Interest rates to mix up housing market
HOUSE prices are heading for a mixed year, with some capital cities set for healthy growth while others will struggle to see any rise at all.
AUSTRALIA'S house prices are heading for a mixed year, with some capital cities set for healthy growth while others will struggle to see median values rise at all.
Many experts say removal of the First Home Owner Grant and rising interest rates are set to have an adverse impact on properties at the lower end of the market, while properties at the middle and upper end will be supported by buyers trading up, strong immigration and population growth, and a resilient economy.
However, capital cities will vary enormously, they say.
Areas where the First Home Owner Grant was most popular are likely to have some of the biggest price rises because of the domino-effect of their activity rolling up the market.
"There will be good growth in the $500k-$600k brackets in Sydney and Melbourne because these were the cities where the First Home Owner Grant was most popular," says John Edwards of property research company Residex.
"Properties at the bottom end of the market enjoyed growth of around 15 per cent in 2009, and owners will use that equity to trade up, providing a fillip to the mid-sector.''
Residex says Melbourne houses and units will perform around the same, putting on around 6-7 per cent, while rental yields will also rise.
Australian Property Monitors economist Matthew Bell thinks average property prices nationally will rise by 7-10 per cent.
"I don't think interest rates will become a negative factor until mortgage rates hit 7.5-8 per cent,'' he says.
"We have looked at the past three rate-rise cycles, and prices rose in two of them and were broadly flat in the third.
The only time prices fell was from March 2008 to March 2009 and that was because of the global financial crisis you can't blame that on rates."
However, AMP Capital Investors chief economist Shane Oliver says prices are already high "and have had a good run in the past six to nine months.
"With that in mind, and given deteriorating affordability because of rising rates, it's going to be difficult for prices to rise much."