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Thursday, October 29, 2009

Global warming may heat up Tree Change markets

A Parliamentary report on global warming released this week highlights the uncertainty surrounding coastal property markets. Some prospective Sea Changers may become Tree Change converts.

Tree Change properties, often considered the poor cousin to Sea Change properties, may be given an unexpected boost, with a recent Parliamentary report highlighting potential issues associated with properties located close to the water due to global warming. The report, released this week by the House Standing Committee on Climate Change, Water, Environment and the Arts and titled ‘Managing our coastal zone in a changing climate’ suggests that a one centimetre rise in sea levels could lead to at least one metre of erosion on the shoreline, making coastal properties vulnerable to flooding, erosion, high tides and surging storms.

The implications for coastal property markets around Australia are likely to be far reaching, particularly for properties within 3km of the ocean and less than six metres above sea level:

• Insurance companies are likely to reassess the value of premiums on potentially affected properties;
• Coastal property owners may be slugged with additional charges aimed at funding the works associated with coastal remediation and risk mitigation (or it may be the broader community that funds these activities)
• New development in areas that are subject to potential inundation may be blocked or face large hurdles associated with planning and development approval
• Existing homes may actually rise more in value due to new supply constraints

In all likelihood, the values of coastal properties will continue to rise despite the heightened uncertainty that surrounds coastal markets. Ultimately, most owners and buyers will choose lifestyle and prestige over the more practical considerations raised in the report.

There will, however, be a portion of the market that turns away from the coast and look towards higher ground. ‘Tree Change’, where buyers move from the city to a rural location, has been gathering momentum for some time. Hinterland markets and agricultural regions close to the capital cities have become more popular due to the high prices of properties located near the water and the increasing demand from baby boomers who are winding down or approaching retirement. The increased uncertainty surrounding coastal markets is likely to propel demand for these regions even higher.

Traditionally, Tree Change buyers have been attracted to the larger land areas that rural locations offer together with the tranquility and privacy that comes naturally in these locations.

Some of the most popular Tree Change markets in each state are highlighted in the graphs and tables below. All have seen a considerable reduction in sales volumes that is synonymous with lifestyle markets around Australia. Apart from Tasmania’s Derwent Valley and Victoria’s Yarra Ranges, all have seen a reduction in the median house price over the last year. The most popular Tree Change markets are generally those that are within commuting distance to a capital city or major centre

Over the longer time period, however, growth in house prices has been fairly consistent with most markets analysed recording a reasonable rate of growth over the last five years. The Blue Mountains in New South Wales is the exception with house prices still lower than what they were when the market peaked in 2004. Such a poor performance over the last five years is likely to be viewed as an opportunity by many prospective buyers who can still take advantage of relatively low prices in a Tree Change market that is within commuting distance to the Sydney CBD.


Information supplied by Rp data

Global warming may heat up Tree Change markets

A Parliamentary report on global warming released this week highlights the uncertainty surrounding coastal property markets. Some prospective Sea Changers may become Tree Change converts.

Tree Change properties, often considered the poor cousin to Sea Change properties, may be given an unexpected boost, with a recent Parliamentary report highlighting potential issues associated with properties located close to the water due to global warming. The report, released this week by the House Standing Committee on Climate Change, Water, Environment and the Arts and titled ‘Managing our coastal zone in a changing climate’ suggests that a one centimetre rise in sea levels could lead to at least one metre of erosion on the shoreline, making coastal properties vulnerable to flooding, erosion, high tides and surging storms.

The implications for coastal property markets around Australia are likely to be far reaching, particularly for properties within 3km of the ocean and less than six metres above sea level:

• Insurance companies are likely to reassess the value of premiums on potentially affected properties;
• Coastal property owners may be slugged with additional charges aimed at funding the works associated with coastal remediation and risk mitigation (or it may be the broader community that funds these activities)
• New development in areas that are subject to potential inundation may be blocked or face large hurdles associated with planning and development approval
• Existing homes may actually rise more in value due to new supply constraints

In all likelihood, the values of coastal properties will continue to rise despite the heightened uncertainty that surrounds coastal markets. Ultimately, most owners and buyers will choose lifestyle and prestige over the more practical considerations raised in the report.

