Much of the commentary and predictions on the Australian residential property market is recycled snippets from various ‘experts’ on historical daily, weekly or monthly house prices at a capital city level. Such general price movements, which are so short-term in nature are best described as ‘noise’ and in reality, have no bearing or consequence on small regional and coastal property markets such as Rainbow Beach. Whilst it is interesting to observe the property value trends of the metropolitan areas, we would prefer to focus on the trends occurring in more comparable markets and glean what insights we can from the various leading indicators, published by reputable institutions such as the Reserve Bank of Australia (RBA), Australian Bureau of Statistics (ABS) and the consumer sentiment survey from Westpac.
A key leading indicator for future demand for residential property is the growth in housing credit. According to the RBA, housing credit grew by 5.1% over the 12 months to June 2012, which is the lowest level of growth for over 30 years. This is reflected in both the owner occupier and investor segments, with both at or near 20 year lows. Australians are heavily in debt, pessimistic on the economic outlook and would prefer to keep their money in a bank account and pay down debt than invest in property.
According to the latest data available from the RBA, Australian’s level of housing debt to housing assets is the highest since data collection began in March 1977, sitting at a high of 30.9%. There have been demographic shifts that have enabled Australian’s to support an increased level of debt, such as two income households and recent periods of low inflation and interest rates, however the current level is still extremely high. As a comparable indicator, in March 2000 it was at 20.7% and in March 1990 it was only 11%.
Thankfully, interest rates are relatively low (in historical terms) and are forecast to come down further, so servicing this debt should be manageable by most, as long as employment remains strong. In addition, economic forecasters are predicting an almost 1% fall in the cash rate by this time next year. (Fingers crossed )
The surplus of properties on the market, combined with ever reducing number of sales actually occurring does not bode well for property owners seeking to sell. The silver lining for those wishing to upgrade is whilst you may not secure as much for your existing dwelling, at least the property you upgrade to should be cheaper. Unfortunately for those people with investment properties that are seeking to downsize or simply reduce debt; they face a hard choice, either exit at current prices, or face what appears to be a period of what we estimate to be limited capital growth and generally low yields through rental returns.
We foresee a property market recovery to eventually gain traction through the latter part of 2013 as continued growth in resource investment spending eventually flows through to other sectors of the economy. The local economic and employment outlook is looking positive and we are also seeing some minor positive effects from income generated through south-east Queensland mining. Combined with some stabilisation and improvement overseas, purchasers are forecast to enter back into the market in greater numbers, translating to greater sales volumes and a pick-up in price growth over 2013/14 and into 2014/15.
Over the past 12 months in Rainbow Beach (1 January 2012 – 1 January 2013) there have been 26 residential sales recorded (incidentally, the 10 year average is 77 per annum) and since the calendar year 2009 there have been less than 50 sales per annum. The pie chart below indicates the breakdown of residential sales achieved by local and out of area agencies and also includes private/related party sales which occurred during the calendar year 2012.
There are currently 179 individual properties listed for sale in Rainbow Beach with the average time on the market for those properties sitting at 264 days.
There are approximately 1,300 residential properties in Rainbow Beach in total – therefore, the number of properties currently listed for sale represents approximately 14% of the total. Typically, the number of properties on the market sits somewhere between 5 – 10%, so we are outside of this ‘normal’ range due to the lack of demand at present. However, with the increased number of sales enquiries and many vendors opting to ‘meet the market’ rather than hold out for an unrealistic price, the balance between supply and demand will not take long to re-establish.
