Most economists agree that Oz property prices set for rise of up to 6% in 2010

by Ray Clancy on December 29, 2009

Residential property prices in Australia are set to increase by around 5 to 6% in 2010 as investors and those seeking a larger property take up the slack from first time buyers, it is claimed.

Leading economists believe demand in the real estate market will remain strong although some are concerned that rising interest rates, the winding up of the first home owners grant boost and over inflated prices could lay the foundations for a future property crash.

Angie Zigomanis, senior project manager for residential property at BIS Shrapnel predicts steady growth of about 5 to 6% in established residential property next year.

‘I’d expect you’d see steady low to middle single digit growth next year. Over the next two or three years I think you’ll find interest rates will keep slowly edging upwards and it’ll keep a lid on the massive double digit price growth we were seeing previously,’ explained Zigomanis.

‘If you look at most markets, prices declined last year and while people are talking about booms and everything else, most of what it did was really put prices back to where they were 12 to 18 months ago,’ Zigomanis added.

Housing Industry Association chief economist Harley Dale said Australia would experience significant 20 to 25% growth in new housing stock through to the middle of 2011 and he agrees that growth of up to 6% is possible in 2010.

‘With prices, we’ll probably continue to get a little bit more growth over the next six to 12 months but probably not at the rate that we’ve seen over the last six months which has been driven a lot by the first home-owner base,’ he said.

Another reason for prices to rise is that population growth will outstrip the supply of new properties, according to Australian Property Monitors economist Matthew Bell. Analysts agree that a shortage of properties low interest rates and the first home buyer’s grant has helped support prices.

Commonwealth Bank economist James McIntyre believes that property prices would grow in the middle single digits next year, but those increases will depend on how the buildup of wages translated to other sectors of the economy. ‘If the whole economy catches fire with a strong growth in wages, then that will really be supportive of a continued strong growth in house prices,’ he explained.

Not everyone though is predicting prices increases. According to Steve Keen, associate professor of economics and finance at the University of Western Sydney, the mini boom seen in 2009 is coming to an end. ‘The fact that rates are rising as we enter 2010, combined with the ending of the boost and the winding back of government stimulus packages, means that rising interest rates are likely to end the bubble that began in 2009,’ he said.

Keen predicts that this will result in price falls in 2010. ‘I’d expect a 5% or so fall in residential house prices, probably returning to somewhere between the current peak and the previous one in September 2008,’ he added.

 

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