Property prices grew 4.7% in 2010 but experts predict 2011 to be a flat year

Australian house prices finished the year on a poor note, with property prices rising just 0.2% in December following a 0.1% decline in November, according to the latest figures from the RP Data-Rismark Hedonic Home Value Index.

The RP Data figures show prices in capital cities rose 4.7% across 2010, compared to growth of 11.5% in 2009.

House prices are now growing at the slowest rate in 18 months.

The figures come as Wakelin Property Advisory managing director Monique Sasson Wakelin has said this year will continue be a disappointing one for property gains, with the highest growth expected in Sydney at 8%.

RP Data’s figures show that over the whole of 2010, Melbourne was the best performer with prices up by 8.4%, with Sydney coming in second at 6.6%.

During the December quarter, Melbourne recorded the highest growth at 1.1%, with Sydney and Adelaide following with gains of 0.9% and 0.4% respectively. The national median dwelling price is now at $475,000.

Declines were recorded in Darwin, down a disappointing 1.7%, with Canberra down 1.3%, Perth down 1.9% and Brisbane down by 0.5%.

Over the year, home prices were down by 2.3% in Perth, but every other city recorded gains. Melbourne recorded the highest growth of 8.4%, with Sydney up by 6.6%, Darwin up by 4.8% and Adelaide up by 3.6%. Canberra prices also grew by 2.5%.

RP Data research director Tim Lawless says the result represents “weaker demand and supply fundamentals in regional areas”, and points out that RBA movements are likely to determine how the housing market reacts during 2011.

“The interest rate futures market is not pricing in a full rate hike until March 2012. While that seems optimistic, if borrowers only have to wear one rate hike between now and March 2012 Australian dwelling values have a good chance of realising higher-than-expected capital gains,” he said.

“A long-term pause in interest rates would be welcomed by all segments of the housing market. If, however, the RBA raises rates several times in 2011, we think dwelling values will struggle to obtain much forward momentum over the year.”

CommSec economist Craig James says the results clearly show that housing prices are now “off the Reserve Bank’s worry list”.

“But state governments can’t rest easy – they need to ensure that barriers aren’t being put in front of developers and investors and also need to ensure that markets are well supplied by affordable land.”

He also points out that a softening in home buyers, with a rest in interest rates, “is clearly positive for budding home buyers”.

Monique Sasson Wakelin agrees, saying 2011 will be a good year for investors and first-time buyers.

“I think this is in some ways the year property investors have been waiting for. What people don’t understand is that they should be catching the wave right now. The opportunity is here for investors who are smart and can get into the market when things are quieter.”

Sasson Wakelin predicts price growth will reach a maximum of 8% in Sydney, with minimal growth in other capitals.

“I think Sydney has the greatest upside for this year,” she says. “It’s had a quieter time, and that’s partly on the back of the global financial crisis. But we typically see that the largest cities have the greatest reactions to improvements, and that’s what we’re going to see.”

“The immediate threat of the past seems to be gone now.”

Perth prices will rise by 4-7%, with the city to enjoy higher immigration levels along with the recovery in mining, will Adelaide will follow with gains of between 3-6% due to “benign economic conditions and the prospect of additional resources dollars coming on stream”.

However, other cities aren’t likely to see many improvements. Melbourne, which was one of the hottest markets in the 2009-10 year, will see growth of just 2-5%.

But Sasson Wakelin also says prices won’t fall, as the state’s economy is “on good footing” and discretionary sellers are unlikely to accept lower prices.

Hobart prices will gain 1-4%, with most of the growth likely due to downsizers.

Canberra prices are only predicted to remain between 0-3%, with Sasson Wakelin predicting government employment to remain thin as more budget cuts are made.

“It’s a small city, more like a large town, but the reason it tends to wax and wane is because of the government. My feeling is that the government is in for a tough time and they’re going to be stopping a lot of spending.”

Properties in Brisbane will see prices fall be between 2-5%, with Sasson Wakelin saying the devastating floods simply added to an already weak market, hurt by lagging tourism and an oversupply.

“I think it’s incredibly unfortunate this has happened. Certainly the disasters have had some impact on that prediction, but I think it was going to be a fairly quiet year for Brisbane anyway”.