Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based arereasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
17 May 2013
Value of finance approvals by segment, state
Sources: ABS, Westpac Economics
year to Mar
^incl. investor finance
Consumer house price expectations positive
Sources: Melbourne Institute, Mortgage Choice(Australia2004-08), Westpac Economics
net % expecting house prices to rise
Rental yields close to mortgage rates
Sources: RP Data, REIA, Westpac Economics
*median rent on2bdrm unit as % of median unit price
SVMR3yr fixed rate
Dwelling prices: uneven recovery to continue
Sources: RP Data-Rismark, Westpac Economics
*all dwellings, Dec2002 =100
The latest pick-up is also starting to show through in housingfinance approvals. However, the detail here and on prices revealsa very uneven performance by segment and state. Segment-wise, approvals are up strongly for ‘upgraders’ (+27%yr) andinvestors (+21%yr) but very weak for first home buyers (FHBs,–5%yr). Some of the weakness in FHB approvals is due to stategovernment policy changes that had seen buyers bring forwardpurchases. However, even allowing for this the degree ofweakness –the number of approvals to FHBs touched record lowsin February – is still extreme.Across the states, NSW and WA are seeing strong gains,particularly for investor finance with rental yields notably firmerin Sydney and Perth. However Vic, Qld and SA are seeing muchmilder upturns. It’s a similar story with prices. The positiveprice momentum is well established in Sydney and Perth, but ispatchier (though improving) in Melbourne. Weak price growthin SA and some further slight slippage in prices in Brisbane is aconcern.Looking ahead, we expect this uneven price recovery to continueboth this year and next:
Sydney and Perth will continue to lead the way although themining slowdown and a stretched starting point for affordabilityare expected to become more of a constraint in the west.
Despite the solid start to 2013, the Melbourne market will tendto under-perform, particularly as a large pipeline of dwellingscurrently under construction comes onto the market (including20,000 units approved for inner Melbourne over the last 2yrs).
Brisbane, which has been the weakest market over the last3yrs, is expected to remain soft near term but improve a littlein 2014. Queensland has seen persistently higher mortgagearrears rates in recent years which seems to have been afactor in the weakness in some sub-markets including the GoldCoast and Brisbane’s southern fringes. Lower rates should seethese pressures ease. Meanwhile low levels of building willsee supply shortages, already apparent in rental markets, putupward pressure on prices.Note that while prices may continue to follow a patchy recoverypath, gains look ‘well anchored’. The Westpac-Melbourne InstituteConsumer House Price Expectations Index has surged since thestart of the year indicating a strong consensus expect pricesto rise over the next year. That points to buyers being unlikelyto delay purchase in expectation of lower prices in the futureand sellers being unlikely to accept ‘low ball’ price offers. Againthough, there are significant variations across the states.Overall, we expect prices nationally to rise about 5% in 2013with growth slowing to 3½% in 2014. Construction-wise, weexpect dwelling investment to rise 4.4%yr in both years. While thecumulative 8½% gain in prices and 9% rise in construction maylook good compared to the last few years, both are lacklustrecompared to previous upturns which would have seen double-digit annual growth at this stage.A fundamental reluctance on the part of buyers to ‘stretch’themselves financially is expected to be the biggest ongoingconstraint. Though clearly positive, the housing sector’scontribution to growth looks unlikely to be vigorous enough tosingle-handedly sustain momentum in the broader economy asthe drag from the mining sector starts to come through.
, Senior Economist, ph (61-2) 8254 2100