House prices in Australia fell by just 1.2% in the year to May 2009, but prices will start to rise by the end of the year, predicts the ANZ bank’s June 2009 Housing Snapshot report.

Written by economist Dr Alex Joiner, the report says dwelling prices will “edge higher for much of the remainder of 2009”.

Property price momentum has improved “on the back of significant interest rate cuts and government assistance to first home buyers”, says Dr Joiner.

Each Australian state has a different outlook, although some of the predictions are similar to the BIS Shrapnel forecasts recently published. ANZ is forecasting:

New South Wales:

“This market was seen as vulnerable but the Sydney market was weaker earlier than others and has now shown positive signs in recent months. Housing finance approvals are up over 30% in the past seven months outperforming all other states. This has supported numbers of sales around the recent three-year average, remaining significantly higher than in the recessions of the 1980s and 1990s. Clearance rates have also risen to regularly fall between 70-80% in the recent months. Sydney median prices, that had eased as much as 5-7% through the year to March, have seen solid increases 1-2% per month in April and May. However, the recovery is not a smooth one and a reversal of fortunes from recent years characterises this market. The strength of the top-end has largely evaporated and the low to median range, dominated by first home owners, is leading the recovery. This is anticipated to continue.The Sydney market faces the challenge of economic underperformance over the coming year. As such we anticipate only a consolidation of recent price gains over the medium-term, yet still see considerable upside over the longer term.”

Victoria:

“The Melbourne market continues to be the most solid of the major capital cities. This has been driven by strong demand, with Melbourne the fastest growing capital city in the country, adding 70,000 residents last year. On average, Melbourne median house prices have been down around 4-5% over the past 12-months. However, activity at the median level has been very solid, led by first homebuyers that accounted for almost 50% of the owner occupier market in April. As a result, house sales numbers have remained elevated, more than 30% higher than in previous recessions and unit sales have reached a plateau at near-record highs. These sales levels have been supported by the highest levels of building activity in the country. Further, the recent Victorian budget announced measures to further stimulate new house building via the State's first homeowner bonus scheme. Renewed activity has pushed median prices 3-4% higher in the last three months, recovering much of the falls over the past year, with best performing suburbs having prices near median levels. The influx of first homebuyers into the market has marginally eased the squeeze in rental markets but vacancy rates remain very low at 1.4%, still putting upward pressure on rents. The Victorian economy should remain relatively solid, amidst strong demand.”

Queensland:

The Queensland economy and property market have been hit hard by the slowdown in the global economy and the reversal of the commodity boom. The market has in some ways been a victim of its own success. Median prices rose over 90% between 2002-2007 suggesting the market became overheated and now median price falls in the past year have been around 5-6%, with price weakness greater at the top end of the market. However, activity, as in other states, is increasingly being supported by the first home buyers. Yet partly due to demographic differences, the proportion of first home buyers in the market is relatively low. Much of the recovery in activity is centred around the median price, with over 80% of recent sales taking place below $500,000, and due to lower relative prices the unit market is outperforming detached houses. Housing finance approvals are up 20% over the past six months but growth has slowed in recent months along with the economy. Nonetheless, prices have been showing signs of consolidation in recent months with south east Queensland and Brisbane performing best, with the latter reportedly seeing median price increases around 1-2% over the last three months. The state economy will continue to weaken in the short term, but strong fundamental drivers, including ongoing strong population growth, should shield the market from any further significant falls.”

South Australia:

“The South Australian economy has been a surprise performer recently and was the only state to record positive economic growth in the first quarter on the back of strong private investment and solid consumption. As a result the median house price falls in Adelaide have been the smallest of all states, down only 1-2% over the past year. However, top end suburbs that had experienced double-digit price growth in the previous year have seen it come off around 4-5%. The number of property transactions has fallen around 20% in the year, shielding the market from greater falls. Housing finance approvals have turned around by 20% in recent months in line with the national average, but the past couple of months have been patchy due to relatively less activity from first home buyers. Transition from renting to buying has seen vacancy rates rise towards 2%. Yet rental markets remain tight as solid rental growth of around 7% has taken place in the last year. However, recently numbers of first homebuyers seem to have softened, representing only 20% of the market (excluding those refinancing) - the lowest of any state. So it seems, unlike other states, some momentum has already come out of the market. Latest price figures suggest prices were flat in May, not building on the 1-2% gains made in the previous few months. With the SA economy likely to come under increasing pressure, particularly as the manufacturing sector bears the brunt of the downturn, we anticipate prices will track broadly sideways over the medium term, edging upwards thereafter.”

