New home sales fell by 5% in February with apartment sales down 11% & detached house sales down by 4%. Detached house sales fell by 14% in Victoria, 3% in New South Wales & 7% in South Australia but rose in Western Australia (+2%) & Queensland (+1%).
Several commentators remarked that the drop in new home sales was not a worry, well “at least for the moment” to quote the Commbank. Home sales are still about 10% higher than the lows set five months ago but for mine, given low interest rates, new sales (and hence new housing construction) should be much higher & they should be improving on a monthly basis.
Despite lifts in new housing starts in recent months, there will most likely be about 146,000 new housing starts across Australia this financial year. This will be just 3% more than the year before.
New housing construction fell by 10% during 2011/12 & also dropped by 6% during the preceding financial year.
In fact, new housing starts across Australia have fallen five out of the last ten years; showed no real change for another two years since the early 2000s; & have risen during three years only since 2002/03.
And next year – financial 2013/14 – if the growth over the past three months can be sustained, then up to 160,000 new housing starts are possible. But the HIA are forecasting a more subdued fiscal 2014 with just 146,000 starts (a repeat of 2012/13), despite interest rates being at record lows & a significant rise in population growth in recent years.
Even if the 160,000 starts happen, Australia’s new housing market needs a serious overhaul. It is just spluttering along.
Below are some housing start statistics.
Distribution of starts. According to the HIA, 40,000 new starts are expected to take place in Victoria next year – this equates to a 28% share of the Australian market. New South Wales is to get 36,000 starts (25% share); Queensland 31,000 new dwellings (21%) followed by Western Australia with 24,000 commencements or a 16% market share.
The other four states/territories combined hold just 10% of the overall Australian market.
Movements in new construction. Despite getting top billing next year, new starts are expected to fall by 13% across Victoria next year, when compared to the 2012/13 financial year. In contrast, new starts are expected to rise by 13% in both Queensland & South Australia. A half decent lift (of 11%) is expected in the Northern Territory. New starts are expected to remain steady in New South Wales, and fall 5% in the ACT.
New product mix. Three out of five (62%) of the new dwellings built across Australia next year will be detached houses. Obviously, 38% will be attached product – most of which will be apartments or townhouses.
Almost half of the new product built in New South Wales, the Northern Territory & the ACT will be attached. Two out of five new dwellings in Victoria these days are also attached; followed by Queensland with 37%; Tasmania and South Australia each with 25% & Western Australia with 19%.
Changes to product mix. Ten years ago, close to one in seven (68%) of new dwellings built across Australia were detached. Today it has dropped to 62%.
The biggest mover by state towards ‘alternate’ new housing forms over the past decade has been Victoria, with a 24% attached market share in 2004 to 41% next year. Next is Tasmania, from 12% to 25%, followed by Queensland from 33% ten years ago to 37% now. The other states/territories have seen little change in their new broad dwelling mix over the last ten years.
All three states essentially are playing catch-up. Stigma (both from the development community & the public), plus archaic planning, has kept new attached development subdued in Victoria; Tasmania & Queensland.
The Newman government’s new state assessment & referral agency (SARA) is a step in the right direction.
In summary, unless we see serious government action (like SARA) to assist new housing get off the ground, new starts will continue to be artificially curtailed. This limitation on new housing construction will see Australia enter another period of serious undersupply – it has already started; which it turn should drive prices north & will create – in about three, maybe four years’ time – another price-driven bust.
Ironically, higher levels of residential construction will be an important economic growth driver once mining investment begins to wind down.
If new housing starts continue to rise in line with the trend over recent months – i.e. head towards 160,000 during financial 2013/14 – then the cash rate is likely to remain at 3.00% throughout calendar 2013.
But if the HIA’s outlook becomes reality (146,000 starts or thereabouts next financial year) – and keep in mind that building approval figures tend to be volatile – then the cash rate will need to fall further.
Enjoy the ride!
Article originally published in Matusikmissive.com.au on 16/4/2013
Experts warn of ‘debt bomb’ as housing downturn worsens
That’s according to the sobering 60 Minutes segment Bricks and Slaughter which aired last night, revealing the country’s property downturn was just the tip of the iceberg.
According to reporter Tom Steinfort, the current slump is actually “more like falling off a cliff”, with a number of real estate and finance experts claiming houses could plummet in value by up to 40 per cent in the next 12 months.
If that happens, it would also cause an economic “catastrophe”.
Mr Steinfort spoke with data scientist Martin North from Digital Finance Analytics, who said Australia was uniquely vulnerable when it came to an economic crash tied to a property downturn.
“At the worst end of the spectrum, if everything turns against us we could see property prices 40-45 per cent down from their peaks, which is a huge deal,” he said.
“That’s higher than any other country in the Western world by a long way.
“There’s probably no country in the world more susceptible to the ramifications of a housing crash than Australia. We are uniquely exposed at the moment.”
Mr North said Australia was now in the same position as the US was back in 2006 and 2007 — a position which triggered an economic collapse.
“As a society, and as a government, and as a regulatory system, we’re all banking on the home price engine that just goes on giving and giving and giving. It’s not going to,” he said.
“We’ve got a debt bomb, we’ve got a debt crisis and at some point it’s going to explode in our face.”
He said foreclosures had also risen by 600 per cent in the region.
“The mortgage stress is definitely being felt especially in this area,” he said.
