Housing markets will recover in most capitals in 2012: APM

The 2011 pessimism in most housing markets across the country will be replaced by return to growth in 2012, according to Australian Property Monitors, with Brisbane, Perth and Darwin tipped as the likely best performers.

Its October quarter national median house price was off by 1.6% – and down 4.2% over the year.

But going out on a limb against the prevailing more of the same sentiment, APM senior economist Dr Andrew Wilson forecasts next year will provide brighter, but mixed outcomes for housing markets.

Some capital cities are set to revive strongly while others will remain flat, he says.

Much of his forecast is based on the mining boom assisting the continued prospect of strong economic growth in Australia.

“Australia’s economic fundamentals are strong, and are well positioned to weather any downturn in international markets.

"This, coupled with renewed buyer confidence, will be the key to driving prices growth in the new year,” Wilson says.

“Nationally, median house prices should recover to rise by 3 to 5 per cent through 2012,” he forecasts.

Darwin, Perth and Brisbane have the best prospects for price growth, while Sydney and Canberra are also expected to achieve reasonable growth in the year, he says.

Capital City Forecast growth – Median House Prices 2012

National 3% to 5%

Sydney 3% to 5%

Melbourne 0% to 3%

Brisbane 5% to 10%

Adelaide 0% to 3%

Perth 5% to 10%

Hobart 0% to 3%

Darwin 5% to 10%

Canberra 3% to 5%

“Demand for housing will intensify in 2012, particularly in Sydney, Canberra and Perth, which will see housing markets re-energised albeit at different levels,” Wilson says.

Source: APM

APM says Brisbane has been the worst performer of all capital city markets in 2011, with median house prices down nearly 7% over the year ending October, with a lingering significant contributing factor being the devastating floods in January.

"The Brisbane housing market is set to revive in 2012 off the back of the Queensland resources boom that will gather strength through the year – weather conditions notwithstanding. Dwelling shortages, population increases, rising incomes and the improvement in confidence as a consequence of the reconstruction program should contribute to a recovery in buyer activity.

"Brisbane has the clear potential of double digit growth in median house prices over 2012,” Wilson says.

He reports low buyer confidence had caused Perth’s median house price to fall by nearly 6% in the year to October 2011, which is almost 10% below the peaks recorded four years ago. "With recessed house prices together with low levels of new construction and a flood of workers seeking the wages bonanza delivered by nearly $100 billion in mining activity, Perth houses prices have the clear potential to rise by a double-digit percentage in 2012," he says.

The third big rise is forecast for Darwin, which has recorded a typically erratic pattern of median house price growth in 2011 with October quarter median house prices decreasing markedly by 3.5% and down 3.9% over the year ending October.

"Darwin also has good prospects of sustained house price growth through 2012 as it resumes its volatile pattern of housing market activity,” Wilson says.

"Significant exposure to the resource sector, seasonal employment patterns and a severe shortage of accommodation will drive increased home buyer activity levels.”

"It would not surprise to see Darwin record double-digit house price growth by the end of 2012," he suggests.

Of the two major capitals, Wilson believes Sydney will be the stronger.

He says Sydney has predictably performed best of the capitals in 2011 with median house prices relatively stable – not surprising considering its underlying lack of housing and associated costly rental market.

"Sydney provides a solid prospect for median house price growth of up to 5% in 2012.

"This growth will come mainly through the lower and middle band suburbs as buyers seek to maximise choices in a market characterised by chronic shortages of accommodation and Australia’s tightest capital city rental market."

He expects the prestige market will remain quiet in Sydney in 2012 although some modest but sustained growth in house prices may be recorded towards the end of the year from a low base.

"This will be contingent on the flow-on effect of the resources boom driving a significant recovery in the share market unleashing the wealth effect and the aspirational buyers that have been largely dormant in Sydney since 2008.

Melbourne’s housing market will struggle for growth in 2012 as it continues to adjust to the affordability barriers created by the strong price rises of 2009 to 2010, Wilson forecasts.

"A waning economic performance in 2011 exacerbated declining buyer activity through 2011.

"The Victorian economy is set to continue to waver early in 2012 as the construction sector struggles to find replacement work following the abatement of the new apartment boom of 2010 and 2011.

"An oversupply of apartment stock looms, which will keep a lid on rental growth and subsequent investor activity in what is already the most tenant-friendly capital city rental market.

"Similar to Sydney however, the flow-on effects of the resources boom and a revival in the stock market may activate the prestige market with reasonable prospects of prices growth from a low base.

“Overall Melbourne house prices should drift sideways over the year with some modest incremental growth a possibility by years-end."

The Adelaide housing market has floundered this year according to APM with median house prices down by more than 5% over the year.

"A significant contributing factor to this outcome has been the continued underperformance of the South Australian economy and its impact generally on buyer confidence,” Wilson says.

“The Adelaide housing market will struggle to revive in 2012 although with South Australia’s direct exposure to the resources sector expect flat to marginal house price increases.”

The report suggests Canberra is set to record increases in home buyer activity as economic growth fuels increased public service activity in the national capital.

A chronic undersupply of housing will drive prices growth through 2012, and APM expects this to be about 5% by year’s end.

The report notes the Canberra housing market proved particularly resilient in 2011, with median house prices down by just 1.7% over the year to October – a nation-leading performance.

For Hobart, Wilson suggests a revival in buyer activity in 2012 would be heavily dependent on a lift in the local economy.

"With no direct exposure to the resource sector, the Tasmanian economy is set to continue to meander.

"As a consequence buyer confidence will remain subdued and house price growth will be flat for most of 2012," he forecasts.