Given the end of stimulus spending, global economic jitters, rising inflation and low levels of consumer confidence, it's little wonder the property market is in decline. The good news, however, is that it's not by much. Last financial year median house prices across capital cities fell by about 2.5 per cent and units by up to 2 per cent (although one analyst recorded an improvement of 0.4 per cent for units). The general outlook is for a flattening of prices or further modest decline, depending on interest rates, with a return to strong capital gains some way off.
For longer-term investors, it's expedient to look at how the capital cities have fared over the past decade (see below). Counter-intuitively, Sydney did worst, with median house prices up 83 per cent; Perth, Hobart and Adelaide have been the stars, with capital gains of over 200 per cent. However, analysts say that Sydney's recent poor performance and its chronic undersupply of new housing place it in the best position for future gains. Recent statistics suggest Sydney is weathering the current decline better than other capitals. And remember, Sydney and Melbourne did extraordinarily well in 2009-10. But Melbourne, with an oversupply of new housing stock, is now risky for investors.
Digesting house-price statistics is always a challenge when even property analysts don't agree on the figures. Residex has Canberra and Hobart house prices up by more than 3 per cent last year, for example, while other pundits have them in negative territory. However, the consensus is that Sydney was the ‘least worst' performer in 2010-11: prices fell less than half a per cent and showed a marginal lift in the last quarter. There was no doubt that Brisbane and Perth were the worst, the former having suffered disastrous flooding and the latter coming off the peak of a resources-fuelled boom.
It's also clear that units are doing better than houses. "With more Australians seeking to live closer to the city and transport nodes, as well as seeking out more affordable housing options, the superior performance of the unit market makes sense," says Tim Lawless, RP Data's Research Director.
On a positive note for house prices, one economic forecaster, BIS Shrapnel, actually predicts moderate growth to 2014, even assuming two more rate hikes. In this scenario, Sydney, Perth and Brisbane would improve most as these markets have experienced weak price growth in recent times and home building has been well below underlying demand.
