Australian Property News

Price growth predictions for spring

Posted on Thursday, September 02 2010 at 2:27 PM

The next phase of the property market's growth cycle will kickstart within 60 days, according to McGrath chief executive John McGrath in his recent Market Review for spring.

McGrath said that auction clearance rates have dropped from above 70 per cent to around 60 per cent over the winter period, but believes this rate is still a healthy level.

"It's normal for the property sector to experience short periods of high growth followed by shorter periods of market stabilisation in a long-term growth cycle. Real estate markets rarely grow in a straight line," he said.

Strongly disagreeing with commentators predicting a major correction in Australian real estate prices, McGrath said he's heard these predictions intermittently over the past 30 years and no correction eventuated beyond 20 to 30 per cent or continued longer than 18 months.

"Neither constitutes a collapse – more so a short term repricing or pause in the growth cycle which is indeed a healthy thing," he said.

McGrath agrees with predictions of BIS Shrapnel chief economist Frank Gelber, stating that residential prices in inner city and key coastal locations will grow by 30 per cent over the next three years.

"I am optimistic due to the underlying fundamentals of strong population growth, a major undersupply of housing, a robust local economy and the return of the property investor," he said.

John McGrath's key observations and views of the current market include:

• Spring will be a strong selling market with listings hitting the market at the traditional peak selling period coinciding with growing buyer confidence courtesy of an improving economy. The other factor is a slight backlog of buyers seeking homes after the Federal Election, which should add to the pressure. Only a double dip recession could hold back this growth and that appears unlikely. Therefore he anticipates the market growth phase to kickstart within 60 days.

• Interest rates will continue to dictate market demand particularly at the lower end. First homebuyers will probably accept one more rate rise but beyond that there may be a slowdown in activity.

• -Sydney's most active market sector is sub $2 million due to demand from upgrading families in the inner and middle rings. As the sharemarket improves, so will the $2 million to $4 million bracket, but this may take a little more time.

• The market above $4 million has been somewhat stagnant but there may be an increase in demand as the top end of town gathers confidence as the global financial crisis moves further into the past. It’s likely there'll be patchy growth over the next 12 months depending on the depth of demand and the unique traits of any given home for sale.

• Regional markets are still relatively soft but the increasing strength of the major metropolitan markets should spill over to the regionals in 2011. There's already new interest in holiday homes and weekenders plus rising demand from executive families looking for a lifestyle change in areas with a fast CBD commute.

• Rents will continue to rise due to the current undersupply and investors can reasonably expect average annual yields of 4.5 to five per cent in prime metro locations close to transport, cafes and beaches.

McGrath's top metro suburb picks and best buying opportunities in New South Wales include:

Houses: Avalon, Bronte, Five Dock, Hunters Hill, Neutral Bay.

Apartments: Annandale, Chippendale, Concord, Potts Point, Rozelle.