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."