When noted housing bear Steve Keen is the most bullish commentator on a panel of developers and real estate agents, something strange is going on.
At a Citi conference late last month, the head of residential for housing juggernaut Stockland, Mark Hunter, and Raine & Horne’s manager of operations for four states, Sean Green, predicted there would be little improvement in the weak housing market for the next year given weak consumer sentiment and poor affordability.
Keen, by contrast, expects a “sucker’s rally” of house price growth over the next year, led by ignorant buyers who thought it was all up from here. But it will quickly fizzle out, he expects, and the Reserve Bank of Australia eventually will run out of room to stimulate the market with interest rate cuts.
“We’ll be living in palaces, eating spam,” he said.
Optimism from most quarters has been muted, with words such as “stabilisation” favoured by bank economists over “recovery”. The fact is that consumers are so nervous that a year of rate cuts has failed to kick-start the housing market as it usually does.
Real estate agents say there is greater interest in inspections but the uptick in sales volumes has been small.
The most recent statistics by RP Data-Rismark show capital city home prices rose 0.5 per cent in the three months to October. It is a rate that barely keeps pace with inflation but a step in the right direction for home owners who watched values slide for much of last year. In the year to date, Perth and Darwin are the only capitals where home values have risen by more than 1 per cent.
In the two main auction markets of Sydney and Melbourne, the success rate at auction is consistently more than 60 per cent, where it struggled to rise above 50 per cent last year. But as the RP Data-Rismark numbers show, this is not translating into value growth and it could be that sellers are getting more realistic with their asking prices.
Century21 Australia chairman Charles Tarbey says there has been a significant improvement in inquiry and sales volumes but this has not yet come through into the statistics, which tend to lag by several months.
“The housing market has recovered in most parts of Australia and this will be more evident over the next two months,” Tarbey says.
But sellers are still getting some dire results, particularly those who need to sell in a hurry. In Seaforth on Sydney’s north shore, the mortgagees moved in on a five-bedroom home on almost 1500 square metres of land with sweeping harbour views, a spa and tennis court. It sold in September for $3.05 million. Its owner had paid $5.08 million for the home in February 2008.
In Melbourne, Greville Pabst from valuation and advisory firm WBP Property Group thinks there will be more pain in Melbourne after a surge in new apartments that far outstrips demand. When the time comes for off-the-plan buyers to settle, the banks may refuse to give them a loan. “The high-rise apartment market in Victoria is really over-supplied,” he says.
“People who bought these things off the plan two years ago, the valuers are coming through and valuing them 15 to 20 per cent less than they paid for them. They either lose their deposit or have to come up with some more money.”
In other parts of Melbourne, there are pockets of relative strength. While land values on the urban fringes are falling, demand for detached houses within 25 kilometres of the CBD is strong, he says.
In Sydney, WBP Property Group’s NSW manager, Chris Lackey, says the number of sales is underwhelming. “Nothing has changed,” he says. “We’ve still got the same volatility in the sharemarket and I think job security is in a lot of peoples’ minds at the moment.”
There are probably more housing investors on the hunt, he says, because fixed-rate deposits are falling away with the interest rate cuts.
The biggest uplift has been in Perth, where values are up 3.5 per cent over the past year and stock levels have fallen. RP Data figures show Perth homes are selling in an average 60 days, compared with 72 at the same time last year. Aside from Canberra and Darwin, sellers in Perth are discounting their homes by the lowest amount. But the recovery is limited to affordable homes and the expensive end is still tough.
Improving affordability has the potential to attract more buyers. Macquarie figures that model the percentage of household income required to meet mortgage repayments show Sydney has returned to 2002 levels.
Residex managing director John Edwards believes low interest rates will drive a pick-up in Brisbane and Perth where housing is relatively affordable.
“If you had a market that was more affordable than it is, an interest rate reduction would create considerable demand,” Edwards says. “But when affordability is still marginal, you don’t create that boost you normally get.”