Jump to content
House Price Crash Forum
Sign in to follow this  
Bardon

Real Estate Prices Have Fallen From The 2003 Peak

Recommended Posts

Why NSW has struggled to join the national real estate party

By Bob Wilson, 14th March 2008

NSW accounts for a third of Australia's GDP and is the country's most populous state. It is also home to one of the world's most visited cities (Sydney) and is the recognised hub of big business. But the state has not enjoyed anything approaching a boom since the 2000 Olympics, so it appears that NSW did not capitalise on the unprecedented opportunity for tourism the Olympics presented.

The NSW economy continues to lag the rest of the nation and much of its housing sector is likely to be slugged the hardest by interest rate increases, given the generally higher prices and consequently bigger mortgages. Real estate prices have fallen from the 2003 peak and have barely been sustained at those levels, even in some of the more desirable lifestyle locations along the NSW coast. While some commentators suggest the economy and housing market showed signs of recovery in 2007, the March 2008 interest rate hike may well erode any small gains made.

The national accounts figures released in March, which relate to the December 2007 quarter, showed that only South Australia (2.7%) and the ACT (2.2%) had poorer economic growth than NSW. Western Australia, Queensland and Tasmania outperformed the national benchmark. It's no surprise that the resource-rich states of WA and Queensland are doing well, given the relentless demand for coal, iron ore and other commodities from China and other markets.

ABS figures show that State Final Demand (the standard for measuring domestic productivity among the states) was 4.5% for NSW in the December 2007 quarter compared with 9.7% in Western Australia and 7.2% in Queensland and a national average of 5.7%

But, as economic commentators have observed, coal-rich NSW, with its steel-making industries, should be doing better. Some say it is: a report by ANZ Economics says the NSW economy is improving, pointing to a 1.2% seasonally adjusted gain in State Final Demand in the December 2007 quarter. (The figure was only 0.3% in the September 2007 quarter).

ANZ Bank chief economist Saul Eslake told the Australian Financial Review that the gap between the resource-rich states and the non-resource rich states (what he calls a two-speed economy) is closing. But Eslake says he was surprised NSW had not recovered before now, given that it's the country's second-largest coal exporter.

Demand for housing remains solid, with an additional 55,000 people moving to the state in FY2007. A critical shortage of housing in Sydney will provide significant support to house prices and rents. The ANZ's Property Outlook report suggests NSW's housing market is on the improve, after languishing for the past three years. However, bearing in mind the ANZ's report was written before the latest 0.25% interest rate increase, expectations of a sustained housing market recovery in NSW remain some way off.

Sydney's median house price rose 5.2% (ABS) or 7.3% (Residex) for the year to September. Housing price growth is patchy, with soft conditions in the western suburbs of Sydney, and residential development activity remains depressed, with housing starts at their lowest level on record.

The NSW central coast town of Wyong exemplifies what has happened in the NSW housing market since a sharp run up in FY2003. House sales peaked, dipped, and then gently slid downwards. Annual price growth over the five years to December 2007 ranged from 3.5% (Tuggerawong) to a respectable 10.3% (Summerland Point). But PRDnationwide Research says in a report on Wyong that the majority of growth in house prices occurred between 2000 and 2004, when the median house price increased from $157,000 to $339,675 (average annual growth of 21%). Today it would appear Wyong's house prices have stalled, with a median price of $314,000 in Wyong itself and $350,000 in the region (a haven for Sydney empty nesters and retirees).

Our research suggests you could come up with a similar house price scenario for many Sydney and coastal NSW locations. Even in Sydney's eastern beachside suburbs, median house prices fell after 2003. There was an upward spike in FY2007, according to PRDnationwide, but this was more to do with the quest for detached housing as the unit market flatlined by comparison. The median house price in Sydney's affluent beach suburbs rose from $505,000 to $1.060 million between 1999 and 2004, a growth rate of 16% a year. The median house price kicked again in 2007 to $1.124 million, an increase of 10% on the previous year, but nothing much happened in between.

On the other hand, major inland cities of Wagga Wagga, Dubbo, Tamworth and Muswellbrook are defying the trend. The Wagga Wagga housing market, by comparison, has been on an unbroken growth curve since 1999. PRDnationwide attributes this to the city's status as a major regional centre with education, employment and transport facilities. The city enjoys above average population growth (1.4% compared with 0.9% for NSW as a whole).

More importantly, though, demand and growth in the city's property market can be attributed to levels of housing affordability rarely found in NSW. The median house price has enjoyed consistent growth over the past 10 years, but at $254,000 (September 2007) it's still an enticing call to families looking to establish themselves as property owners or to investors looking for a good rental return. Even at the top end of the Wagga Wagga market, there were just 11 sales over $400,000. And this in a city where the average weekly household income ($967) is not significantly below the Australian average ($1027).

