Property crystal ball

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    Property crystal ball: Melbourne house price growth will be modest in 2015

    Date February 14, 2015 - 5:15AM


    Inner city housing, like this South Melbourne house, is predicted to outshine the rest of the market in 2015. Photo: Simon Schluter
    Home buyers looking for a foothold on the Melbourne property ladder this year should do so with caution.
    Property experts say the market is set to remain sluggish despite the Reserve Bank's recent decision to cut the cash rate. Even another drop in the coming months, as tipped by some economists, is expected to keep the market just ticking along.
    Domain Group senior economist Andrew Wilson predicts house prices to grow by just 3 per cent to 5 per cent this year after signs that the market is already tapering off rather than gaining ground.

    Source: Domain Group senior economist Andrew Wilson.
    Melbourne's clearance rate of 67 per cent last Saturday was well down on the 73 per cent registered a week before, and significantly below the 76 per cent recorded on the same weekend in 2014.
    The number of listings this Saturday is also 29 per cent less than the 616 auctions scheduled at same time last year.
    "It's early days for the auction market but key indicators show that clearance rates are down, along with auction listing and prices growth has been moderate," Dr Wilson said.
    "There are definitely signs that people are disengaging with the housing market."
    Dr Wilson said it was clear it was becoming more of a buyers' market.
    With the latest ABS unemployment rates of 6.4 per cent nationally, the highest in 12 years, it's a sobering reminder that Melbourne has hard times ahead, although bright spots remain.
    An undersupply of inner-suburban housing - a market that is relatively immune to underperformance of the local economy - is expected to push prices growth above the city average.
    "Melbourne's inner suburbs have the best prospects of growth because of the shortage of property there; particularly higher-density property and the aspiration of living in those areas," Dr Wilson said.
    "Outer-suburban areas in all capitals are the ones that have been the underperformers ... they're more likely to be concerned over unemployment and job security, and they're more exposed to low incomes growth."
    Dr Wilson says the exception to this is Melbourne's inner and outer east, where he expects house prices to grow between 5 per cent and 7 per cent, compared with 2 per cent and 3 per cent in the west.
    He said the next movement in the housing market would be determined by the performance of the local economy.
    "[Wages] are just not growing, neither are profits and inflation's low and falling - the scenario is not there for a recovery in house prices as we've known before," he said.
    AMP Capital chief economist Shane Oliver is more optimistic and anticipates prices growth of between 4 per cent and 5 per cent this year.
    He believes lower interest rates could prop up demand from owner-occupiers and lead to an increase in first home buyers, particularly if the economy starts to improve.
    Compared to when the RBA first started slashing the cash rate in 2011-12, which boosted house price growth through 2013, Dr Oliver said the recent cut was "just enough to keep the market ticking over".
    "Because there hasn't been as much of a surge in the construction of houses as there have been for apartments, it may be the case that the house market is stronger than the unit market," he added.
    Dr Oliver said the next big move in the property market would be after a rise in the official interest rate which could see house prices fall in second half of 2016.
    Meanwhile, ANZ senior property analyst David Cannington expects the Australian Prudential Regulation Authority's crackdown on loans to property investors in December will dampen growth. He said he expected prices and sales growth to ease from last year.
    Hocking Stuart Armadale director Andrew James predicts house prices growth to be similar to 2014, with the inner-city outshining the rest.
    "There's always a demand to be close and centrally located in Melbourne, taking advantage of all of the facilities that are on offer such as public transport, parks, recreational facilities and lifestyle strips, and I think that will never change."
 
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