There will, however, be a portion of the market that turns away from the coast and look towards higher ground. ‘Tree Change’, where buyers move from the city to a rural location, has been gathering momentum for some time. Hinterland markets and agricultural regions close to the capital cities have become more popular due to the high prices of properties located near the water and the increasing demand from baby boomers who are winding down or approaching retirement. The increased uncertainty surrounding coastal markets is likely to propel demand for these regions even higher.

Traditionally, Tree Change buyers have been attracted to the larger land areas that rural locations offer together with the tranquility and privacy that comes naturally in these locations.

Some of the most popular Tree Change markets in each state are highlighted in the graphs and tables below. All have seen a considerable reduction in sales volumes that is synonymous with lifestyle markets around Australia. Apart from Tasmania’s Derwent Valley and Victoria’s Yarra Ranges, all have seen a reduction in the median house price over the last year. The most popular Tree Change markets are generally those that are within commuting distance to a capital city or major centre.

Over the longer time period, however, growth in house prices has been fairly consistent with most markets analysed recording a reasonable rate of growth over the last five years. The Blue Mountains in New South Wales is the exception with house prices still lower than what they were when the market peaked in 2004. Such a poor performance over the last five years is likely to be viewed as an opportunity by many prospective buyers who can still take advantage of relatively low prices in a Tree Change market that is within commuting distance to the Sydney CBD.

Supplied by Rp Data Index report, 30th October 2009

Wednesday, October 28, 2009

luxury Home prices rise....

House prices are rising at the fastest pace in six years but rising interest rates could halt the boom, experts have warned.

Nationally, house prices rose by 3.7 percent in the three months to September alone and have already gained by 7.1 percent this year, according to Australian Property Monitors (APM).

Melbourne and Hobart saw the biggest growth in house prices in the last three months, with prices rising by 6.1 percent and 5.4 percent respectively, while Darwin saw the biggest rise in apartment prices, up 11.9 percent.

AMP economist Matthew Bell said the gains had been powered by a recovery in sales at the luxury end of the market and by owners who sold property to the rush of new first home buyers, who are now upgrading.

"The extraordinary recovery at the upper end of the market experienced in June in most major capitals has now spread to the rest of the country," he said.

"In addition, sellers who sold properties into the booming first home owner market over the past year have used sale proceeds to upgrade to more expensive homes and units, placing even more pressure on upper end markets."

However, APM cautioned that rising interest rates could pose a threat to continued growth in house prices.

Economists are expecting the Reserve Bank of Australia to raise interest rates several times in the coming months with rates likely to rise by 25 basis points following the RBA’s meeting next Tuesday.

Many predict the cash rate will be around 5.5 percent by the end of 2010 and there are fears that some, particularly first home buyers who entered the market amid record low rates and government incentives, may have over committed themselves.

"Despite this, we expect that strong rental yields and the prospect of future capital gains are enticing many investors to enter the market in the second half of 2009 and early 2010," Mr Bell said.

He added that rates would be a crucial factor in whether price growth continues.

"While the explosive growth seen in the upper end of the market is expected to slow as prices reach and exceed their late 2007 highs, moderate to strong growth is expected across the market as a whole for the remainder of 2009 and 2010," he said.

"The question as to whether this growth can be sustained throughout 2010 depends on how quickly mortgage rates rise in the next six months."

Australians will get further insight into house prices tomorrow when APM rival RP Data publishes its monthly house price index.

Supplied by ninemsn.com.au 29th october 2009

Thursday, October 8, 2009

Home prices soar to record highs in August

Monthly home prices

· Australian home prices soared to record highs in August, underpinned by low interest rates, grants to first home owners and growing confidence about the job market.

· The RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia – lifted by 1.9 per cent in August, the eighth consecutive monthly gain. Over the past year, Australian dwelling prices have risen by 6.6 per cent – the strongest gain in 15 months.

· Across all capital cities, dwelling prices are higher than a year ago. The RP Data-Rismark Hedonic Australian Home Value Index is now 3.8 per cent higher than the previous peak set in February 2008.

