rates for fueling rising house prices, and says the trend can’t continue.

Despite such warnings, house prices continued their rise in the first quarter of 2014, with average year-over-year growth in Australia’s 8 largest cities crawling up to 8.3 percent, marking the highest growth rate in nearly four years.

House prices in Australia’s most populated city, Sydney, rose 16 percent over the past 12 months, while the Melbourne property market increased to 9.9 percent, according to RP Data figures ::::
Is Australia's Property Bubble About to Burst?

Focus on Melbourne

Timing is everything, in Melbourne the median house price rose 16 percent to $AU640,000, according to analysts at BIS Shrapnel. Melbourne has worn an influx of overseas and interstate job driven migration, partially pushed along by slowdowns in recourse jobs over the past year, this population growth isn’t expected to last, combined with an expected over-supply in apartments, Melbourne it seems is in for a rocky realestate road.

According to Moody’s the current trend poses some medium-term risks as Australia’s real estate market appears to be overheating, “With price-to-income and price-to-rent ratios reaching levels well above the historical averages,” wrote Moody’s analysts, Steven Hess and Bart Oosterveld. “Considering supply-side constraints, the influx of foreign capital and the fact that monetary policy is set to remain accommodative for the foreseeable future, the housing market appears to be increasingly likely to get caught up in a positive price-feedback loop and eventually could face a correction.”

The Moody’s report did however acknowledge that any price fall in the Australian property market would most likely be contained by a current  lack of supply, but just how long will under-supply last?

“In terms of volumes, rising housing prices haven’t resulted so far in a construction boom, residential construction activity remains largely in line with demand trends,” the report stated. “This, along with still historically low leverage levels, strong mortgage buffers, and well-capitalised banking system, limit the impact of a potential real estate market contraction on the broader economy.”

BIS Shrapnel isn’t quite as optimistic on the market, saying that Melbourne house proices will fail to grow fast enough to outpace inflation over the coming 3 years. And while the median house price is predicted to grow by 8 percent, in real-terms prices will fall by around 1 percent, taking inflation into account.

BIS Shrapnel predicts that outer Melbourne will be hit hardest, floundering manufacturing workers looking to buy or rent cheaper units rather than houses, an increasing interest rate, will add to pressure on downward pricing. Senior analyst Angie Zigomanis, author of the BIS Shrapnel Residential Property Prospectus, predicts that the Melbourne market is currently in or close to balance, facing marginal supply issues.

Variable mortgage rates are predicted to reach 7 per cent by the end of 2016, putting increasing strain on affordability and slowing price growth.

“In a couple of years, especially in areas like Docklands and Southbank, where there are currently up to 500 multi-level projects, there’s huge supply coming, which will be increasingly difficult to fill.” Mr Zigomanis told Fairfax. “Melbourne went through a boom in 2007, again in 2008, and in 2010. You can’t have that many successive booms without affordability being affected.”

The real danger is the head-of-steam the market is unlikely to lose, as record levels of migration to Melbourne eases, it’s unlikely that construction will slow at an adequate pace, leaving an oversupply of cheaper/vacant apartments to compete with houses.

In Sydney, prices are expected to rise 14 per cent over the next two years, however affordability and supply issues in year three are likely to bring that down to under 10 percent, according to the BIS Shrapnel report.

Sydney is currently in undersupply, which is expected to be relieved in the next two years, right at the time the Reserve Bank of Australia is expected to increase interest rates.

Brisbane has the healthiest three-year forecast with prices expected to increase 17 per cent, from $475,000 to $555,000.

Is Australia's Property Bubble About to Burst?

Anecdotally, in my own suburb, Balaclava 3183, auction results are seemingly alarming. especially when all the statistics are taken into account. This weekend a modest 2 bedroom weatherboard cottage (corner block, but renovated) sold for $942,500. It’s location is in a less than desirable area and the home is described by the agent as “Ideally positioned, the perfect opportunity, with further options going forward.”

The sale price isn’t the greatest concern, a quick check of my suburbs profile reveals some daunting numbers.

Median Age: 32 Median Household Size: 2.1 Median Household Income: $1425 Median Weekly Mortgage Repayments: $525 Median Weekly Rent: $330

With over 25 percent of my local market mortgaged, close to 20 percent owning outright and a nudge over 50 percent renting, is property investment on the slide?

Sample Property Details: 271 Inkerman St Balaclava house $942,500 Buxton (St Kilda) Pty Ltd

@mcsixtyfive

RELATED! Apartment Demand Increases as Baby Boomers Fight Gen Y For Life-style

Read the full article »»»»One of the most significant social changes in the past 30 years has been our aging population, over the coming decades this aging will polarize, affecting not only the lifestyle choices of the greying population, but the economy of successive generations as well. As Baby Boomers seek to downsize responsibility, are they biting at chunks of the property market also sought-out by Gen Y?

A decade ago a house on a quarter acre block might  have been the dream lived out by the average Aussie Baby Boomer, but new research suggests they are increasingly looking at apartment living, the same corner of the market chased by their grandchildren.

Policy-makers, planners and developers need to get creative as two generations converge on the same portion of an already under-stress property market.

The Australian Bureau of Statistics – ABS – projects that population growth will see an even higher demand on housing, the converging generations – Baby Boomer vs Gen Y – has the potential to kick-start a steep rise in apartment prices unless developers start planning for seriously increased demand :: Read the full article »»»»

More on the Australian Property Market: HERE

PORKFOLIO

source: domain
source: moody’s
source: realestateview
source: homepriceguide
source: bis-shrapnel
source: buxton
image source: fairfax/indeepmedia

About Michael

Michael’s time is spent making other folks land softly, easing their days, so they’re able to enjoy their evenings: He Likes To Worry!

