From SQM’s Louis Christopher late yesterday:
Well I could write a whole chapter on what has happened within the sector this week given certain controversies and the ABC Fact Check on auction clearance rates. However, I suspect most of you would prefer some crystal ball gazing for the last newsletter of the year.
Lets do that in consideration of our initial 2013 published forecast made way back in September 2013. Here is the table we ran for the media and our Housing Boom and Bust Report we published at the time, plus what the ABS house price series now has to September this year and our asking prices index for the 12 months to this week.
Source: SQM Research, ABSOverall our forecast came in closest to our base case scenario, which was that interest rates would be cut during 2013. The Terms of Trade stabilises and that the dollar hovered around parity, which for most of the year, it was just under at an average of about 97 cents.
As can be seen, the national result provided by the ABS appears to have risen just above our upper range forecast for the year, predominantly driven by strong results in Sydney and to a lesser extent, Melbourne and Perth. As published in September this year, our base case forecast is for dwelling prices to now accelerate with a capital city average range of 7-11%. I am getting a stronger sense that the year is likely to produce at the top end of this range. If you consider more recent data over the past three months, the tempo seems quicker than 11%. But let’s see – a year is a long time in real estate.
After a very strong 2012, Perth has come within the middle of our range at an 8.6% price increase. We have been right to have called a slower rate of growth than 2012. What is most interesting in the market though was what happened on the rental front, where vacancy rates rose at a fast pace throughout the course of this year and subsequently, rents in Perth fell. On our index rents are now down by 7.4% for houses and 2.0% for units. Going forward, the forecast is for dwelling price gains of 4-8%, so we are thinking a further slowdown from here based on a very sluggish state economy for 2014.
Brisbane has also come in close to the middle of our forecast at 4.1%. So far it has been a modest recovery for Brisbane in 2013 and there are still some concerns, namely the very high rental vacancies been recorded in the CBD which potential investors should keep a wary eye on for the immediate future. Going forward, our forecast is 4-7% for 2014 and for now, I would not be surprised if the end result is at the top end of our range. We are seeing signs of a stronger recovery now taking place in Brisbane’s east side.
The Sydney market has come in stronger than expected for this year and it does bring into question whether our 15-20% forecast for Sydney for next year could be arriving earlier than expected. For now we are going to hold to that forecast but I can increasingly see a situation where the 12 months to the March quarters and June quarters will record price rises within this range. Watch out for the upper end of the market where I think the demand is going to move too. That will further push up the various indexes, even while they are all largely stratified for this event.
Melbourne is always a challenging market to interpret and forecast, not least of which is because of the data lags exposed by SQM earlier this year. For the 12 months to September the ABS had a 6.8% increase in house prices, which is somewhat above our 2-5% forecast we made for the year. Note though, our asking prices index has only been oscillating. I think the reality on the ground is that the inner ring excluding the oversupplied areas of Docklands and Southbank have been performing well, which explains the rise in auction clearance rates compared to 2012. But from what we can see, the middle and outer ring of Melbourne have remained weak and that is because of the ongoing oversupply of house and land packages that still remain on the market today.
Adelaide has so far recorded the most modest of real estate recoveries, rising by 1.0% for the 12 month to September. There might perhaps be some strength for the December quarter as our asking prices series has recorded a 1.3% increase. As discussed in the 2012 report, the cancellation of some mining projects which has stemmed employment growth, plus an ongoing elevated level of supply have kept a lid on the recovery to date. Overall, the Adelaide economy continues to be a laggard, underperforming most other states. 2014 will record some slight acceleration in dwelling price growth, but it will still remain modest at just 3-6%.
Hobart so far has just fallen shy of our 2-5% forecast, coming in at 1.1% for the 12 months to September. Asking prices do suggest a stronger September quarter, rising by 1.8%. There are also signs on the rental front that the downturn is coming to an end in that city. We have a 3-6% forecast in 2014 and so far I think that is a strong possibility.
Canberra appears to have just come in shy of our 1-4% forecast at 0.6% for the 12 months to September. Asking prices have fared worse, falling by 1.7%. My sense is, given the very laggy valuer general data from this state, the ABS is likely to record falls for the majority of next year. Our 2014 forecast is dwelling prices to fall 1%-4%.
The Darwin housing market has continued to slow down this year after recording double digit capital growth in 2012. We had a wide range (6%-14%) on our forecast which represented some uncertainty in what would happen. In the end, prices appear to have risen about 6% for the year. Next year we are expecting stabilisation of the current growth rate at somewhere between 5-8%.
So overall, for existing investors and property owners, that sounds like another positive year. However, take heed people – the mining downturn is here. The job losses are happening and house prices are collapsing. Consider Karratha and consider other towns. As the charts clearly show, there is a real crash happening in quite a large number of these towns. The ramifications for the rest of the economy are apparent.
