Our own Unconventional Economist was warning of the coming trouble with the Victorian real estate market throughout 2012 due to delayed supply response that is seeing large amounts of new product coming into the market as prices begin to fall. In addition, sales in new housing developments have fallen rapidly and the bearish trend in mortgage data appears baked in which has the possibility of pushing up unemployment. On top of that, like other states, Victoria is looking at some form of fiscal consolidation this year which again is likely to have a negative impact on the state’s economy in the short-to- medium term.
Current interest rate settings are obviously providing a buffer from the economic headwinds, but as the RPData release showed yesterday, this doesn’t appear to be providing a compensatory force of the magnitude required to hold up Melbourne prices. So, as Leith has been warning over the last 12 months, Melbourne is at risk of seeing further price falls over the coming years. Chris Vedelago reported much the same in The Age today.
Melbourne’s property market has posted its weakest performance in nearly a generation as home prices continue to fall despite deep interest rate cuts.
Defying hopes of home owners for a recovery, the city’s property slump is set to continue as new figures show prices fell nearly 3 per cent last year.
Values have now slid 8.4 per cent from their peak just two years ago – the biggest fall for the Melbourne market since price records began in the mid-1990s, according to research firm RP Data-Rismark.
But while industry experts warn that a city-wide recovery could be up to two years away, low mortgage rates and price falls in many popular inner and middle suburbs are tipped to make these enclaves more affordable.
”The interest rate cuts have probably shielded the market somewhat from bigger falls over the last year, but I think Melbourne will continue to be one of the weakest performing markets in the country,” said RP Data analyst Cameron Kusher. ”I wouldn’t be surprised to see values fall again over the next year.”
The prediction will be welcome news for buyers but a bitter pill for home owners, who saw prices soar nearly 37 per cent in 2009-10. That boom, fuelled by record low interest rates and the generous first home buyer grants on offer during the global financial crisis, is being blamed for the serious affordability problem in the city.
”Prices have gotten too high in Melbourne and it hasn’t taken its medicine yet,” Mr Kusher said.
BIS Shrapnel analyst Angie Zigomanis said Victoria was facing a ”trifecta” of issues – a weak economy, unaffordable housing and an oversupply of new homes and apartments – that was blunting the impact of recent interest rate cuts.
”Melbourne came out of the blocks the strongest after the global financial crisis and many of the problems we’re facing now are the hangover from that,” he said.
This is a repeat of the warning that the usually bullish BIS Shrapnel gave back in December.
Victoria will miss out on the recovery in the property markets of the other major states, according to BIS Shrapnel…
Victoria will be left behind, facing level growth for at least the next three years, says BIS Shrapnel, which forecasts vacancy rates will rise in the next year due to a big influx of residential developments currently in the pipeline coming online.
Certainly not the usual optimism I expect from BIS Shrapnel.
Of additional interest is the poll at the bottom of the article by Chris Vedelago , which currently has 77% of respondents answering “yes” to the question “Do house prices need to fall further”. I actually didn’t notice the poll at first, probably because I take these sorts of things with a pinch of salt and would usually ignore them. The only reason I did noticed it, and mention it now, was due to the seemingly overzealous reaction from the REIV to the result.