House prices to pick up in late 2011

By AAP

Investors and first home buyers are expected to drive up house prices by around five per cent next year, property analysts say.

While residential property prices remained relatively flat in the last quarter of 2010, a tight rental market and return to "normal" trends in first home ownership are likely to lead to firm growth late next year, they say.

CommSec economist Savanth Sebastian said increasing rental demand and rising wages would help fuel steady growth in house prices.

He said demand would be subdued in the first half of 2011 before accelerating in the last two quarters.

"Given the interest rate hikes we've had, it's likely to be a period of consolidation," Mr Sebastian said.

"Later in 2011, rental growth will be a major driver in attracting investors."

He expects annual growth of between five and eight per cent in 2011.

Growth in investor finance would also underpin house price growth, he said.

"The only caveat is interest rises."

Mr Sebastian forecast one interest rate rise for April next year and two in the second half of 2011.

A strong Australian dollar would keep Asian investors away.

Mr Sebastian said the resources centres of Perth and Darwin would experience solid growth while Melbourne and Sydney markets would also be well supported.

Economists, however, are divided over the Reserve Bank of Australia's (RBA) next interest rate move.

They predict there will be two or three interest rate rises next year.

BIS Shrapnel residential property project manager Angie Zigomanis said few first home buyers would return to the market in early 2011 and national house price growth would be capped at 5 per cent.

"I think the it'll be pretty soft next year," Mr Zigomanis said.

Given the recent November rate rise, people will still be cautious."

He predicts demand will pick up once investment in resources projects ramps up later in 2011.

"You'll see more people coming into the market," Mr Zigomanis said.

While many first home buyers had brought forward their home purchases over the past 12 months, buyer activity in that area would return to normal late in 2011, he said.

Mr Zigomanis said demand for residential property would improve as the economy and wages growth strengthened.

The RBA raised the cash rate four times over the past 12 months to its current 4.75 per cent.

An International Monetary Fund (IMF) report this week found Australian house prices could be overvalued by as much as 10 per cent, but it also said strong population growth and rising income would continue to underpin the market.

Meanwhile a recent Westpac consumer survey showed a sharp rise in the Time to Buy a Dwelling Index, which increased 15.8 per cent in November to the highest reading since August.

Westpac senior economist Matthew Hassan said the November interest rate rise appeared to have had "little lasting effect" on attitudes towards house purchases.

"Although affordability remains tight, consumers may see the somewhat softer market conditions and flattening out in house prices over the last six months as an opportunity for buyers," Mr Hassan said.

He said the result suggested housing markets were "well placed" to absorb the last month's interest rate move.


http://www.wabusinessnews.com.au/en-story/1/85820/House-prices-to-pick-up-in-late-2011?utm_source=DBA&utm_medium=email&utm_campaign=article_click