Housing outlook solid to 2016

Sydney, Perth and Brisbane will drive the Australian housing market over the next three years, according to the Australian Housing Outlook Report 2013-2016.

The report shows a solid outlook for the Australian housing sector.

This year’s report provides insights into the key drivers of the Australian housing market and, despite the increased attention it’s been under recently, we remain cautiously confident in the fundamental strength and resilience of our housing market.

According to the report, prepared by BIS Shrapnel for QBE LMI, a deficiency in housing stocks in New South Wales, Queensland, Western Australia and to a lesser extent South Australia will drive the market upwards.

The report indicated fewer dwellings were built in 2012/2013 in these states than required by underlying demand.

Conversely, Victoria, Tasmania, the Northern Territory and the ACT are expected to experience a rising oversupply of housing, with dwelling commencements in 2012/2013 outweighing underlying demand in these areas.

According to the report, housing affordability has improved in nearly all capital cities to its best level since the early 2000s, outside of the brief period of low interest rates during the global financial crisis.

The increase in affordability is a result of the 225 basis point reduction in the cash rate and corresponding fall of 188 basis points in the average variable rate from 7.8 per cent to 5.92 per cent.

The report states a combination of the August cut in interest rates and further income growth will largely offset any expected improvement in price growth over 2013/2014, with affordability in most cities remaining relatively stable over the year.

BIS Shrapnel managing director Robert Mellor said he expects interest rates have reached the bottom of the cycle and are likely to remain on hold for the next 12 to 18 months, unless housing price growth spikes drastically.

We don’t think there will be another drop in the cash rate, so the 2.5 per cent will stay and the standard variable of 5.9 per cent is likely to stay until around the March to June quarter 2015.

We are talking about 15 to 18 months at least of interest rates remaining at current levels before we start to get a bit of an interest rate rise.


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