Housing prices easing but no tumble expected
1 April, 2005
The housing sector is facing a gentle decline this year but
the prospect of a plunge is unlikely.
Although housing prices began to slow in the second half of last
year, there was no need to panic about where they were headed, a
report from the Housing Industry Association (HIA) said today.
"Total housing investment fell by nearly five per cent in the
second half of 2004," HIA said.
"When you are coming off total investment in 2003/04 of over $50
billion, however, that pull-back is a wake-up call that we are
entering a couple of years where activity will be weaker rather
than a signal to become gravely concerned."
After surging by nearly 50 per cent in three years, the number
of housing starts was expected to fall by 12 per cent in 2004/05
and by a further four per cent in 2005/06, to a level of around
145,600.
Renovation activity also looked to have peaked and was forecast
to fall by around six per cent over 2004/05 and 2006/07.
The Reserve Bank of Australia's bias towards increasing interest
rates remained the biggest threat to the housing sector going
forward, according to HIA.
But economists said that weaker than expected building approvals
numbers released today were unlikely to deter the RBA from
raising interest rates for the second month in a row next week.
The Australian Bureau of Statistics reported building approvals
fell 0.5 per cent to 13,127 units in February, seasonally
adjusted, compared to the median market forecast of a 0.5 per
cent rise.
HIA reassured homeowners that residential properties would
retain most of their value despite tapering housing prices.
"There is certainly no sign of a price crash looming," HIA said.
"In the context of growth in house prices over the last four
years of close to 70 per cent, a substantial proportion of the
overall capital gain witnessed by home owners in recent years
will be retained."
First home buyers, however, would continue to struggle, HIA
warned.
"The proportion of first home buyers has mounted something of
a recovery in recent times and this has been a very encouraging
development," HIA said.
"This recovery owes much to a peaking in the house price cycle.
However, mortgage rate increases have reared their ugly head and
this will restrain the extent of any further short term
improvement."
First home buyers rose to 16.4 per cent of total home buyers in
January, 2004, up from just 12.6 per cent in the total last
year.
But the figure still falls short of the 18.5 per cent average
for the past five years.
While softer house prices had already been felt in metropolitan
areas along Australia's east coast, other regions would follow
suit this year.
"The house price cycle has peaked in Sydney, Melbourne, Brisbane
and Canberra," HIA said.
"Through the course of 2005 prices elsewhere are expected to
either flatten out or ease moderately."
