Queensland housing prospects stronger than NSW: Deutsche Bank

The medium-term outlook for the Queensland housing market is rosier than that of NSW, according to analysis by Deutsche Bank.

Currently Queensland ranks as the weakest housing market on the bank’s three key metrics – approvals are currently running about 33% below their long-run average pace, house prices have fallen by 3.6% over the past year and “ownership transfer costs” have fallen by 24.9% over the four quarters to March 2011 compared with the four quarters to March 2010.

However, according to Deutsche Bank economists Adam Boyton and Phil O’Donaghoe, the current weakness in Queensland is more a result of house price corrections outside of Brisbane such as the Gold Coast east market (identified by the RBA as having the third-highest number of housing arrears of any region in Australia).

Brisbane, according to the bank’s housing analysts, is likely to undergo a much shallower house price correction, since the market came off its peak in June 2010.

In comparison, the Sydney market has been undergoing a much longer price correction dating back as far as 2003, reflecting excesses that had been building up over a number of years.

Besides a smaller, short-term house price correction, Deutsche Bank says there are two additional features that may lead to some alleviation of the recent weaknesses in Queensland.

“First, reconstruction efforts following the Queensland floods in late 2010/early 2011 should provide some respite. The Queensland Treasury have estimated that around 3,000 homes were rendered non-liveable as a result of the floods and Cyclone Yasi, with more than 50,000 dwellings were damaged to various degrees,” the bank says.

“Current dwelling approvals run at a little over 2,000 per month in Queensland – the long-run average is a little over 3,000.”

The second factor is the introduction of the Queensland Building Boost program at the beginning of August, which the bank says has the potential to cover up to 14,000 new homes.

According to Deutsche Bank, Victoria has had the strongest housing market over the past year, with approvals currently running around 40% above their long run average pace. While Victorian house prices fell by 2.0% over the year to the second quarter of 2011, this follows a peak increase of 26.3% year on year in the first quarter of 2010 and ‘ownership transfer costs’ rose by 3.8% in the four quarters to March 2011 compared to the four quarters to March 2010.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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