Economists mixed on outlook for house prices

The release of house price data for 2008 from the Australian Bureau of Statistics confirmed the worst fears of the property sector – for the first time in a more than a decade, Australian house prices actually fell. But where are prices headed in 2009?

Economists have very mixed views. While some particularly bearish commentators have predicted falls of up to 40%, others are far more moderate.

CommSec economist Savanth Sebastian was quick to point out that the fall over 2008 was a modest 3.3%. “It’s a far cry from the fall of 10% to 20% noted across Europe and the US – clearly pointing out the substantial difference in the fundamentals across the globe.”

Sebastian says conditions are right for a rise a “significant improvement” in demand over 2009 thanks to falling interest rates, the enlarged first home owners grant and the prospect of picking up a bargain.

“For budding home buyers the latest (house price) result is likely to add to the already heady cocktail of positive influences. The cheaper prices will help boost affordability.”

ANZ economist Alex Joiner agrees that demand should “stem any further significant price falls” but warns property watchers that the turnaround in prices will take some time.

“As such we expect house prices to consolidate over the next 12 to 18 months, perhaps with one or two more quarters of softness before grinding higher. Mixed results will occur across states, capital cities and suburbs. Expect Perth and Brisbane to be the most vulnerable.”

JP Morgan economist Helen Kavans agrees that Australia’s house prices will not crash to the same extent as those in the US or Europe, but still expects prices will fall at least 10%.

“Larger falls in house prices may materialise, although the acute shortage of new homes and accelerating population growth (mainly on the back of higher skilled migration) will provide support for house prices in some cities.”

But as Joiner points out, there are several factors that could result in larger falls in house prices, including the lingering effects of the credit crunch, which has made it harder for home buyers and particularly property investors to get funding.

“Economic uncertainty, especially that prompted by fear of unemployment, could see the improvement in market sentiment evaporate, deterring buyers from entering the market.

“The unemployment rate is tipped to rise and it remains to be seen how the speed, composition and size of this increase impacts on forced sales and serves to sales subdue activity.”

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