Experts question price data to see where property market is moving

What’s happening with housing prices? With three sets of very different data being released over the past few weeks, punters are understandably scratching their heads as to what prices will do for the rest of the year.

But experts say despite the three different results, with one showing a decline of 0.7% in June, the trend is clear that price growth will remain stunted over the rest of the year as buyers continue to back off.

“The market is slowing. It is definitely moving down. The growth will not be as high as it was last year, and there won’t be much more growth at all added to the first half of the year,” SQM Research founder Louis Christopher warns.

Two weeks ago investors were given a confidence boost when APM revealed a 2.4% increase in the June quarter. At the time, APM economist Matthew Bell told SmartCompany the market was definitely retreating but still recording solid growth.

However, just a few days later RP Data revealed prices fell by 0.7% in June – the first decline in 17 months. And just yesterday, the Australian Bureau of Statistics confused the market yet again when it revealed prices grew by 3.1% over the June quarter.

Christopher says there is a clear explanation for this – the APM and ABS data is late. While the ABS and APM figures show quarterly growth of 3.1% and 2.4% respectively, he says this takes into account higher prices during the beginning of April when sellers believed they could still attract high figures.

The RP Data-Rismark figures, which only recorded June prices, reflect the more recent change in the market. As buyers become more bargain conscious and back away due to higher interest rates, vendors eventually lower their asking prices to more realistic figures – resulting in the decline of 0.7%.

Rismark chief executive Christopher Joye says their figures are more accurate due to a combination of a wider range of metrics, like apartments, and the fact they are seasonally adjusted.

“What happened in the June quarter is that vendors started lowering their prices,” SQM’s Christopher says. “During the beginning of the quarter, buyers were out there accepting higher vendor asking prices, which pushed up the ABS figures. It doesn’t mean those figures aren’t correct, it just means the situation has changed.”

“What’s happening now is that asking prices have moderated, and they have stagnated since June. It is now very likely we are going to record a very flat market during the next two quarters, and we stick to that prediction.”

David Airey, president of the Real Estate Institute of Australia, agrees the market is slowing and vendors are just taking some time to catch on to the trend.

“Certainly the market is very slow. Prices are steady in some places, heading downward in some places, in some areas it’s very hard to pinpoint what’s going on. However, it is certain that we’ve moved into a period of stabilising, or correction.”

These experts all agree the market is slowing. But the question remains as to how far price growth will actually fall.

The analysts are split into two camps. On the one hand, APM’s Matthew Bell and SQM’s Louis Christopher believe the market will see price growth of about 7-10%.

“I think we can basically lock-in growth of between 7-9% for the half year, but I don’t think there’ll be much added to that. It’s certainly not as high as we recorded last year, the higher interest rates have slowed us down. It’s strong, but down from last year for sure,” Christopher says.

Bell told SmartCompany last week, “I think we’re going to see about 8-10% growth and I’m very happy with that. It’s certainly surprising, and not at all a bad result”.

On the other hand, Airey and Rismark’s Christopher Joye are more pessimistic. In a recent blog post on Business Spectator, Joye says the market will remain extremely low due to poor consumer sentiment and a fall in spending.

“Over the long-run, house prices track purchasing power quite closely. Disposable household incomes were only projected to rise by about 5% in 2010.”

“We’ve had 4.7% growth in dwelling values in the year-to-date. We do not, therefore, expect to see the market rise much further over the remaining year subject to labour market conditions and the course of monetary policy.”

Higher interest rates and lower consumer spending also feeds into expectations – a recent NAB survey shows consumers have cut expectations of house price growth over the next 12 months to just 1.4% in June, compared to 5.2% in March.
Airey agrees.

“I can’t see any growth over the rest of the year unless some extraordinary event occurs. I think prices will stay at about 5-6% growth, which is above inflation but will depend on sales figures and so on.”

However, all these experts do agree on one thing – RP Data is on to something. In some areas, prices are beginning to fall.

“I think there will be a retracement of certain prices,” Christopher says. “Particularly in Melbourne, we expect to see some areas record declines of about 1-2% over the next two quarters.”

The ABS data shows Melbourne has recorded price growth of nearly 25% for the year to June. Now, Airey says that growth may be corrected. “There are some areas in Melbourne where prices will be falling, but that’s only in some areas and not overall.”

And with immigration falling and the market heading into Spring, Airey says the shortage argument isn’t going to hold much weight.

“We’re heading into a Spring selling point, with lots of properties heading on to the market, but with the slowdown in sales it’s going to be quiet. Certainly the honeymoon is over – and I think a period of stability could be quite good.”

“There is definitely a shortage,” Christopher says,” but it’s not everywhere.”