Australia | Sep 22 2006
By Greg Peel
The construction of new dwellings in Australia peaked in March 2004 and has fallen ever since. With two interest rate rises in 2006 still biting, National Australia Bank economists suggest this trend will continue for at least the rest of the year.
Things will start to turn around in 2007/008 however, as first home-buyers and the price-immune wealthy lead the charge.
But it will be slow going, says NAB, as investors will take a while to be attracted back to low-yielding investment property. New starts will fall short of demand until there is an improvement in household borrowing capacity. Recent changes in super also favour non-housing assets for retirees and the high-net-worth set.
Housing prices will also recover sluggishly, given the high levels already reached. Sustained growth and a low unemployment rate should push prices up by about 5% as an average across Australian capitals.
There will be disparity across states and regions. Sydney metro – one of the most expensive addresses in the world, will experience a tilt between house prices in posh suburbs being fuelled by last financial year’s share market gains, and prices in the western fringes being hit by higher interest rates and rising suburb-specific unemployment.
The recent booms in WA and Queensland will also come to a screaming halt if commodity prices continue to fall.
(Tonight alone will see a major collapse in Fremantle house prices vis-à-vis Sydney).
While the risk of prolonged weakness beyond 2006 is small, suggests NAB, any further rate rise or more serious commodity price correction may put paid to any renewed strength.