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The Crystal Ball Outlook

Every agent wants to have the inside information.
Here Tim Lawless from RP Data puts his neck-on-the-line and predicts the future.

Every agent wants to have the inside information. Here Tim Lawless from RP Data puts his neck-on-the-line and predicts the future.

Q. What do you think will be the major influences on the national residential property market in 2011?
A. Two factors will be top of mind for most consumers: interest rates and affordability. Of course the two are connected at the hip, with higher interest rates impacting negatively on affordability. The high rate of capital growth between 2009 and early 2010 has created further affordability pressures in the market. Recent comments from the Reserve Bank suggest that rates are going to be on hold over the short term, however pressure on inflation via wages growth and post-flood reconstruction is likely to become apparent when the March and June CPI figures are released.

Q.Did 2010 turn out to be an attractive year for property investors? What are your thoughts on the investor market for 2011?
A. At a macro level property values increased by 4.7% during 2010, so broadly speaking the capital gain result was quite modest. From region to region the results are very different however. Perth and Brisbane values slipped backwards while Melbourne saw impressive gains of 8.4% and Sydney values were up 6.6%. Investor numbers aren’t likely to be as high as they were in 2009 or 2010 and those who are active in the market need to have realistic expectations about value growth. Short term gains are going to be hard to find; investors should be using the current market conditions to buy well, secure a decent rental yield and position for long term capital gains.

Q. With the floods and cyclones battering Queensland this summer, what will be the outcome for the property markets in the areas affected and will the entire state feel the effect of thesecatastrophes?
A. It’s a hard question to answer and it is likely the outcome for flood and cyclone affected areas will be quite different from suburb to suburb depending on their exposure to the effects of the natural disaster. We recently looked at other markets affected by recent natural disasters including Innisfail post Cyclone Larry and suburbs affected by the Melbourne and Canberra bush fires. In each case the results showed a dramatic drop in sales volumes that lasted about 18 months. Median prices in these regions showed a slight dip for six months before levelling and eventually improving. The overall scenario for flood and weather affected areas in Queensland is likely to be similar. We expect the number of sales to fall away sharply due to few sellers willing to place their homes on the market while the memories remain fresh. Add to this buyer reluctance to purchase in affected areas. The lifestyle regions and riverfront suburbs of Brisbane will most likely be the first to rebound with many buyers placing a higher value on lifestyle as opposed to potential for flood or weather damage. The important lesson many will have learned from the recent weather related events is to ensure any property is adequately insured.

Q.What are your thoughts on the national housing market versus the unit market? Are they both facing similar outlooks for 2011?
A. Last year, across the combined capital cities, units returned a slightly better performance than houses (4.8% for units compared with 4.7% for houses). There is a slow but consistent shift towards units comprising a larger proportion of the total sales volumes each year. In Sydney the ratio of house to unit sales is getting close to 50% and in Melbourne unit sales comprise 36% of the market. For a diverse number of reasons, many buyers are choosing to own a unit rather than a house. Empty nesters and downsizers are an obvious segment that are increasing demand for unit living, but also Gen Y’s and X’s who look towards the unit market for its more affordable price points and what are often more strategic locations being close to the major working centres and related amenities such as public transport, shopping and social outlets.

Q. In your opinion, will interest rates remain on hold or are we likely to see them rise throughout 2011?
A. For the time being it looks like we are safe from any rate hikes. Core inflation has remained in check, the housing market has slowed in a controlled fashion,retail sales are modest and finance figures show households presently prefer to save rather than spend. The big test will of course be the inflation figures. With unemployment at 5.0% there is likely to be some wages pressure creeping through and the massive re-construction effort post flood/cyclone in Queensland will be stimulatory as well. Mortgage holders should be planning for at least one rate hike during 2011, most likely in the second half of the year.

Q.In the latest RP Data-Rismark Home Value Results, you recorded that dwelling values continued to flat-line in the last half of 2010, are we likely to see more of this for 2011?
A. Our outlook for 2011 is for fairly flat market conditions. The December quarter saw capital city homes values increase by just 0.4% which is basically a flat result or a slightly negative result when adjusted for inflation. The performance of the property market will be highly dependent on how the interest rate environment pans out. Higher rates will of course dampen consumer sentiment further resulting in fewer active buyers. Perth may be the market to watch during 2011. The Perth market has underperformed the capital city average since late 2006 and with the resources sector heating up and population growth remaining strong we may start to finally see Perth bouncing out of the doldrums.

Q.With demand for affordable housing likely to continue to increase, which areas in Australia will be most needy of the extra housing?
A. According to the National Housing Supply Council figures, New South Wales and Queensland are recording the most significant undersupply of homes. The Council estimated New South Wales was undersupplied by 57,600 homes and Queensland was undersupplied by 56,100 homes. Freeing up housing supply needs to be a primary focus across all layers of Government.

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Tim Lawless

Tim Lawless is the Research Director at CoreLogic Asia Pacific. Tim has been in the Australian housing market industry for more than 20 years with a focus on research.