(SINGAPORE) Australian home prices are unlikely to revisit the record highs of 2010, rising only modestly over the next two years, as a subdued global economy and tighter mortgage and monetary conditions crimp demand in the near term, a Reuters poll found.
However, chances of a full scale US-style property market melt-down are low as analysts remain optimistic that the housing market will regain pace next year, hinging their hopes on monetary easing, an improving economy and a lasting solution to Europe’s debt woes.
The consensus in Reuters’ first ever survey on Australia’s property market taken between Feb 15-21, showed that home prices, which include detached homes and apartments, would rise by 1.5 per cent this year and 3 per cent in 2013.
That compares with a drop of about 3.6 per cent last year, according to one widely used measure compiled by property consultant RP-Data Rismark.
‘Despite ongoing commentary from the property doomsayers, Australia’s housing market is strongly underpinned in terms of fundamentals,’ said Andrew Harvey, senior economist at the Housing Industry Association Limited.
‘If the macro-policy settings are correct, further rate cuts in particular, then there should be no further correction in the Australian housing market. Of course, if there is further deterioration in Europe then all bets are off.’
In an attempt to avert an imminent chaotic default by Greece, eurozone finance ministers agreed to a 130 billion euro (US$216.46 billion) rescue package on Tuesday after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.
Home prices hit record highs in 2010, propelling Australia into the league of the world’s most expensive markets. A recent Deutsche Bank report stated home prices were overvalued by 39 per cent, among the highest in the developed world.
Reuters’ poll, however, found the Australian housing market was rated as only moderately overvalued. Analysts gave it a six on a scale of one to 10 where one stood for extremely undervalued and 10 for extremely overvalued. Responses ranged from five to as high as nine.
Data on city house prices from the government earlier this month did show a fall of almost 5 per cent last year, close to the losses during the gloom of the global financial crisis.
But that was nowhere near the catastrophic declines seen in the US, where prices fell by more than a third from their peak.
Bank lending standards in Australia are far tougher than in the US while mortgages are full-recourse loans, meaning defaults are very rare.
The fall in prices provided another argument for lower interest rates, though the Reserve Bank of Australia confounded market expectations earlier this month by leaving rates unchanged stating they were at the right level for the moment.
Added to that, all four major banks in Australia have recently nudged up mortgage rates, blaming higher funding costs globally for the shift. — Reuters
Source: Business Times 23 Feb 2012