Early Signs of a Housing Recovery in Australia

Early Signs of a Housing Recovery in Australia

Matthew_Royal By Development Finance Partners / Matthew Royal

Early Signs of a Housing Recovery in Australia

An overview on the current housing market in Australia

After a period in the doldrums, there are some early signs of a possible recovery in the Australian housing market. The gap between rental yields, and the costs of financing a mortgage and property purchase is the narrowest it has been in decades, which is good news for investors. For those getting into the market, rate cuts are providing a boost. Here are some of the early indicators that the property market is likely to pick up, including positive data on consumer sentiment, and growth in dwelling prices.

Property sentiment index at above long-term average

According to Westpac’s Red Book, the Time to Buy a Dwelling Index rose in May to well above its long-term average. The Commonwealth Bank’s May Global Markets Research Consumer Report also shows consumers consider it time to buy, with the index surging in Western Australia, New South Wales, Victoria, South Australia, and Queensland.
It’s believed that lower rates, and the expectation of further cuts by the RBA, have boosted consumer sentiment in this area, and the surge suggests an upside to our forecast 150K dwelling commencements in the 2013/14 financial year.

Households prefer to direct savings into property

Westpac’s March Red Book reveals that the proportion of households favouring using savings to pay down debt fell from 22.7 per cent to 18 per cent in the year to March 2013. This data indicates that households might be more likely to be directing savings to investment opportunities, such as property, rather than opting to pay down their debt.

RBA cuts reflect growth in dwelling prices

Growth in lending figures and housing prices are reflecting the RBA’s recent cuts. As of May, banks have been lending record sums to purchasers, with the value of new housing loans rising by 4.5 per cent in March.
The value of new housing loans, as of May 2013, is 15.2 per cent more than one year ago. According to the May figures, fresh demand for housing is coming from investors and owner-occupiers, who already have mortgages and residences, but are opting to trade up.
As further evidence of stronger growth in dwelling prices, the RP Data-Rismark 5-City Daily Dwelling Values Index indicated that housing values have seen an average increase of 1.3 per cent. Perth’s dwelling prices showed the strongest performance, with prices rising by 3.41 per cent in March. Prices rose by 1.47 per cent in Sydney, 0.79 per cent in Melbourne, and 0.87 per cent in Brisbane.

Impact of increase in concessional tax rate for superannuation contributions

Finally, the federal government’s recent legislative changes on super tax rates for high-income earners, and caps on concessional contributions, are likely to have a positive effect on the housing market.
Those people with higher superannuation balances might consider investment options other than super, such as adopting a negative gearing strategy and investing in property.
Given the super changes, the RBA’s cuts, the growth in dwelling prices across the capitals, and the positive movement of consumer sentiment in relation to property, it is safe to say that there are some early signs of a housing recovery on the horizon.

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