House prices holding firm despite economic gloom

Despite fears that the Australian property market is suffering under the weight of a deteriorating economy, residential property prices recorded slightly positive growth in the first quarter, according to new figures.

Property research firms RP Data and Australian Property Monitors have released separate sets of data that show property prices experienced slight growth in the first quarter.

The RP Data figures show that housing and unit prices rose nationally 1.6% in the three months ending 31 March, in five out of seven capital cities. APM agrees that prices increased on a national level, but only by 0.10%.

The price movements for each capital city differ slightly between RP Data and APM.

Tim Lawless, research director at RP Data, claims the differences between them are due to the manner in which the data was recorded.

“January was the worst month of the quarter and that’s the difference between ours and the AMP data. Ours is quarterly and that month of January really drags things back for them,” he says.

Lawless remains confident about the outlook for house prices.

“I wouldn’t be surprised if over the months we see a similar trend, we won’t see growth ramping up or anything like that. We’re seeing a return to stability; it’ll fluctuate and I don’t think we can call this a growth phase.”

He says the continued success of the market depends on how healthy the economy remains overall, but maintains that “the market has demonstrated resilience”.

“The health of the market is dependent on the health of the economy and the ability to consumers to service their mortgage,” he says.

“The rest of 2009 will see very minimal growth, and coming into 2010 it’s hard to suggest what’s going to happen that far out – that relies on the economy and unemployment. If it gets above 10% then the property market will suffer, but if it peaks at 8% or 9% then it’s not going to be too detrimental.”

Lawless’s upbeat outlook is in stark contrast to comments from Australian National University economist Quentin Grafton, who says house prices could fall by 20% in the next two years.

Grafton told The Age that house prices could not continue to grow at a faster rate than incomes and consumer prices.

“Ultimately, house prices have to be related to the ordinary prices that we pay for other goods and services and our incomes,” he said.

“In the past decade, house prices have gone up about 50% in terms of that ratio. That is not sustainable, and certainly won’t be sustainable as the recession bites.

“I wouldn’t be surprised if overall we get a 20% decline in nominal house prices over about the next two years.”

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