The saying used to be "It's Sydney or the bush". It seems "the bush", with centres like Wagga Wagga that have developed their own self-contained economies, is becoming the more attractive option - and the answer to the low-growth question hanging over much of NSW.

Share this post


Link to post
Share on other sites

Latest rate rises create "affluent stress"

Until now the more affluent sections of the community have appeared immune to interest rate rises. Despite 12 consecutive increases from the RBA, the upper end of the market in most cities has carried on regardless.

But now, according to the JPMorgan/Fujitsu Mortgage Industry Report, the latest rate rises have taken us into new territory. Not only do we have “mortgage stress”, but now we also have “affluent stress”.

The report says interest rate rises have combined with margin calls on share holdings and rises in private school fees to draw more affluent households into the web of those struggling to make ends meet. Wealthy professionals living by the beach will rank alongside battlers in the western suburbs of Sydney.

The report predicts that the number of households under financial stress will quadruple this year, with 700,000 households suffering some form of stress. Added to the battler households sinking under mortgage stress will be “exclusive professionals or mature stable families” coming under affluent stress.

It says problem affluent suburbs in Sydney will include Bondi, Chatswood and the Northern Beaches.

By the middle of this year, JPMorgan and Fujitsu expect 300,000 households around Australia to be in the “severe stress” category (which means missing mortgage repayments or being forced to sell a home) and another 400,000 under “mild stress”, which may include using credit cards to pay the mortgage (never a good sign).

Share this post


Link to post
Share on other sites

Inflation sparks rate hike talk

March 14, 2008 12:40pm

A FURTHER rise in official interest rates is on the cards after Reserve Bank of Australia (RBA) governor Glenn Stevens predicted annualised inflation will hit 4 per cent. The comments were made in speech at Treasury seminar in Canberra on Tuesday and only made public today. Mr Stevens rejected arguments that "there isn't much inflation around''. "When we get the March 2008 figures towards the end of April, we will most likely find that the rise over the four quarters is more like 4 per cent,'' he said.

The March quarter inflation figures will be released on April 23. Economists said the warning firmed up the chances of an interest rate hike in May, following hikes this month and in February, and despite separate increases in lending rates by the commercial banks. "With this in mind, we continue to look for another 25 basis point rate hike in early May, even though the Aussie commercial banks are doing some of hard yards for the RBA by raising market interest rates by more than the rises in the official cash rate,'' JPMorgan chief economists Stephen Walters said. In the December quarter, the annualised consumer price index rose to 3.4 per cent, which was outside the RBA's 2 to 3 per cent inflation target band. Underlying inflation rose to around 3 per cent.

RBC Capital Markets senior economist Su-Lin Ong said Mr Stevens' speech suggested domestic demand would have to slow down to get inflation back within its target. "It is clear that trying to get inflation back into the 2 to 3 per cent target range over the forecast period remains the RBA's key objective - this, in turn, implies a sustained period of much weaker domestic demand,'' she said.

"Governor Stevens notes that inflation pressures are broad based, not simply reflective of supply issues, and set to test four per cent in early 2008, well above the ceiling of the two to three per cent target range. "Its nagging concerns on the wage and inflationary expectations front are also clear.'' Ms Ong said Mr Stevens' speech said the RBA would keep its tightening bias. "Whether that bias is exercised or not depends heavily on whether key domestic activity data - credit growth, consumption, housing - start to show signs of moderation in the coming months. "The onus remains on the data to stop the RBA from lifting rates.'' In his speech Mr Stevens also defended the central bank against critics of its recent rate hikes. "Some people object to our message on inflation, including references we have made to labour costs, because they seem to think that we are somehow blaming wage earners for inflation,'' he said. "We are not saying that.''

Wages not to blame

The current inflation concerns had not been caused by a break out in wages, Mr Steven said. "It seems to me that if labour costs are starting to accelerate, this is mainly a symptom of inflation pressure in a very strong economy,'' he added. "Inflation problems do not have to start with wages. "Sometimes in Australia in the past they have started that way, but it should not be assumed that it will be that way on every occasion.''

Target band

Mr Stevens also tackled arguments that the RBA's inflation target is set to low. "This view accepts that inflation has increased, and that it is not just a few factors that are responsible, but argues that 3 to 4 per cent inflation is acceptable, and that it is unrealistic to expect to return to the two to three per cent standard,'' he said. "I do not think that the 2 to 3 per cent average inflation target is too ambitious. "We have achieved it for the past 15 years, and we achieved average outcomes of that order for long periods in the 20th century. "If we accept that the target could slide up to 3 to 4 per cent, to match actual inflation, how long would it be before we were debating 4 to 5 per cent as a goal?''

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.