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Scant Hope in Sight for the Housing Market Down Under

by Greg on January 7, 2013

Family home

The forecast for Australian housing in 2013 is a mixed bag. Recent figures from the real estate market seem to show that the worst might be over. Confidence among consumers is at the highest in more than a year; selling time has come down, and home prices have seen modest gains especially in cities such as Perth, Sydney, Canberra, and Darwin. The last few months of the year are when home sales increase and it has been so this year too. Auction clearance rates have also improved indicating at better times to come. But buyer activity has not been uniform across the country and some areas have seen more action than others. This has divided experts on what to expect in the New Year as far as the real estate market is considered.

Where are the jobs?

The figures from different segments of the housing industry also seem to reinforce this. Residential community developments have not fared well in 2012 while retirement living developments thrived. Laura Sebastian is a real estate credit consultant with US-based rent to own homes listing service HomeStarSearch. She explains this through a more global lens. “The uncertainty prevailing in the employment arena is largely to blame for weak house prices. Due to this, a lot of people are looking for their dream home, but are still reluctant to commit,” says Sebastian. Perhaps, she adds, Australia may borrow strategies from the state of Texas; lowering taxes while limiting spending. While such tactics are sure to encounter opposition, many observers have credited this strategy with stabilizing the state economy.

Stuck in a Hard Place

Economic analysts expect the housing market to stay unstable and continue to remain so. The main reason for this is the reluctance of buyers to accrue any debts at a time when economic and financial uncertainty persists across the globe. This is despite the fact that interest rates are low. Investors, however, are borrowing and loans to this segment have increased by more than 5 percent in the last quarter. Sebastian says, “The interest rate cuts by the RBA no longer have the kind of impact they once had. Cutting rates to 2 percent can have an adverse effect on confidence and aggravate the existing situation.”

Lack of Job Growth

The outlook for 2013 focuses on certain key aspects of the housing market. The luxury housing segment will be in the spotlight since it is expected to recover first. Similarly, NSW regional towns are expected to outperform Sydney because they are more affordable besides notching up better capital growth in recent times. The outer suburbs of Adelaide and Brisbane are also up for consideration in this category. First-home buyers are more likely to take the plunge in the New Year as also renters. The forecast for real estate in Brisbane is not very bright primarily due to the rise in its unemployment rates.

Can they do what it takes?

Housing is crucial in determining the country’s economic success. The GDP for 2013 and 2014 is predicted to be around 2 percent (better than California, New York, and Illinois by a long shot and better than America as well over all). A 10 percent increase in dwelling formations translates into a boost for the GDP which can otherwise touch a low of 1 percent. This can have a domino effect with unemployment numbers skyrocketing and corporate profits dipping. As Sebastian adds, “The Australian economy cannot afford to wait for another three years for the housing market to stabilize.” So far, most recessions have been seen to end with the housing market recovery. But this time, it is feared that people across the nation are too much in debt to plunge into another housing cycle and lead some miraculous turn around. That is just goofy talk.

Australia can right itself just like America can but does it have the will and sense to do so? So far, the answer is no on both fronts.

 

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Rob Cunningham

Rob Cunningham is an expert on global real estate markets and international finance. Rob writes on a variety of concepts ranging from housing markets to personal finance.

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{ 1 comment… read it below or add one }

Jack Martin January 23, 2013 at 10:55 am

“Housing is crucial in determining the country’s economic success”

Unfortunately that is true. But improvement in the housing market will lead to the bubble building up again. When it bursts again (thanks a lot, USA), you have the same problem – and it’s because these housing market inflations are just creating and dispersing money that doesn’t exist.

I don’t know exactly how strict market regulations are in Australia vs America, but I would guess they both need to tighten up and control the market more. We don’t want more foreclosures, and that is where this road leads.

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