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First National Real Estate Mid Year Property Outlook 2011- Parkes NSW







  • 1First National Real Estate 2011 Property Market Outlook

    2011 Property Market Outlook Mid-Year Update



    GROWTH 10











    SOURCES 44


  • 2 First National real estate 2011 property Market Outlook

    executive Summary

    First National Real Estate has once again surveyed its 450+ member network to update its 2011 Property Market Outlook with this Mid-Year Update.

    This update serves to contrast actual market conditions experienced against the predictions of economic commentators and property market analysts.

    First National Real Estate members are broadly distributed across Australia, throughout cities, suburbs and country towns. Their survey responses have been compiled to develop a picture of the Australian property markets performance over the last six months, and their outlook for the coming six months.

    There is an overall Australian outlook, followed by a state-by-state outlook and then, most importantly, a local level outlook that provides an in depth overview of what the residential and rental property markets are doing.

    What is evident from the first six months of 2011 is that the Australian property market is fundamentally resilient, having stood the test of the Global Financial Crisis the only country that can lay claim to this.

    While the property market has levelled out, and consumer confidence has deteriorated, the industry is primed to face the next set of challenges.

    Conditions have been tough, resulting in 10,000 agents leaving the industry in the past 12 months, but dedicated real estate agents, principals and industry representatives have been creative and strategic in conducting their business over the last few years, so they are in a strong position to move forward today.

    The biggest challenge the industry currently faces is to restore consumer confidence, where there is growing nervousness, due to overall uncertainty about the markets direction here in Australia, as well as overseas.

    Consumer confidence has dropped to a nine year low, which is largely a consequence of three consecutive rate hikes by the Reserve Bank of Australia (RBA), rising costs of living and largely discredited discussion of a property bubble.

    One certainty is that 2011 is the year of the investor. Current market conditions are ideal for investors with rapidly rising rental returns, low, relatively stable interest rates, growing wages, strong employment and low vacancy rates.

  • 3First National real estate 2011 property Market Outlook

    Executive Summary

    Australias ever-present housing shortage will result in even lower rental vacancy rates and higher rents a clear signal for investors that the market, from their perspective, is improving.

    Australian home buyers are preoccupied with thoughts of rising living and utility costs, the introduction of new taxes such as the carbon tax and mooted changes to established rules and regulations such as negative gearing, land tax, and the possible reintroduction of death duties as a replacement for stamp duty etc.

    In addition, there is considerable uncertainty surrounding house prices will they increase or decrease, or even remain steady? Should people buy or sell now, or wait in case the market conditions change in their favour?

    House prices are expected, in the main, to remain relatively steady, although there may be further declines in some areas as well as upper price ranges, and potential for growth in others. This is generally a result of Australias buoyant economy and ongoing tight housing market.

    Rising interest rates and deteriorating affordability will, however, cap any price gains.

    To date, house prices have broadly tracked income growth, so affordability has remained relatively unscathed. Should this hold, housing prices could gain about 5 per cent a year in the medium term, which is the same as the growth some experts forecast for household income.

    However, housing affordability is finely balanced. Any fur ther interest rate rises may reduce affordability, which may ultimately dampen any improvement in the residential property market.

    There is the ongoing uncertainty around Australias dependency on China and the mining boom as well as global economies the UK and US are still trying to gain a toehold with their economies, and Greece and Japan are both struggling to overcome their economic woes. Natural disasters throughout Australasia have also contributed to an almost unprecedented set of conditions that are making Australians very cautious.

    Domestically, the Australian consumer is also uncertain about what is going on with immigration levels, interest rates and employment.

    According to the First National Real Estate survey, while more than 60 per cent of the networks member agents expect interest rates to increase, there is a wide ranging and mixed response about how much rates will increase before the end of 2011 anything from 0.2 per cent to 2 per cent is anticipated, fur ther emphasising the degree of uncertainty.

