In the past, buying and selling property was considered an attractive way to make money. The theory was that home prices would rise around 8 per cent a year, almost guaranteeing you would make money.
That was in the past. Now Aussie consumers are more cautious on going into debt, restraining demand for existing homes. Home prices were broadly flat in 2012 after falling 3.8 per cent in 2011 and rising 5.4 per cent in 2010.
But while Aussies are cautious on going into debt, population is still rising while home building has remained weak. So rents are still rising and so are investment returns on property. Property returns grew by around 4 per cent in 2012, just ahead of cash, but well short on the near 19 per cent growth of sharemarket returns.
CommSec expects that national home prices will rise around 3 per cent in 2012 with total returns up around 7 per cent. Aussies should grow more confident about taking out loans and buying real estate in 2013 although home building is also expected to grow in line with underlying demand.
What do the figures show?
The RP Data-Rismark Hedonic Australian Home Value index of capital city home prices fell by 0.3 per cent in December and was down by 1.2 per cent in the in the December quarter. Over 2012 home prices fell by 0.4 per cent.
In December, house prices fell by 0.1 per cent with apartment prices down by 1.1 per cent. Over 2012, house prices are down 0.5 per cent while apartment prices were up 0.5 per cent.
The average Australian capital city house price (median price based on settled sales over quarter) was $510,000 and the average unit price was $432,000.
Dwelling prices rose in four of the eight capital cities in December: Hobart (up 0.7 per cent), Melbourne (up 0.5 per cent), Perth (up 0.3 per cent) and Adelaide (up 0.1 per cent). Prices fell the most in Darwin (down 2.5 per cent), followed by Canberra and Sydney (both down 1.0 per cent) and Brisbane (down 0.3 per cent).
Home prices were higher than a year ago in three of the eight capital cities: Darwin (up 8.9 per cent), Sydney (up 1.5 per cent), Perth (up 0.8 per cent). Prices fell most in Melbourne (down 2.9 per cent) followed by Brisbane and Adelaide (both down 0.8 per cent), Canberra (down 0.3 per cent) and Hobart (down 0.1 per cent).
Total returns on capital city houses were up 3.7 per cent on a year earlier and units were up 5.6 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 (more than 312,000 sales during 2011). Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.
What are the implications for interest rates and investors?
With home prices flat, manufacturing contracting, inflation contained and the global economy still creating uncertainties, the Reserve Bank will lean in favour of providing more monetary stimulus. But we are close to an inflexion point. If US policymakers fundamentally deal with budget deficit and government debt issues, the outlook will become clearer and more positive. Australian consumers and businesses largely lack the confidence to embrace the opportunities that exist.
The outlook for the housing market is improving. Population is lifting but the supply of homes has not kept pace. So rental markets still generally remain tight with rents rising. Budding owner-occupiers of homes have largely sought to utilise existing housing stock (shared rental; young people living at home with parents for a longer period) than buy or build homes. If confidence improves as we expect in 2013, demand for new and existing properties will rise.