Property experts say 2011 outlook soft as prices stabilise

The property market is set for a soft beginning to the year after new figures from RP Data revealed late last week property prices dropped by 0.2% in November after the RBA decided to raise interest rates.

Head of SQM Research Louis Christopher also says the figures indicate the first half of 2011 will see the property market enter a “downturn” that, if left unabated, could see the RBA even reduce interest rates.

“I think we’re going into a downturn here nationwide, and that may spread to Sydney as well. And this could move to a point where the RBA could consider cutting interest rates if it continues,” he says.

Christopher has previously said the amount of properties currently on the market is driving down prices, and he argues this will continue into 2011 even though sellers won’t get the prices they are looking for.

“No matter what, we’re going to see prices falling,” he says.

Real Estate Institute of Australia president David Airey also says while the RP Data figures are questionable, they indicate the market will record a softer start as sellers rethink their prices after listings have been kept on the market for several weeks.

“I don’t think the figures are necessarily accurate because they are taken on a monthly basis… I think the quarterly figures are more accurate. But in general terms, I do believe we are going to see a softer market as sellers rethink their prices heading into the New Year.”

Late last week the RP Data-Rismark figures showed prices fell by a seasonally adjusted 0.2% in November as consumers struggled under higher variable mortgage rates. Prices were up by only 5.2% for the year, according to the figures.

Housing prices fell across all price ranges, although the largest decreases were recorded in the bottom 80% of capital city suburbs. Prices fell in all capital cities except in Melbourne where prices grew by 0.5%, in Darwin by 0.5% and in Canberra by 0.8%.

In year-on-year terms, prices grew in all capital cities except Brisbane, where prices fell by 0.7% due to what many analysts believe is an overabundance of stock, and in Perth by 2.3%.

The median price of property in Perth is now $525,000, Melbourne is now at $485,00 and Brisbane is now at $432,900. Prices in Adelaide are $382,000, in Perth the median price is $460,000 and in Hobart a figure of $320,000 was recorded.

In Darwin and Canberra, prices are at $465,000 and $512,500 respectively. In a statement, RP Data and Rismark commented that the softening of prices across all capitals was clearly evident.

“In the capital cities, Australian home values are now lower than the levels they reached in March 2010. That is, there has been no capital growth since the end of the first quarter. Similarly, in the rest of state markets, which account for around 40% of all homes by number, dwelling values are now below their January 2010 peak.”

But other experts claim that prices may stabilise, but they will not fall.

Christopher Joye, Rismark managing director, also said in a statement that if the RBA does not raise rates again during 2011, property prices will stabilise “and grind out capital gains in excess of headline inflation”.

“We believe that there is a risk of at least three cash rate increases in 2011. In this event, our central case is that there will be little to no nominal dwelling price growth over 2011, with a chance of small nominal declines.”

But Joye also adds that this is not necessarily a bad thing, and that this will “only further improve asset-class valuations”, and that while price stabilisation may occur, “we believe that the likelihood of substantial national house price falls is remote”.

In a separate statement, ANZ economist Paul Braddick claimed that as a result of the latest RP Data figures, “the two-speed economy also appears to be emerging in the housing market”. Braddick also says that prices will stabilise in 2011 – although claiming they will not fall.

“While the November interest rate hike further deteriorated home purchase affordability, general household financial stability and underlying tightness in market fundamentals are continuing to support albeit weak annual growth in house prices.”

“We believe these market foundations combined with a strong domestic economic outlook, falling unemployment and limited ‘forced’ selling will effectively place a floor under house prices in 2011.”