Property outlook – ANZ: strengthening fundamentals & cautious optimism

Just finished reading ANZ's latest Australian Property Outlook from December last year.

ANZ expect to see prices ease further into 2012 but they suggest that the fundamentals support a "cautiously optimistic" medium-term house price view supported by:

  • a robust economic outlook for Australia
  • limited forced selling
  • improved affordability
  • an ongoing tightening of the demand/supply balance

Probably the most interesting piece of information from the report for me is the House prices vs purchasing power graph on p4.

House prices v purchasing power

ANZ write in the context of the relative current value of current house prices:

"A longer-term perspective on affordability shows all the growth in house prices since the mid-1980s is explained by just two factors: gains in average household incomes and a structural decline in the cost of borrowing. The median house price has risen by almost 6 times from $93,000 in 1986 to $550,000 now. Over the same period, average household incomes rose by 3½ times. Simply using the house price to income ratio, many analysts conclude that Australian house prices are currently 40-50% overvalued relative to the 1980s. However, when the halving of mortgage rates is taken into account, the average household’s purchasing power over the median priced home is currently almost exactly the same as it was in the mid-1980s. A multitude of other factors also influence house prices, including population growth, dwelling supply, rents, investor yields, tax incentives, the availability of credit and market sentiment."

Also on house prices I found this video of John Edwards from Residex discussion the current market interesting, mostly because of the clear distinction he makes between the divergent performance of house prices versus unit prices at the moment... driven by the current affordability of land.

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