Property prices up 0.4% in February, but growth tipped to moderate

Australian property prices grew by 0.4% in February despite falling by 0.2% in January, according to the latest figures from research firm Residex.

But despite these figures indicating a three monthly growth rate over 3% during the second half of 2009, SQM Research founder and Adviser Edge research director Louis Christopher, along with ANZ, believes the figures are the beginning of a slowdown in growth.

The Residex figures show the three monthly growth rate has fallen to 1.9%, with indications it could drop to 0.5% for the first quarter of the year. In February, house prices fell by 1.3% in Brisbane and by 1.2% in Perth.

Sydney and Melbourne recorded slightly better figures, with the three monthly growth rate in house prices running between 2-3%, with 4.6% tagged for Melbourne units.

Annualised growth has still remained strong, with Melbourne at 15.4%, Sydney at 12%, Adelaide at 9.1%, Brisbane at 5.9% and Perth at 3%. Additionally, unit prices in Brisbane recorded a fourth consecutive decline of 0.9%.

Westpac economist Matthew Hassan said in a statement the slowdown in unit growth has been due to the exodus of first home owners from the market.

“The more abrupt slowdown in unit price growth is undoubtedly a function of the phase-down in the Government’s additional first home buyers grant. Indeed, this is reinforced by the pattern across states – FHBs are less dominant in Sydney and Melbourne unit markets where apartment living is more common for upgraders than in Brisbane, Adelaide and Perth.”

“Despite the patchier price growth, auction clearance rates have continued to hold at relatively high levels in recent weeks. Notably, this is also despite (reportedly) a higher number of properties on the market.”

Louis Christopher, founder of SQM Research and research director at Advisor Edge, says while he would rather look at quarterly figures, the market is definitely moving to slower growth this year.

“I’ll be more confident once I see the March quarter figures from the ABS and Property Monitors, but I’ve said before that housing finance approvals have definitely been falling, and we’ve followed that series very closely. We are expecting a slowdown, but the question is whether that slowdown will be between 4-6% or if it will be worse.”

“I don’t think we’ll see housing price falls, that will be unlikely, but could we end up with a flat market for 2010? That might be possible, or possibly see some very, very small growth. Interest rates will have a lot of bearing on the market.”

Meanwhile, figures from ANZ suggest prices will continue to perform well due to sustained economic improvement overseas, but growth will moderate over the year.

“Moving forward we expect price growth in Australia’s housing market to be supported by a number of factors: strong growth in Asia should result in increasing demand for Australian commodities, rising incomes and strong economic conditions that will provide solid support for house price growth particularly in the resource economies of Western Australia, Northern Territory and Queensland.”

“Despite the economic downturn, net overseas migration totalled 285,300 in 2008/09 (the highest on record). This is placing further upward pressure on housing prices as new dwelling completions fall short of underlying demand in most cities across the country. This will result in a further tightening in rental markets across the country and a restoration of rental growth to pre-financial crisis levels.”

Additionally, ANZ said in its most recent “snapshot” report that price growth will continue to slow during the rest of the year due to expected action from the Reserve Bank of Australia to continue raising interest rates.

“Price growth will moderate in 2010 with the partial withdrawal of first home buyer incentives and moves by the RBA to shift interest rates back towards a more restrictive stance, resulting in a deterioration of housing affordability and reduced demand.”