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Australian housing stronger than expected

In another clear sign that Australia’s real estate market is starting to flex its considerable muscles, even the experts are admitting they are struggling to keep up with surging values.

In its September market brief, property researcher BIS Shrapnel reported that median house prices in Sydney (6.7 per cent) and Melbourne (8.4 percent) were stronger than expected between June 2012 and June 2013.

Similarly, Darwin (7.4 per cent) and Perth (6 per cent) are motoring along, while more robust median housing data emerged in Brisbane (4.1 per cent) for the year to June 2013. BIS is attributing the bounce in the Queensland capital to improved sentiment among upgraders and downsizers as a consequence of lower interest rates. To support this claim, BIS Shrapnel says that the number of home loans approved for upgraders and downsizers increased by 24.8 per cent in the June 2013 quarter – and 12.7 per cent annually.

It’s also clear that investors are having an impact on price growth. According to BIS Shrapnel, loans to investors increased by 21.8 per cent in the June 2013 quarter, a significantly larger upswing than the annual rise of 15 per cent.

Rates on hold won’t dampen market

Angus Raine, Executive Chairman and CEO of Raine & Horne, is adamant that the surging real estate market will shrug off the Reserve Bank of Australia’s decision to leave rates on hold in October. “The RBA has cut interest rates eight times since November 2011, so it’s unlikely the latest call to leave rates on hold will hamper the property market’s progress. Apart from sales price growth, there is plenty of evidence that buyers are back in increasing numbers, with auction clearance rates in some Australian capital cities nudging 80 per cent, which is a strong sign that confidence has returned and people are looking to get into the property market,” says Mr Raine.

The ANZ agrees, suggesting the unprecedented pent-up demand for physical housing stock could potentially result in a 15-20% lift in home prices over the next 2½ years. However, improved sentiment for existing stock is unlikely to flow to improved housing supply, with the ANZ forecasting “the most modest housing construction cycle in the past 30 years”.

“While I’m pleased that real estate markets are bubbling along, the long-term supply of new property must be addressed, as the home building industry is critical to the long-term health of the economy,” says Mr Raine.

“Governments at all levels must do their bit to cut red and green tape to get the housing construction sector moving.”

Dr Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital agrees, “An uptick in the interest sensitive housing sector is critical if Australia is to successfully rebalance economic growth away from the fading mining investment boom. As part of this, house prices need to rise to help boost household wealth and support consumer spending, but more importantly to encourage an upturn in the housing construction cycle.”