Sunday, July 13, 2008

Clouds Gathering

Extract from Courier Mail website (13 July 2008):

HOUSE prices are falling in the US, Britain, Spain and western Sydney. Could Brisbane be next? There is a precedent. In 1995 the median house price in Brisbane slipped 2 per cent. And in the first five months of this year it crept up a mere 1.8 per cent, according to property researcher RP Data. ...

Some Brisbane agents are eyeing the market with a hint of trepidation. John Johnston, chief executive of Toowong agency Johnston Dixon, says sentiment is very, very low. "Auction clearance rates this year have been only 30 per cent and that includes sales before the event. More sales are crashing during the (seven-day) cooling-off period than I have ever seen in 20 years in real estate in southeast Queensland."

Brisbane property analyst Michael Matusik said it would only take another quarter of a percentage point interest rate rise by the Reserve Bank next month to trigger a fall. "Prices would come back 5 per cent for a quarter or two and then start to rise again," he said. "And if interest rates went up more than once, there would be a 10 per cent correction."

Philip Parker, chief auctioneer for the state's biggest real estate firm Ray White, said that "what has to fall is people's expectations, not the value of properties. We've done sales of property for less than people were offered four or five months ago, but equally we've done them for more. In any market there will be people who buy a place for $500,000 and find that if they want to sell it a year later, they have to accept less."

Both Mr Johnston and Mr Parker fear the consequences if official interest rates were to reach 10 per cent, compared with the 7.25 per cent at present. ...

"If official rates reached 10 per cent that would be the equivalent of the high teens of the Keating era because people borrow so much these days," Mr Johnston said. "A repeat of 1995 is not out of the question, but the big difference is that then we had an incredible surplus of houses being built. Right now there is big deficit."

The Housing Industry Association estimates that there will be 43,700 housing starts in Queensland this year, 4900 below that required to meet demand.

RP Data's national research director Tim Lawless doesn't see prices falling in southeast Queensland but "we expect the market to remain relatively flat as long as there's a high-inflation environment. Any sign of inflation easing will be the cue for investors to become more active in the market. We think this is likely to happen during the first six months of next year."

Real Estate Institute of Queensland managing directors Dan Molloy said slowdowns in the market in the past 20 years had generally followed interest rate rises or economic uncertainty.

But the Queensland market was fundamentally strong.

"Elements such as our strong population and economic growth, as well as a burgeoning resources sector, have ensured its resilience," he said. "As with previous economic cycles, these elements combine to minimise any negative impacts." But barring further interest rate rises, Mr Matusik forecasts price growth of 8 per cent this financial year, although most of it will occur in 2009.

Any drop in prices would be welcomed by those trying to enter the market, but the benefit would probably be illusory if it came at the cost of higher interest rates. The most recent Real Estate Institute of Australia figures found that Queenslanders needed more than 40 per cent of median family income to service the average new home loan.

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