House prices continue to rise

House prices and rental prices will continue to rise over the next three years due to record immigration and the highest population increase since the late 1980s, economic research firm BIS Shrapnel says.

The Residential Property Prospects 2008 to 2011 report also says rising rents and improving credit conditions will be the cause of the next surge in residential prices. This may eventually cause many banks to lower their borrowing rates.

“Australia is experiencing record net overseas migration flows which are underpinning what is already strong underlying demand for housing,” the report says.

According the report, Melbourne prices will grow 16% over this period, Sydney and Newcastle 18%, Adelaide 15%, Darwin by 21%. But Perth, which has seen incredibly recent growth as a result of the resources boom, will grow by only 6%.

Angie Zigomanis, who wrote the report, says the outlook for residential property is good. “Most of the markets paused for a while… but were hit on the head by interest rates rises,” he says. “But in the meantime, we’ve had very strong levels of population growth, and demand has exceeded the amount of houses. We think the pressures in the market are beginning to build up.

“Economic conditions are still pretty good and income is pretty strong. That’ll increase the capability for higher price growth.”

But Noel Dyett, president of the Real Estate Industry of Victoria, says the residential property market seems to be stabilising.

“There are areas that will remain possibly quite strong,” he says. “There are still areas in the Australian market where there have been significant declines, and there will be areas of the market that will experience the same situation… some will remain strong, others will weaken.”

Meanwhile, auctions rates around the country are continuing to reflect rising house prices. In Sydney, 53% of auctions cleared, with 197 sold and a median price at $671,000. In Brisbane the clearance rate was 30%, with 13 properties sold via auction with a median of $688,500. In Adelaide, the clearance rate was 41% with 13 properties sold at a median price of $507,500. The clearance rate in Melbourne was 67%, with 391 houses and 205 flats sold.

Read more on housing affordability