Overtly fond of driven people, loves the energy, his client list is diverse, an English Brain Scientist, a Hotelier on the up, a PR firm and a half dozen special individuals. As well, he runs online campaigns for several brands, throws his fifty cents in for Unruly Media, takes on the odd guest editorial and lunches out in Melbourne every second day and can often be found walking The Tan, mumbling stories out loud.

“…what I like most about my world? The anonymity, I like that others get the kudos.”

He’s been blogging since before Blogger belonged to Google, if your the ‘I need a date’ type: 1999!

Fascebook LINKEDIN Wordpress

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http://i.domainstatic.com.au/23e220c2-b4cf-4b26-8273-d5265643928b/domain/20112278802pio04123457?mod=140628-162600
http://i.domainstatic.com.au/6debfde7-9ceb-43b7-87fa-3c3dc5963774/domain/20112278804pio04123458?mod=140628-162600
http://i.domainstatic.com.au/d6995fce-d062-4a22-aafb-47b50056120f/domain/20112278805pio04123458?mod=140628-162600
http://i.domainstatic.com.au/e418e037-feb4-48e0-bcf9-3a5d73f8c730/domain/20112278806pio04123458?mod=140628-162600
http://i.domainstatic.com.au/8fe96065-3b48-41bb-9106-8edc7db45e7a/domain/20112278807pio04123459?mod=140628-162600
http://i.domainstatic.com.au/92bcdaa3-a17b-49cc-9b68-12a91d1fc7e2/domain/20112278808pio04123459?mod=140628-162600

Elegant, Extended, Enticing
The inviting 2 bedroom floor-plan of this elegant Edwardian is complemented by a modern extension that intelligently retains the high ceiling profile of the period rooms, enhancing the sense of space and ensuring the enjoyment of bright living/dining areas and an impeccably presented open plan kitchen. Beyond, a paved courtyard leads to the lock up garage – a significant asset, accessed from second frontage to Linton Street. Ideally positioned, the perfect opportunity, with further options going forward.

Property ID:
2011227880
Property Type:
House
Suburb:
ST KILDA EAST (suburb profile)
Region:
Melbourne Region

http://www.homepriceguide.com.au/saturday_auction_results/melbourne_domain.pdf

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http://www.dailymail.co.uk/news/article-2671865/Australian-property-market-danger-overheating-warns-ratings-agency-Moodys.html

 

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LOW INTEREST RATES LEADS TO DIY RENOVATION MARKET
Low interest rates and rising house prices have also led to a resurgence in Australia’s renovation market.
The Housing Industry Association is expecting $28.6 billion to be spent on renovations after dropping to a decade low last year, leading to financial benefits for retailers and manufactures in the home renovation market.
‘After a slow start to the 2013/14 fiscal year, renovations investment has now posted two consecutive quarters of growth through to the March 2014 quarter,’ the report stated.
‘This provides some confidence for our forecast of 1.0 per cent growth in the total value of renovations investment in 2013/14 to around $28.6 billion.’
Growth predictions continue to rise after 2014 with 1.2 per cent, 2.3 per cent and 2.5 per cent increases expected over the following consecutive years.
If fulfilled, this trend would see a resurgence of the renovation boom experienced in 2013, around the $30 billion figure.

Read more: http://www.dailymail.co.uk/news/article-2671865/Australian-property-market-danger-overheating-warns-ratings-agency-Moodys.html#ixzz35yFqtNw1
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Melbourne house prices to fall 1 per cent over next three years: BIS Shrapnel

http://smh.domain.com.au/real-estate-news/melbourne-house-prices-to-fall-1-per-cent-over-next-three-years-bis-shrapnel-20140622-zshz2.html

Melbourne house prices will not grow fast enough to beat the rate of inflation over the next three years, according to BIS Shrapnel.

While the median house price is predicted to grow 8 per cent to $690,000 over three years, in real terms prices will fall by 1 per cent with inflation taken into account.

An oversupply of apartments, increased interest rates, a drop in immigration, and an economic slowdown will all affect house prices in Melbourne.

Outer Melbourne will be the hardest hit, with struggling manufacturing and retail workers looking to buy or rent cheaper apartments instead of houses, according to Angie Zigomanis, senior manager at BIS Shrapnel and author of the annual Residential Property Prospects report.

“We estimate the Melbourne market is in balance or in a marginal under-supply right now,” Mr Zigomanis said. “In a couple of years, especially in areas like Docklands, the CBD and Southbank, where there are 300 to 500 multi-storey apartment projects, there is huge supply coming, which will be increasingly difficult to fill.”

Variable mortgage rates are predicted to reach 7 per cent by the end of 2016, putting increasing strain on affordability and slowing down price growth.

“It went through a boom in 2007, again in 2008, and in 2010. You can’t have that many successive booms without affordability being affected,” Mr Zigomanis said.

Record levels of interstate and overseas migration in Melbourne, partially driven by job slowdowns in mining states, have been underpinning rental demand and filling up new apartments in Melbourne over the past 12 months, but are not expected to last much longer.

And while immigration drops, the construction rates will continue, leaving vacant apartments to compete with houses.

Through the 2013 financial year, Melbourne prices were doing well, particularly in the higher-value inner and middle-ring suburbs.

Across Melbourne, the median house price rose 16 per cent to $640,000, according to BIS Shrapnel.

In Sydney, prices are expected to rise 14 per cent over the next two years, but affordability and supply issues in the third year will bring that down to 10 per cent.

Sydney is in an under-supply, which is expected to be relieved in the next two years, right at the time the Reserve Bank of Australia is expected to increase interest rates.

Brisbane has the healthiest three-year forecast with prices expected to increase 17 per cent, from $475,000 to $555,000.

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