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BIS Shrapnel forecasts residential recovery
Released 28 June 2011

Despite many capital cities recording a decline in median house prices in the year to March 2011, industry analyst and economic forecaster, BIS Shrapnel, is not expecting a property price crash.    

The company is forecasting steady prices through 2011, with some capital cities, including Sydney showing moderate price growth over the following two years to 2013.

According to the company’s Residential Property Prospects, 2011 to 2014 report, in 2010/11 the residential market was hit by a ‘perfect storm’ of falling first-home buyer numbers – which flowed through to weaker upgrader demand, stalling economic conditions and increases in interest rates. All of which coincided to dampen purchaser demand.

BIS Shrapnel Senior Manager Angie Zigomanis said while the focus of the fall in first-home buyer demand (down 50 per cent in 2010) has been higher interest rates, the main reason was actually a substantial ‘pull forward’ of first-home buyers into 2009 due to expiring government incentives. This then flowed through to weaker upgrader demand as there were fewer purchasers in the market for their existing dwellings.

“These movements in the property market coincided with the economy stalling due to government stimulus tapering off, and the resources boom yet to gain traction,” Zigomanis said.

“The combination of weaker demand, a more uncertain economic outlook, weak consumer confidence and prospects of further interest rate rises has resulted in weaker house prices.”

BIS Shrapnel has forecast Sydney’s Sydney’s median house price to be $640,000 in June 2011, which represents a one per cent rise over 2010/11, following a 14 per cent increase in 2009/10.

Despite the pick up in prices over the last two years, median house prices in real terms will remain nine per cent below the peak in March 2004. Similarly, home loan affordability has also improved, with BIS Shrapnel’s measure of affordability indicating that – apart from when interest rates were at record lows in 2009 – it is at its best level since 2002.

New dwelling construction in Sydney bottomed out at 50 year lows in 2008/09, which has been evident in the low vacancy rates and strong rents rises in recent years. Although new dwelling commencements have begun to recover, the low starting point means it remains below the level required by population growth, which means low vacancy rates and solid rental growth will continue.

“This deficiency will eventually encourage investors back into the Sydney market,” Zigomanis said.
“The upturn will begin to gain traction as economic growth continues to pick up over 2011/12 and 2012/13, although rising interest rates will have a moderating impact on the level of price growth despite the magnitude of the deficiency.

BIS is also forecasting total price growth in Sydney over the three years to June 2014 to be 18 per cent, or a moderate 5.7 per cent per annum.