Consyl Publishing & Publicity Ltd

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First homes are now less affordable

TWO distinct markets emerged during 2007 as housing prices continued to rise across much of Australia.
In the first home buyer market, declining affordability (now at its lowest point in 22 years) is having a major impact. Buyer numbers have fallen, with first home buyer loans only representing 17.7 per cent of total loans in September 2007 compared with the longer-term average of 20 per cent.
There is a second, healthier market for established buyers and investors who are able to leverage equity and higher incomes to cope with the increasing median prices for both houses and other dwellings.
However, September quarter housing finance data showed some market caution in an environment where an interest rate rise was anticipated. Investors will be attracted by improving yields as rents rise owing to tight vacancy rates across the country, although interest rate rises will also impact on yields.
There was a steady growth in housing prices during the year to September 2007. The Real Estate Institute of Australia expects this to continue in 2008 in all states except New South Wales, where the market is more subdued, and Western Australia, where prices are settling after a period of large increases.
Well-located property, close to employment opportunities and infrastructure will continue to perform well.
The upward movement in prices for other dwellings - such as flats, units and townhouses - suggests that many home buyers are considering medium and higher density housing as more affordable options in a market where affordability is very low. It is likely that this sector will experience ongoing price growth during 2008.
In 2008, the main challenges facing the real estate market will be low home loan affordability, the possibility of more interest rate rises, the ongoing fallout from the US subprime problems, and an extremely tight rental market driving rents up.
Balancing this are positive signals for the market, including the resources boom continuing to drive prosperity in some States, and solid consumer and business confidence.