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Australian property market set to be divided in 2012

Data from Australian Property Monitors shows that in the latter part of the year an expected Spring revival in buyer activity failed to happen. National median house prices fell by 1.6% over the third quarter and were down by 4.2% over the year.

Looking further back, significant price rises were recorded in all capital cities in the 18 months between January 2009 and June 2010 as first home buyers flooded the market to take advantage of a government grant.

But rising interest rates in 2010 together with strong prices growth impacted significantly on housing affordability with buying activity falling back by the end of the year.

In 2011, housing markets entered a correction phase with income growth required to catch up with the finance requirements for home purchases, particularly at the entry level.

Also a mixed economic performance, natural disasters and fragile consumer confidence has exacerbated the reduction of buyer activity through 2011.

Next year is set to be a year of recovery for most Australian housing markets, the company says. Australia’s economy is set to grow at above trend by 4% in 2012 according to the OECD, driven by record levels of investment in the resources sector particularly in Western Australia and Queensland.
The demand for skilled labour will intensify as a consequence of this growth with rising levels of immigration set to offset a chronic shortage of workers. Regional economies are set to benefit from strong incomes growth driven by worker shortages.
This all means that demand for housing is also set to intensify in 2012 which will see housing markets reenergised, albeit at different levels. Capital city markets with direct exposure to the resources sector can be expected to record significant growth in house prices over the year.
The firm predicts that in 2012 some housing markets in some capital cities are set to revive strongly while others will remain in the doldrums despite the continued prospect of strong economic growth in Australia.
After falling by 4.2% over the year to October 2011, national median house prices should recover to rise between 3 to 5 % over 2012.

Sydney performed best of the capitals in 2011 with median house prices relatively stable. The city provides a solid prospect for median house price growth of up to 5% in 2012. This growth will come mainly through the lower and middle band suburbs as buyers seek to maximise choices in a market characterised by chronic shortages of accommodation and Australia’s tightest capital city rental market.

The luxury market is expected to remain quiet in Sydney in 2012 although some modest but sustained growth in house prices may be recorded towards the end of the year from a low base.

Melbourne’s housing market could struggle for growth in 2012 as it continues to adjust to the affordability barriers created by the strong price rises of 2009 to 2010. A waning economic performance in 2011 exacerbated declining buyer activity through 2011.

The company says that Melbourne house prices should drift sideways over the year with some modest incremental growth a possibility by the end of 2012.

Brisbane was the worst performer of all capital city markets in 2011 with median house prices down nearly 7% over the year ending October. A significant contributing factor was the floods last January. But the housing market is set to revive in 2012 off the back of the Queensland resources boom.

Perth offers one of the best prospects for prices growth in 2012 with a significant increase in buyer activity. Low buyer confidence has seen Perth’s median house price fall by nearly 6% in the year to October 2011, which is almost 10% below the peaks recorded four years ago. The firm predicts that Perth houses prices have the potential to rise by a double digit percentage in 2012.
The Adelaide housing floundered in 2011 with median house prices down by over 5% and is expected to struggle to revive in 2012. While the Canberra housing market has proved particularly resilient in 2011 with median house prices down by just 1.7%. Canberra is set to record increases in home buyer activity as economic growth fuels increased public service activity in the national capital. A chronic undersupply of housing will drive prices growth of 5% in 2012.