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There are good business opportunities for brokers who know which markets are the best to target
AFTER RECORDING a gain of 17.2 per cent between January 2009 and the end of June 2010, the Australian housing market has changed pace – with capital gains remaining virtually flat over the last 12 months.
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Over the year to March 2011 the combined capital cities housing market saw a fall of 0.6 per cent, a stark contrast from the 14.2 per cent gain recorded at the same time in 2010.
The slowdown in market conditions, which has been evident since about June last year, was brought about by a number of factors.
The most significant dampener on market conditions was higher interest rates. The Reserve Bank of Australia embarked on an interest rate tightening cycle in October 2009, lifting rates by 175 basis points between October 2009 and November 2010.
Another factor that worked to slow market conditions was the wind back of the boost to the First Home Owners Grant, which was halved in October 2009 and cut back entirely in January 2010.
These conditions have forced brokers to reposition themselves within the residential market. First home buyers will be a quiet part of the market for some time while investors and upgraders are going to be the most active segment over the next 12 months.
Owner occupied housing commitments are low and the one segment that owner occupiers finance reasonably well is going to be the upgraders.
The other major segment brokers should be targeting is of course the investors. Based on housing finance commitments, once again we have seen investor values trending downwards.
However, they are not as low as they were in 2008 and I see yields in renter markets improving quite considerably. As capital gains outpaced rental markets in 2009 and the first half of 2010, rental yields were sharply eroded.
We are now seeing yield improvement which is likely to provide a further encouragement for investors looking to strategically position themselves in the market.
The housing market in 2011 is likely to follow the trend that has been evident since mid last year. We expect market conditions to remain reasonably flat and there is some likelihood of values falling modestly if we see one or two further interest rate rises.
The threat of further rate rises has created an opportunity for brokers with a very strong refinance market. Brokers will be pleased to know the number of refinances haven’t fallen away anywhere near the number of property transactions.
Consumers should be focusing on the best rates, loan opportunities and the best refinance opportunities over the coming months. There are going to be quite a lot of consumers out there looking to minimise their loan repayments due to interest rates being higher than they had been previously.
There are already a variety of indicators that suggest market conditions are turning back in favour of the buyer.
The average selling time for a home has increased from 45 days to 59 days over the last year. The average level of vendor discounting has increased to 6.5 per cent, up from 5.2 per cent at the same time last year. Auction clearance rates are also averaging in around the mid 50 per cent mark compared with about 70 per cent at the same time last year.
These indicators all point to improved buying conditions for Australian consumers. At the same time they suggest those home owners seeking to sell their home are likely to face some challenges.
In summary, the Australian housing market is likely to remain reasonably steady over the coming year. Factors such as higher interest rates and a recent deterioration of housing affordability will continue to dampen market conditions.
In balance, the Australian economy which is characterised by robust economic growth, and a labour market at capacity which is likely to fuel wages growth, especially given the cutbacks to migration, will continue to underpin demand for housing both from a rental and purchase perspective.
By Tim Lawless, National research director, RP Data
