Is the golden age of rising property prices about to end?

The growth in residential property prices in Australia’s major cities will continue well into next year despite speculation that the golden age of rising home values is poised to end.

Senior property industry figures say near-record low interest rates, high migration numbers and relatively stable employment figures will see house prices record strong rather than spectacular increases well into 2015.

Housing Industry Association chief economist Harley Dale says Australia is still enjoying a surge in property prices that began in the late 1990s.

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“Prices are still rising, but not in many parts of regional Australia,’’ Mr Dale says.

“In parts of regional Victoria the prices are flat and going backwards in inflation adjusted terms. But in Sydney, Melbourne, and to a lesser extent Perth you are still enjoying strong capital gains. Prices are growing at about 10 per cent per annum – that’s the national mean average – across all types of dwellings, established and new.’’

newdaily_270614_houses_2Mr Dale says housing prices across the eight capital cities grew at an annual rate of 10.7 per cent in the 12 months to May this year. The national median housing price for the capital cities in May was $545,000.

“The bottom line is you had a strong 2013,” he says. “This follows a weaker (in terms of price growth) 2011 and 2012. Over 2013 to date, especially the last couple of months, there is tentative evidence to suggest that the rate of growth is easing. But it is not slowing sharply.”

Mr Dale says much of that price growth can be attributed to “near record low interest rates and high overseas net migration’’, and prices will remain buoyant until interest rates start to rise.

“In our view (rates) won’t change until the middle of 2015,’’ Mr Dale says.

But the chief economist does sound a note of caution for those expecting strong price growth beyond the middle of next year.

“So, if you are thinking of selling don’t be banking on continuing healthy capital gains.’’

Staying put

Looking at the current level of Australian house prices, some families are choosing to renovate instead of move.

From minor maintenance to a major makeover, more and more Australians are getting bitten by the renovation bug.

Following a big slump last financial year, home renovation is bouncing back to be a $30 billion-plus contributor to the national economy, a Housing Industry Association report shows.

newdaily_260614_renovation1It predicts that money spent on renovations will top $28 billion for 2013/14 and hit $30.3 billion within three years.

While some homes are being improved rather than sold, some of Australa’s hottest housing markets are showing signs of cooling.

The managing director of PRDnationwide Tony Brasier* says the rate of price growth is slowing in Sydney.

“It has plateaued, but by definition that must happen after it reached 15 per cent in 2013,” says the real estate franchise network chief. “That growth cannot be sustained long term.”

Demand still strong

But the former Real Estate Institute of Australia president believes price growth across Australia will continue at strong levels because of local and overseas investor demand for property.

“It should be single digit growth – about 9 per cent – going into next year,” he says. “I don’t believe we are in a bubble at all. It’s just strong growth fed by demand, which shows no sign of going away for the foreseeable future.”

Mr Brasier explains that off-shore investors, “particularly the mainland Chinese, are helping to prop up the market’’. “The Chinese are buying high-rise apartments in large numbers, mostly in Sydney and Melbourne’’ he says.

Mr Brasier agrees that investors will not shift from property to shares in sizeable numbers while interest rates are low, employment is stable and there are low vacancy rates for investor-favoured properties.

“In Sydney they need to create more than 30,000 new homes every year to satisfy population growth,” he says.

“What we are seeing is a more normal, solid growth market whereas the spectacular growth we have seen in Sydney in the last 18 months has been fed by people’s perceptions that interest rates would be down for a long time.”

Andrew Brasier has 18 years’ experience writing about the Australian property market. He has written on property for the News Corp publications, was the property editor of Herald-Sun’s Home magazine for 13 years and has written for Fairfax-publication Domain.

* Tony Brasier is a distant relative of the author. The pair have never met.

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