Australian property prices fall as home owners become more pessimistic

House prices expected to fall 1% over next year

The price of residential property in Australia fell for a second consecutive quarter and are expected to continue to decline as housing affordability becomes more of a factor for buyers.

Australian home owners are increasingly pessimistic about the real estate market as rising unemployment and constrained sales dampen growth expectations, according to the latest Quarterly Australian Residential Property Index from the National Australia Bank (NAB).

Home prices are expected to fall 1% over the next year, Australia’s fourth largest lender says in its report. Rents are forecast to rise 2.5% compared with predictions for growth of 3.1% in its June survey.

‘Concerns over employment security increased notably in the September quarter. Survey respondents continue to cite tight credit conditions as their most significant concern,’ the report says.

The NAB index, which measures home price expectations among owners and the real estate industry, shows that prices fell 2.4% in the third quarter, and rental growth slowed to 0.7 % from 1.3% in the quarter ending June 30. Prices are expected to rise 0.5% by September 2013.

Overall the NAB index fell 14 points in the September quarter, following a five point fall in the June quarter.

‘Our survey also shows that only 20% of respondents now expect interest rates to be higher over the next 12 months, compared with 71% in our June survey. NSW was the most pessimistic state with regard to interest rates, possibly reflecting the fact that the average home loan size in NSW is also the largest among the states,’ said Alan Oster, Group chief economist.

Oster pointed out that demand for existing housing weakened nationwide in the September quarter.

‘Inner city houses remain the only property type where demand is considered to be good, but only marginally. The most notable deterioration in demand was identified in middle/outer ring high rise properties,’ he explained.

Oster said he thought Australians were overly pessimistic about the housing market.

‘A structural shortage of housing remains nationally, commencements are down, interest rates are expected to stay on hold for some time and the unemployment rate is low, contributing to high job security. These factors are expected to maintain a floor under house price growth, which we see resuming at below four per cent in 2012 after drifting down in 2011,’ he added.

Australian home loan approvals rose less than economists forecast in July as unemployment unexpectedly jumped to an eight month high. About 7.7% homes bought after 2007 are now worth less than they were originally purchased for, real estate researcher RP Data said in its latest report.

Capital city home values have risen about 30% in the five years to June 30, with the country’s housing market now worth about A$4.56 trillion, according to RP Data. Some 45% of properties are worth more than twice what their owners paid for them, the group said.

But the ability of Australian home owners to keep up with mortgage payments has declined over the past year, according to the latest report from Moody’s Investors Services. The national delinquency rate rose to 1.67% from 1.36% between March 2010 and June this year.

The biggest declines in mortgage performance were in Queensland and Western Australia even though those states have been the biggest beneficiaries of Australia’s mining boom, according to Moody’s.

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