  • 4 First National real estate 2011 property Market Outlook

    Executive Summary

    What should be remembered about interest rates is that they are still 1.6 per cent below their 2008 peak and are still only 12.1 per cent of disposable income (well below the 13.5 per cent peak of 2008). Nonetheless, media commentary remains tightly focused on the environment of rising rates and their potential to impact negatively on house prices.

    Interestingly, research shows that when interest rates rose one per cent over six months between 2007 and the first half of 2008, price growth kept accelerating. The more the RBA lifted rates, the faster the growth got. The onset of the GFC is what finally slowed the market.

    In fact, analysis of 30 years of Australian housing data shows that periods of rising interest rates are followed by accelerating or steady house price inflation.

    As long as these conditions continue, house prices should remain relatively steady and rising incomes should gradually balance any over-valuation that may arguably be in the market. But any movements in interest rates, especially if upwards, may tip this precariously balanced equation. While that will not necessarily be welcome news for some, it will be positive for others, in particular investors and home owners.

    All this uncertainty is affecting the dynamics of the Australian property market, where consumers are generally de-leveraging and becoming cashed-up, saving at rates not seen for nearly 40 years.

    Credit card debt is rapidly being reduced, mortgages paid down ahead of time, and, for many, discretionary spending is on hold.

    The end result is the property market is taking a wait and see approach until they can see more certainty in economic and market conditions.

    Even well-known and respected economic forecaster, Charlie Nelson, agrees that Australians are in a holding-pattern at the moment.

    Mr Nelson, who spoke at First National Real Estates recent Australasian Convention in Coolum, said, Australians will go back to spending but not until their asset bases have recovered to pre-GFC levels.

    Household debt is no longer growing, credit card debt is growing sustainably and house prices have recovered from their 5 per cent drop in the GFC, Mr Nelson said.

    Household savings ratios have been increasing since 2006 and more people feel they have no major financial concerns. Willingness and ability to spend are increasing.

    But Mr Nelson says it is only when the elephant in the room, uncertainty, moves on that more normal conditions will prevail.

  • 5First National real estate 2011 property Market Outlook

    Market trends


    Falling house prices at several points of this year, alongside soft financial figures and building approvals triggered a drop in sentiment in the residential market.

    According to member agents responding to First Nationals Property Market Outlook Mid-Year Survey, around 92 per cent said the market had steadied or fallen (see table below).

    type of Market - First six Months 2011

    national aCt nsW Qld sa tas ViC Wa

    Falling 53.7% 50% 42.8% 83.3% 100% 75% 33.3% 45.4%

    Steady 38.6% 50% 51.0% 11.1% 25% 53.3% 36.3%

    Rising 7.5% 6.1% 5.5% 13.3% 18.1%

    This trend was expected to continue for the remainder of 2011, although the market was expected to steady fur ther and any falls were to be kept to a minimum.

    type of Market - next six Months 2011

    national aCt nsW Qld sa tas ViC Wa

    Falling 29.2% 28.5% 38.8% 37.5% 100% 20%

    Steady 54.7% 100% 55.1% 44.4% 62.5% 60% 72.7%

    Rising 16.0% 16.3% 16.6% 20% 27.2%

  • 6 First National real estate 2011 property Market Outlook

    Market Trends

    PRoPeRty PRiCes

    In the coming six months, the majority of our members believe house prices will remain flat, or decrease, with only a small portion saying they may trend upwards.

    House Prices next six Months 2011

    Across the board, any movements in house prices are expected to be within 10 per cent, but the majority of survey respondents anticipate them to be less than 5 per cent.

    national aCt nsW Qld sa tas ViC Wa

    Flat 50.9% 50% 55.1% 55.5% 37.5% 46.6% 63.6%

    Downwards 32.0% 22.4% 38.8% 62.5% 100% 33.3% 18.1%

    Upwards 16.9% 50% 22.4% 5.5% 20% 18.1%

    Tasmanian mem