For the June quarter, numbers in some states were the worst recorded for more than 30 years.. The event was averted as the Reserve Bank held back on making an interest rate increase, then later made some dramatic interest rate reductions. Today, all markets are not correcting but some have done very poorly. Poor management of our economy at this point in time could easily bring about that 1 in a 100 year event that was previously avoided.
A Perfect Storm
Residex CEO John Edwards has been studying the residential housing markets in Australia for more than 25 years.
In that time, Mr. Edwards claims that he has “not seen the makings of such a perfect storm” as what is occurring today in our property markets.
For the June quarter, numbers in some states were the worst recorded for more than 30 years.
“The market right now is very patchy. There are bright stars on the horizon but they could be dimmed very easily”, said Mr. Edwards.
The current star is Sydney, which is the market that generally points to the future performance of other markets across Australia, and the worst performing capital city is Brisbane. However, there is hope for the Queensland capital as the trend is indicating that the worst of the correction phase is probably over.
The worst performing market in Australia (for the June quarter) was a region in the Gold Coast area – Southport. In the below graph the trend is presented.
For the year, Southport houses adjusted by 8.05 per cent and has now fallen in value by $51,000.
Brisbane has also fallen in value and, as previously mentioned, the fall of 5.66 per cent is the highest we have recorded in any 12 month period.
The unit market trend indicates that further increased adjustments are likely while the housing market appears to have bottomed out. This is likely, given the probable improving situation and an economy that will be strengthening following the natural disasters.
Now for the brightest star, Sydney.
Moving down the eastern coast to Melbourne, the picture is better than Queensland but the market is early in its correction phase with houses dropping 1.1 per cent in value in the last month and down $6,800 over the last 12 months.
The unit market is correcting more strongly. However, when the supply of stock of properties in Victoria is considered, it is clear that this market could have a considerable amount of adjustment in it. Residex numbers indicate that Victoria could have a significant stock surplus of something in the order of 24,000 dwellings, mainly in the medium density market.
Mr. Edwards said, “The net outcome, without careful economic management, could see reductions in value in this market that are considerably higher than those recently seen in Brisbane where there is more than likely no shortage of stock. Overall I view the Melbourne market as our most at risk market at this time.”
Mr. Edwards concluded that the current stock surpluses that are evident in all states other than in New South Wales and Queensland are a consequence of reductions in immigration in recent times. In Victoria, the reduction in population growth due to reduced immigration is about 6,000 people per quarter when compared to the five year median.
Leading into the global financial crisis, Mr. Edwards I called the potential for a 1 in a 100 year event when all markets in Australia were correcting. The event was averted as the Reserve Bank held back on making an interest rate increase, then later made some dramatic interest rate reductions. Today, all markets are not correcting but some have done very poorly. Poor management of our economy at this point in time could easily bring about that 1 in a 100 year event that was previously avoided.
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August 2011