Western Australia:

“Many have said of the Perth housing market "what goes up must come down". After coming so far so fast, it is not surprising to see prices come off peaks as the economy slows and the commodities boom wanes. Median prices have fallen 10% in the last year and for those that bought at the peak of the market this is clearly not good - if they are forced to sell now. But a little context is also helpful; house prices rose 100% in five years from 2002 onwards, so a 10% fall does not seem too bad. Prices have eased across much of the market, but larger than average falls have characterised the very top end. The numbers of transactions has wallowed at low levels for some time but have been starting to climb steadily (but modestly) in recent months. This suggests, combined with a solid increase in demand that median prices may begin to bottom out. However, reflective of the still subdued market conditions, overall finance approvals are only up 9% over the past six month (20% Australian-wide). Of the pickup in demand, again it is first home buyers leading the way, accounting for 48% of mortgage approvals. First home buyer interest has seen prices in some suburbs (where prices are at or below median) buck the downward trend and record price gains in recent months, but performances remain patchy. With the rental vacancy rate now at 2.9%, rental growth has slowed considerably. The Perth housing market as a whole will most likely remain subdued but the return of demand for commodities in coming years will see both the economy and housing market recover well.”

Tasmania:

 “The Tasmanian property market has been the most resilient in the country, supported by an ongoing solid economic performance and relatively high population growth. Unlike other states, according to the ABS, the Hobart market has not experienced consecutive quarterly price falls and is the only state capital to post price rises over the past six-months. The market has been driven by solid inward migration from the mainland, with cashed up ‘tree changers' finding the lowest median house price in Australia well within their means. First home buyers have also been very active, accounting for over 50% of recent mortgage approvals (excluding those refinancing) the highest level in the country. In Tassie low median prices means the federal FHOG, in addition to a $4000 State Government stamp duty concession, goes a long way. With the FHOG and low interest rates, sales volumes have jumped over 25% in the last quarter. Close to 1000 homes were sold across the state in April, the highest number since November 2007. Median prices are being supported by these factors, especially given the relatively small size of the market, yet some price softness remains at the top end of the spectrum. However, going forward, challenges to the property market remain, especially as the very large first home buyer impact currently in the market begins to dissipate.”

Australian Capital Territory:

 “After significant weakness through the back-half of 2008, the Canberra property market has recently shown signs of improvement. Price data shows that only modest falls in prices took place through much of 2008, with the number of transactions falling 14% in the year. As is the case across the country, price falls were mainly at the top end of the market and the recovery, which is now in train, is centred at the more affordable level of the market. Residex data suggests prices across the ACT were up 2% in the March quarter and just under another 2% in May alone. Housing finance approvals are up over 30% in the last six to seven months, outperforming the Australian average. The proportion of first home buyers has risen sharply, supporting the market, yet is well short of the national average. This is likely due to a large proportion of potential first home buyers moving to Canberra for employment that is temporary rather than permanent. Due to demand from this segment the unit rental market remains tight, vacancy rates are still around 1% and there is a shortage of stock, which is supporting prices. Very low unemployment and relatively high incomes should support this market.”

 Northern Territory:

 “The Darwin property market has taken all before it, shrugging off the falls in prices that have occurred across the country. Solid territory government finances, ongoing strong population growth, defence force activity and international investment in energy resource projects are all contributing to support the boom in the market. Darwin experienced only one quarter of price falls way back in March 2008, with demand staying strong and the number of sales falling only 2-3%. Since then, Residex data suggests house prices in the territory have increased well over 10% in the last 12 months, with unit prices outperforming even this, to be up closer to 15% over the same period. Darwin has a high temporary workforce with migration levels from overseas and interstate remaining solid. This has kept the rental market running red hot with vacancy rates entrenched at very low levels, despite local government efforts to bolster the rental stock. As a result rental growth is the highest in the country at around 15% over the past year. Consequently, unit rents are the second highest in the country and housing rents are the highest in the country and, as such, rental yields are 6% and 5.8%, respectively, which have attracted investors into the market. However, as the local economy slows in line with other commodity-driven states, the Northern Territory housing market will inevitably cool with it. Further, deteriorating affordability will begin to discourage inward migration and take some heat out of the market and growth should return to more sustainable levels.”

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