Property values to rise as much as 7% in 2013, new “boom and bust” report predicts

The property industry is finally on the uptick, according to a new report from SQM Research which argues prices could rise by as much as 7% next year if the Reserve Bank pulls through with rate cuts between now and mid-2013.

The prediction comes as the spring selling season got off to a good start, with auction clearance rates now higher than at the same time last year – mainly due to a subsiding of fears over the European economy.

“Over the past four to five weeks now, there have been auction clearance rates higher than this time last year, even taking into account unreported auctions,” SQM managing director Louis Christopher told SmartCompany.

“That signals to us there’s a little bit more strength in the market, and we think that’s the result of interest rate cuts.”

The report provides a few distinct scenarios, but its base case is that the RBA will cut rates by 50 basis points, the dollar remains at parity, and that terms of trade fall and then stabilise during 2013.

Given that scenario, prices are expected to rise by up to 14% in Darwin, 12% in Perth, 7% in Brisbane, and 5% in Melbourne.

In Sydney, prices are expected to increase by anywhere from 5% to 9%, and in Adelaide and Hobart by between 2% to 5%.

Overall, the capital city average is expected to increase anywhere from 4% to 7%, while holiday locations – which have been decimated by the higher dollar and lower tourism figures – are expected to increase by between 3% and 6%.

However, the report also says the recovery in these areas, such as the Gold Coast and the Sunshine Coast, won’t be strong in its first year “as there is still an excess of listings on the market that need to be absorbed first and that is going to take some time to happen”.

Christopher says the increases will be evidence of “an affordability driven recovery” with more price increases seen in the middle and outer rings of capital cities than in the premium, inner-city areas.

“Rents have been rising a lot faster than inflation in the middle and outer ring areas. We think it’s getting to the point where renters may turn into home buyers if we see rate cuts.”

Indeed, SQM is expecting 50 basis points of cuts by mid next year, an analysis many economists agree with or even surpass – some banks are now insisting there could be two cuts even before the end of this year.

Such a development would boost consumer confidence and, in turn, property values.

Christopher also says the reduced risk coming out of the European region, especially when compared to last year, will help property values in the short term.

“We’ve turned a little bit more bullish this time, but I hasten to add this is about interest rates.”

As a result, the property market could hit another snag in 2013 if the economy starts churning again and the RBA is forced to raise the cash rate.

“We haven’t discussed this in the report, but there may be a case somewhere down the line to lift rates at some point. I think that could be a concern…in 2013.”