The State of the Market July 2008
Despite having started in a better position than most other years in recent memory, the national residential market ended the 2007/8 financial year with a whimper, with growth in all but a couple of the capital markets either stagnating or trending downward. Despite strong segmentation evident between the southern and eastern capital markets and their western and northern counterparts, the Australian market as a whole began the financial year in excellent form.
Melbourne, Adelaide, Brisbane and Canberra all enjoyed double digit rises in its median residential values. Sydney seemingly found purchase in its attempt to dig itself out of stagnation, with Perth and Darwin cooling rapidly, as one would expect after undergoing sustained periods of robust growth. Now, 12 months later, the rate of growth in all capital cities has slowed considerably as the effect of several interest rates rise by the Reserve Bank (and additional rises from the major banks independent of the Reserve Bank) combining with skyrocketing petrol and food prices to contributing to a continuing deterioration of affordability across the nation.
While the interest rate rises have been seemingly powerless to stop the heightened rate of inflation, they have, for the most part, been successful in dropping consumer confidence and lending levels, with the effect of both reflective in the residential market via less sales, lower auction rates, and the appearance of a buyer’s market across the Eastern seaboard. The fallout from the US subprime market and its effect on the domestic equities market has put investors on high alert, and while the historically the appearance of a bear market is accompanies by discernable shift of capital into property, the deterioration of the housing markets in the US and UK has led investors to view our residential markets with some apprehension as well. All across the globe, the financial and property markets are undergoing a period of reassessment, and in many cases readjustment, and it should be noted that many of the extraneous factors pulling strings in our domestic market are simply out of our control.
Despite the slowing of the markets across the nation, the fundamentals within our residential market still remain sound, and in many cases are positioned to power the market ahead should inflation be reared in and interest rates begin to trend downward. The imbalance between the number of new dwellings built and the number needed to meet the underlying demand is growing in most of the capital markets, buoyed by heightened immigration and a baby boom, with this undersupply looming most ominously on the Sydney horizon. The white hot economies of Western Australia, the Northern Territory and Queensland are powering job creation and wage growth, and largely picking up the slack created by the somewhat sluggish economies across the Eastern seaboard, while South Australia looked poised to begin its own resource boom in the coming year.
At first glance, the current state of the national market is beguiling and reflects a normalisation of growth patterns while the market reassesses itself. If one is to scratch beneath the surface, however, they will find that in most markets, the fundamentals that drive the property market are intact and healthy, and that once the signal is given that the worst of the global credit crisis has passed over Australia, a point which many will argue we have already passed, we expect growth in the markets to begin anew.
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