News: Rate hikes dash Oz boom hopes

Tue, 16 Oct 07

Australia can forget about experiencing property boom over the next year, according to property expert Michael Matusik...

Mr Matusik, director of Matusik Property Insights, commented: “although established house prices had risen on average about nine per cent in Australia's capital cities over the past 12 months, major factors will prevent the country from experiencing another boom any time soon.

"The combination of strong economic conditions and demand for houses exceeding supply is supportive of further gains in house prices. But there are a few negatives starting to appear as well," Mr Matusik said.

"The first negative is low affordability. Secondly, despite rising rents, housing net rental yields remain extremely low. The average net rental yield is just 2.8 per cent for capital city houses and 3.5 per cent for apartments, which is half the return that shares currently yield.

A very mixed picture

Mr Matusik continued: "The third negative is rising interest rates, and more importantly, reduced availability of credit and more stringent lending criteria, resulting in fewer home loans."

“While previous housing booms had got underway when interest rates fell significantly, it was only able to happen because property was affordable and rental yields were above the dividend yield on shares. In short, the ingredients are not here for a housing boom”.

"The most likely outlook for house prices is modest gains on average, with a very mixed picture, depending on the city/area. We envisage slower price growth this financial year due to higher rates, low affordability and slowing rental growth.

"Fewer housing starts are likely, with higher prices in 2009."

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