Property prices to stabilise: Onthehouse

Australian property prices are set to even out after last year’s growth in Sydney and Melbourne, according to new data from Residex, the research arm of online real estate portal Onthehouse.

Onthehouse claims that the Sydney market has reached its peak after 15% median price growth in the 12 months to February 2014. In the same period, median house prices in Melbourne rose in value by 10% while Perth’s prices grew by 9.25%, according to Residex. Weakening consumer sentiment and affordability issues are expected to contribute to a drop off in dwellings price growth over the next five years.

John Edwards, the consulting analyst for Onthehouse and founder of Residex, commented that wage growth had not kept pace with property price growth.

“While property values experienced strong growth in the last quarter of 2013, wages have not grown at the same rate. Sydney’s property market, which is a leading indicator for the national market, has consistently outperformed wages growth which continues to push property out of reach of buyers,” Edwards said.

“There is a natural limit on the maximum value of an asset at any point in time and that is the value at which the masses deem it to be unaffordable. At that point, competition for the asset diminishes. In Sydney, the trend data suggests that house prices are reaching their peak value in dollar terms for this period of growth.”

Residex cites the Westpac Melbourne Institute Index of Consumer Sentiment as a factor in its prediction. The index is at its lowest level since May last year, having fallen 10.9% from its peak in November 2013. It has also noted the same institute’s Unemployment Expectations measure, which has risen by 5.5% since May 2013, and is now sitting 13.6% above its November level. According to Residex, the unemployment index is at levels surpassed only by recession period readings during 2008-09, the early 1990s and early 1980s.

Onthehouse predicts that Sydney’s annual price growth will slow to 4% over the next five years, with Melbourne at 4% and Perth at 3%.