Prices to Fall 10 Per Cent When Housing Handouts End, Researcher Says

The newly issued ViewPoint report noted, however, that between May 2009 and October 2008 first home buyers have accounted for 95.2% of this increased demand. 

Ms Rolandsen concludes that first home buyers have been instrumental in propping up house prices to date, and while this has not had a huge effect on the $500,000-plus market, it has been pivotal to the performance of the sub-$500k market since October last year.

“The sub-$500k market has demonstrated all the qualities of a booming sector – average listing periods have decreased to less than one month, prices have been rising, and the amount of demand has exceeded the number of available listings,” stated Ms Rolandsen.

Ironically, the benefit of the $7,000 boost for existing homes and $14,000 for new dwellings has been effectively stamped out by the increased competition between first home buyers, with the average loan size of first home buyers rising by $20,400 since the boost’s introduction.

Ms Rolandsen said there were a number of factors that have drawn first home buyers back into the market recently.

“In addition to grants, stamp duty concessions and lower interest rates, the surge in first home buyer’ activity was also underpinned by favourable lending policies that bypassed genuine savings requirements. “

This sub-$500,000 boom may soon be over, however, with many of the market drivers beginning to disappear.

“Some lenders have recently been tightening credit policy, adjusting the required Loan-to-Valuation Ratio from 95% to 90% and requiring demonstrable genuine savings,” Ms Rolandsen said.

“This trend is likely to accentuate further in coming months as lending policy continues to tighten, banks increase their interest rates to reclaim their margins and as the housing grants are phased out.”

“The fact that First Home Buyers have been driving this boom leaves the sub-$500,000 market particularly vulnerable once the boost is reduced from September 2009.”

The ViewPoint analysis also questions whether a touted economic recovery will compensate for the expiry of the various government stimulus measures.

“The surge in confidence levels and the upward revisions to China’s GDP forecasts are, indeed, very positive signs and, if sustained, do point to a recovery ahead,” Ms Rolandsen said.

“Even so, the gravity of the crisis has called for governments to take extreme measures, and it is this transferal of private sector debt to public sector debt that may hamper growth in the future. Therefore, while the economy may manage to avoid a technical recession this year, it is probable that unemployment will continue to rise and the average hours worked will continue to decline, leaving first home buyers most vulnerable. It remains to be seen whether investors will kick in where first home buyers leave off.”

“In all likelihood the withdrawal of the FHOG boost at the end of December and state-based measures in July 2010 will have a dampening effect on the sub $500,000 market, slowing sales transactions and causing price reversals in the sub-$500,000 market towards pre-boost prices. We expect falls could reach 10% from the peak in some areas depending on local market conditions.”

Source: CBRE

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Marc Pallisco

A freelance property analyst and journalist, Marc is a co-founder of realestatesource.com.au.

Marc Pallisco

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