Australian house prices could rise 7% in 2013 if eurozone holds together: SQM Research

Australian house prices could rise 7% in 2013 if eurozone holds together: SQM Research
Australian house prices could rise 7% in 2013 if eurozone holds together: SQM Research

Capital city property prices are forecast to rise by between 4% and 7% in 2013, with Sydney, Darwin and Perth expected to be the strongest performers under favourable economic factors, according to the 2012 SQM Research Boom and Bust Report. 

Double-digit house price growth is in the upper range of forecasts for Perth (12%) and Darwin (14%), with Sydney just under (9%) under a base-case scenario of terms of trade falling but then stabilising; the cash rate falling by 50 basis points; and the Australian dollar hovering at parity against the US dollar.

Even under an unlikely worst-case "wild card" scenario of a break-up of the eurozone, terms of trade crashing, banks rationing credit and the RBA forced to cut rates by 150 basis, the impact on property prices would be small, with SQM Research forecasting a maximum 3% fall in house prices.

The Perth and Adelaide housing markets would suffer the most pain under such a scenario, with SQM Research forecasting as much as a 5% fall in Perth dwelling prices, with 4% maximum falls in Brisbane and Melbourne.

City

% change from peak to June 2012

2012 to date

2012 Forecast

2013F
Scenario 1 (base case)

TOT falls then stabilises

RBA cuts by 50bp

AUD hovers at parity

2013F

Worst-case scenario

Euro break-up

Banks ration credit

RBA cuts by 150 basis points

Perth

-5.8%
(Mar 2010)

+1.2%

+1% to +5%

+6% to +12%

-5% to -3%

Brisbane

-6.9%
(June 2010)

Steady

-1% to +3%

+3% to +7%

-4% to -1%

Darwin

New High
(June 2012)

+9.7%

+7% to +13%

+6% to +14%

+2% to +5%

Melbourne

-7.5%
(June 2010)

-1.6%

-3% to +2%

+2% to +5%

-4% to 0%

Sydney

-1.5%
(June 2010)

+2.2%

+3% to +5%

+5% to +9%

-1% to +3%

Adelaide

-5.1%
(Dec 2010)

-0.6%

-3% to +2%

+2% to +5%

-5% to -3%

Hobart

-7.2%
(Dec 2010)

-2.4%

-5% to 0%

+2% to +5%

-2% to +2%

Canberra

-2.8%
(Dec 2010)

-1.0%

-2% to 0%

+1% to +4%

-3% to 0%

Capital city Average

-4.7%
(June 2010)

+0.3%

0% to +3%

+4% to +7%

-3% to 0%


SQM Research managing director Louis Christopher tells Property Observer that Sydney remains the “blue chip of real estate markets”

“It’s a deep and safe market."

However, he says Sydney is very much a two-speed market, with the outer-ring suburbs expected to outperform but no recovery in sight for the prestige market, which could fall further in 2013.

“Sydney is facing an acute housing shortage predominantly in the lower and middle end of the market. In the past, the city benefited from the booming financial sector, however, the GFC has had a direct impact on the sector and ultimately the housing market in the city,” says the Boom and Bust report.


Christopher admits that SQM Research missed the “rapid increase” in the Darwin market and only picked it up recently.

“Darwin is better buffeted than other capital cities from a terms-of-trade decline.

"It is more diverse in its resource base and more exposed to the energy sector via a number of gas projects."

He says Perth could do surprisingly well even under a base-case scenario, especially if interest rates continue to fall.

“Perth residents are still sensitive to rate movements.

“Perth went into a downturn in 2007, before the GFC and the reason was interest rate rises.

“We are now getting the interest rate cuts. All Perth needs employment to hold and there will be a fairly strong recovery. The other ingredients is the strong rental market and falling levels of stock-on-market figures," says Christopher.

Melbourne is forecast to mount a more muted recovery, with prices expected to rise between 2% and 5% in 2013.

Christopher says Melbourne house prices will stop falling shortly but expects no major recovery due to the amount of stock on market and new construction of homes continuing.

“This will put a big cap on price growth.

“Later on prices will stop falling, especially with established, separated houses in inner and middle-ring suburbs as opposed to the outer ring, where there is an excess of new land parcels, too many releases in our opinion, which is causing problems," he says.

The outlook for Brisbane is better than Melbourne, but Christopher says it remains a buyers' market.

The report notes that much of the recovery in Brisbane will be dependent on decisions at a state government level.

“No strong recovery for the housing market is expected in the near future. It is also seen that the Queensland government is striving for a budget surplus, which could lead to a slowed economy in the near future. House prices would be directly impacted by any decisions taken by the state government.”


Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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