Buy now before house prices rise!

“House prices may surge about 20 per cent or more in some of Australia's largest cities over the next three years, driven higher by on-going shortages.” As the economy recovers we are likely to see an expected rebound in interest rates. Although the Reserve Bank officially lifted the interest rate to 3.25 per cent and signaled more rises to follow, “the outlook for the Australian housing market looks positive,” said QBE LMI chief Ian Graham.

Adelaide is forecasted to lead the advances likely to be “23% higher in June 2012,” according to the QBE LMI Housing Outlook.  Sydney is likely to follow with a housing price rise of 21% in the same period, while Melbourne prices “may be 19 per cent higher.”

“Prices in the Australian housing market have been driven up by a chronic shortage of homes, estimated be about 56,600 in 2009. The projected price increases will add to a huge run-up over the past decade.”
Based on the Real Estate Report, it has been stated that the median house price in Melbourne has risen 116% in the last 10 year period. “Brisbane housing prices have increased 202 per cent while Adelaide’s increased 208 per cent during the same 10-year stretch.”

“In 2008, home prices eased about 3 per cent nationwide, bucking the trend of price drops of nearly 20 per cent in the US, UK, Ireland and Spain.”

Drivers

“The shortages have been driven by a variety of factors including population growth, tax advantages favouring home ownership and real estate investment, and price speculation by home buyers and investors. Also, bottlenecks in the approval process for home building have been blamed.”

The First Home Owners Grant has also been driving prices upward recently and won’t be phased out until the end of next year.

Rising debt

“The current household debt to income ratio is around 155 per cent; up from about 130 per cent at the time of the last RBA rate rising cycle in 2003, Westpac said today, in releasing the September consumer confidence number.”

The current rising home prices have been a major contributor to the level of debt in general households.
“According to Morgan Stanley's Gerard Minack, the ratio of average house prices to average income in Australia is now just under 5 compared with around 3.5 times at the top of the US housing cycle.”

*Data as at 14th October 2009.

Source: CHRIS ZAPPONE, SMH.