· Higher-priced suburbs are now showing stronger price gains than cheaper suburbs. Both top-end and medium-price home prices have risen 8.2 per cent since the start of the year with prices in cheaper suburbs up 7.5 per cent.

What does it all mean?

· It is a simple case of supply and demand. Demand for homes is being spurred by super-low interest rates, the fastest population growth in 40 years and grants to first home buyers. At the same time, Australia continues to experience an under-supply of homes through lack of building over recent years. Demand is out-stripping supply of homes, and as a result prices are rising.

· If home prices were just rising in the cheaper suburbs then you could put the gains down to the grants to first home buyers. But prices in upper-end suburbs are now rising at a faster pace than cheaper locales.

·For the two-thirds of Australians that either own or are buying homes, the solid growth in home prices is clearly good news. Rising home and share prices are lifting wealth levels and consumer confidence – both factors that should underpin spending levels in coming months.

· No doubt the coming rate hikes and lift in home building will serve to restrain growth in home prices. But it is still a case that population growth is outstripping housing supply by a big margin. And a raft of barriers on the supply-side such as zoning requirements and access to finance are preventing developers and investors from entering the market.

·Governments, industry bodies and financiers need to come together to address the barriers that exist. If action doesn’t occur to lift the supply of dwellings then Reserve Bank fears of a housing bubble could end up being realised.

·CommSec expects home prices to rise by around 8 per cent over the coming year, a rate of growth in line with longer-term averages. Strong fundamental demand for homes will continue over the year but affordability will soften as the Reserve Bank lifts interest rates to more ‘normal’ levels.

·The RP Data-Rismark index utilises Australia’s largest property database and measures prices of houses and units so it is clearly the most accurate measure of dwelling prices and one that the Reserve Bank closely monitors.

What do the figures show?

·The RP Data-Rismark Hedonic Australian Home Value Index rose by 1.9 per cent in August, the eighth consecutive monthly gain. House prices lifted by 1.8 per cent with unit (apartment) prices up by 2.1 per cent.

·Over the first eight months of 2009 capital city home prices rose by 7.9 per cent. Over the year to August dwelling (home) prices were up 6.6 per cent – the strongest annual increase in 15 months.

·House prices in August were up 6.0 per cent on a year ago with unit prices up 8.3 per cent.

·In August, Melbourne dwelling prices rose by 2.7 per cent followed by Sydney (up 2.1 per cent), Canberra (up 1.9 per cent), Brisbane (up 1.4 per cent), Adelaide (up 1.3 per cent) and Perth (up 0.6 per cent). Dwelling prices fell by 0.8 per cent in Darwin after soaring by 3.1 per cent in July.

·Over the past year, Darwin dwelling prices recorded the strongest gain, up 17.9 per cent, followed by Melbourne (up 9.5 per cent), Canberra (up 8.6 per cent), Sydney (up 7.4 per cent), Brisbane & Adelaide (both up 3.8 per cent) and Perth (up 1.8 per cent).

·RP Data-Rismark calculates the median capital city house price across Australia at a record high of $514,416 with the median unit value at a record high of $418,806.

·According to RP Data-Rismark, returns on Australian dwellings (accumulation index), grew by 11.7 per cent over the past year, the fastest pace in 15 months. The gross annualised rental yield for units of stands at 14.1 per cent while house rental yields stand at 10.9 per cent.

What is the importance of the economic data?

·The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database including over 170,000 sales during the first eight months of 2009 (and over 129 million data records in total). Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.

·The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2009 index results compare the end of March index with the end of December index.



·Rising house prices serve to lift consumer confidence and wealth levels. However rapid increases in home prices lead to weaker housing affordability.

What are the implications for interest rates and investors?

·The strong lift in home prices increases the risk that the Reserve Bank will lift rates later this year rather than early next year. CommSec still expects the Reserve Bank to deliver the first rate hike in February 2010, but the chance of a move in November or December has risen to around 40-45 per cent.

·The lift in home prices in response to strong fundamental demand will lead to greater home building and renovation activity. The strong lift in home prices improves prospects for consumer and housing-dependent companies.




Source Savanth Sebastian, Economist, CommSec