House & units prices headed for 10% fall

HOUSE and unit prices across most major capital cities are forecast to fall by at least 10% over the next 12 months as the market steps back into year 2004 – the year residential property markets slowed down, according to Australian Property Monitors.

APM’s June 2008 Quarter House Price Guide has found already all major capitals have experienced a softening of house values as rapidly rising mortgage rates are now biting hard.

Sydney experienced the largest drop in median house prices since June 2004, falling 2.1% in the three months to June 2008 from $553,902 to $542,488. Sydney is marginally (1.1%) ahead of the median house price in June 2007 of $536,369.

Sydney is now the only capital city to have a median house price above the $500,000 mark after Perth and Canberra left the club.

Perth also witnessed a big fall, its median house prices slipped 2.8% over the quarter from $510,387 to $496,111. Prices are 1.6% lower than $504,178 during the same quarter a year ago.

Brisbane house prices fell 1.3% during the quarter to $437,379 but remained 11.5% above last year’s median of $292,095.

APM’s general manager Michael McNamara said the June quarter housing data is the weakest observed since 2004.

“This quarter we recorded widespread falls across Australia’s major capitals, and we expect this trend to continue.

“It is likely these results are the canary down the coal mine, and that rapidly rising mortgage rates and a looming economic slowdown will usher in a sustained period of property market weakness,” he added.

APM found prices in Melbourne and Canberra both eased 0.6% to $449,888 and $497,754 respectively. However Melbourne and Canberra were still 14% and 8.1% ahead on a year-on-year basis.

McNamara said Melbourne’s auction market is now the poorest since 2004 as buyer confidence is waning and house prices have begun to slide.

He said Canberra’s poor performance was due to a glut of unsold properties which is providing choice and bargaining power for buyers.

“This is putting downward pressure on prices,”

There were three resilient markets over the quarter, Darwin, Adelaide and Hobart which reported 0.9%, 0.4% and 0.2% increases respectively. But Adelaide stood out over the 12 month period, the median is 16% followed by Hobart’s 10.3% and Darwin’s 9.6%.

But McNamara warned, despite values holding pattern in Adelaide, the market has become extremely sluggish.

Meanwhile, APM found the apartment market appears to be holding up compared to houses.

The worst market was Hobart where values fell 3.8% to $207,568. The apple isle was followed closely by Brisbane where unit prices slipped 3% to $327,282 over the quarter.

Sydney apartment values eased for the second consecutive quarter down 0.1% to $366,622 and Perth slipped 0.6% to $362,584.

Melbourne and Canberra apartment values held up, increasing 0.1% and 1.4% respectively.

Looking ahead, APM forecasts Perth house and unit prices to fall between 10% and 15% over the next 12 months.

“We expect a further 10% dip in house and unit values across most major capitals over the next 12 months,”

McNamara said strong migration patterns and rising gross rental yields are not enough to attract either first home buyers, who are put off by rising mortgage costs or investors, who are spoilt for choice given that many asset classes are providing excellent cash returns.

“Clearly, rapidly rising mortgage rates are deterring first home buyers and investors from purchasing.

“The growing number of unsold properties sitting on the market is exacerbating the situation. There are currently more than 25,000 extra properties on the market nationally, when compared to this time last year. More vendors are competing for the attention of fewer buyers, which results in pressure to discount,” he continued.

“Given inflationary pressures have not eased and the risk of cash rate movement is still on the cards, we expect all major capitals will experience larger price drops as the year progresses,” McNamara concluded.

Australian Property Journal