60 Minutes also spoke with several Aussie homeowners who gave harrowing details of the stress they faced trying to pay off their mortgages, including having their power turned off and being “hounded’ by their banks.
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Market analyst Louis Christopher of SQM Research said the market had been “clearly overvalued”, labelling the downturn as the “correction we had to have” — at least in Sydney and Melbourne.
“On our numbers, Sydney was effectively over 40 per cent overvalued. And Melbourne was overvalued by about the same amount,” he said.
But property investor Bushy Martin said the blame lay squarely at the feet of buyers who “mortgaged themselves up to their eyeballs” in a bid to snap up dream homes before being able to afford them.
However, the segment has also sparked backlash online, with some claiming the situation had been exaggerated.
One Reddit user branded the report as an example of “alarmist journalism and scare tactics”, while another said it was “dramatic and cringe-worthy”.
Others also criticised the segment for making it seem like all homeowners would be affected, when the downturn was actually mainly focused in the NSW and Victorian capitals.
And some said it was unfair to blame the banks for the situation, and that homeowners needed to take responsibility for their own decisions.
That was in response to comments made by one homeowner on the program, who said the bank had “suddenly switched the mortgage to interest and principal”, raising his repayments by 57 per cent.
“The interest only part annoyed me the most. The bank didn’t ‘suddenly change’ your repayment from (interest only) to (Principal and interest) your IO term expired. You a) knew this would happen and b) assumed the bank would renew it when it expired. I hope this speculator gets burnt first,” one Reddit user said.
Related article: Experts warn of ‘debt bomb’ as housing downturn worsens
Queensland is the next property hotspot, experts say
As New South Wales and Victoria continue to experience weakness. Queensland is expected to take the lead, a National Australia Bank (NAB) poll of property professionals revealed.
According to the survey, industry experts project house prices in Queensland to increase by 0.7% next year and 1.3% in two years.
Some areas seen to perform strongly over the next year include Brisbane, Cairns, the Gold Coast, and the Sunshine Coast. Out of the suburbs, Coomera and New Farm are expected to realize robust gains.
Meanwhile, Queensland’s rental market is also poised to enjoy an upward boost, growing by 1.3% next year and 1.9% in two years. This is despite the stricter rules on housing investment.
The respondents of the survey also expect Queensland to retain foreign buyer interest. In fact, the share of foreign sales hit a four-year high of 22.8% over the previous quarter.
The results of the survey go against NAB’s own projection of the market. For instance, the bank expects house prices to remain flat in Brisbane over the next three years. Unit prices, on the other hand, is seen to fall by 4.5% over the next year.
NAB chief economist Alan Oster said Brisbane’s housing market seemed to be going sideways and its unit market still creates concern.
“It hasn’t peaked yet, so that’s good. We’re seeing quite strong economic activity in Queensland, so that always helps,” Oster said, as quoted by The Courier-Mail.
Gold Coast house values record the biggest growth in Queensland
The Gold Coast has recorded the strongest growth in house prices in Queensland over the past 12 months.
GOLD Coast house prices are leading the way in Queensland, up six per cent in the past 12 months to an average $620,000.
The latest figures by the Real Estate Institute of Queensland show homes on the Glitter Strip are $35,000 more on the same time last year.
Unit prices are up 1.9 per cent to $428,000.
REIQ data reveals houses on the Glitter Strip are worth $35,000 on the same time last year.
REIQ’s Queensland Market Monitor for March said the strong population growth came on the back of infrastructure projects such as the $550 million Gold Coast Health and Knowledge Precinct and M1 upgrades.
“The property market has been one of the big winners from the sporting event as the $1.5 billion infrastructure investment has boosted confidence and demand for housing in the region,” the report stated.
“We expect house prices will show an upward path in 2018. However, this growth will most likely be more moderate.”
A quiet real estate period leading up to, and during, the Commonwealth Games likely contributed to a slight drop (-0.3 per cent) in the March quarterly median sales price, the report reveals.
Andrew Henderson says a growing population and employment opportunities were contributing to a strong property market. Picture: Jerad Williams
REIQ Gold Coast zone chairman Andrew Henderson said he expected interstate migration to continue to benefit the city.
“I expect the market to remain strong,” he said.
“There is a heavy amount of interstate buyers moving here.
“I was at an auction recently where the winning bidder was from Sydney and the underbidder was from Melbourne.”
Mr Henderson said growing employment opportunities were also attracting homebuyers to the city.
The Gold Coast property market is expected to remain strong.
“We have some of the best health facilities in the country and our universities are world recognised.
“Those two things alone complement the tourism industry and the lifestyle aspects that the Coast offers.”
The report found the fastest-selling suburbs on the Coast included Worongary, Merrimac, Highland Park, Mudgeeraba and Carrara.
It also revealed the rental vacancy held tight throughout the first quarter of the year at 1.1 per cent.
Andrew Bell says the Coast had evolved from a tourist town into a vibrant city with an expanding economy. Picture Mike Batterham
Ray White Surfers Paradise Group CEO Andrew Bell said the Games heralded the next chapter for the Coast, as it evolved from a tourist town into a vibrant city with an expanding economy.
“The city’s property market is riding the irreversible momentum that has now come to the Gold Coast in terms of economic diversity and with more employment options we will need more housing options for people,” Mr Bell said.
“We are no longer going to be subject to tourism upsides and downsides as we were in the past because our economy has well and truly diversified beyond just tourism.”
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