Modest recovery rather than a boom bodes well for housing market recovery: BIS Shrapnel

Forecasters BIS Shrapnel anticipate stronger housing market conditions ahead for Sydney, Perth, Brisbane and Darwin, but warn that a boom in house prices would not be good for a sustained recovery of the market.

“I am hoping that stronger conditions [in these markets] does not mean a boom in house prices,” said BIS Shrapnel managing director Robert Mellor at a housing market briefing in Melbourne today.

“People love booms. So does the media.

“For the media it’s either a boom or a bust, but the reality is that we need modest house price growth which will then stimulate more construction and more development activity.

“But if we suddenly start getting price growth shooting up 10% and 15% per annum, then the market will run out of steam pretty quickly,” said Mellor, presenting the results of the 2012 QBE LMI Australian Housing  Outlook report for 2012 to 2015.

Mellor also dismissed recent talk of a housing bubble threat in Australia, as has been highlighted by overseas commentators and some local analysts.

“When you are talking about Sydney, which we are fairly bullish about, you need to put things into context..

“The Sydney market has had one good year in the last nine years.

“In real terms prices are 10% to 12% below what they were nine years ago,” said Mellor.

Overall, he says the Australian economy is in good shape, though the benefits are not being evenly felt due to the emphasis on the mining boom, with property and retail among those sectors to have suffered.

“Underlying demand for housing is still strong,” said Mellor, pointing out that there was a strong rise in overseas migration in the last year, which was one of the key drivers of housing demand.

However, while the outlook for Sydney, Perth, Brisbane and Darwin is strong, weaknesses are expected to persist in Melbourne, Hobart and Canberra for another three years.

“There will be an exodus of investors from Victoria,” said Mellor.

He says there will be a big rise in new apartments being completed in Melbourne over the next two to three years, particularly in places like Docklands and the Melbourne CBD, exacerbating the current oversupply of housing.

“Victorian investors will be looking north.”