House prices to rise 20 per cent by 2012

A new report has claimed the current growth in house prices is just the tip of the iceberg, with strong housing market activity set to continue into 2010 thanks to ongoing positive incentives for property investors and upgraders to enter the market.

The Australian property market has been one of the world leaders this year, with national prices up by just over seven per cent - erasing the losses of last year. And the QBE LMI ‘Housing Outlook 2010 - 2012′, researched and written by market researchers BIS Shrapnel, contends that further growth is likely.

The report confirms that current interest rates, at the second lowest level in 49 years, have helped to alleviate the mortgage pressure on households while bringing housing affordability back to its most attractive level for almost a decade.

Prices at the top end of the market have fallen more than the medians, giving home owners the opportunity to trade up to their next dwelling after selling their current house into the buoyant first home buyer market, the Outlook advises. However, recent activity suggests this has already begun, with the upper end of the market performing better than the lower end for the last couple of months.

The strong rental environment and stabilisation of house prices are favourable factors for property investors to also come back into the market, the researchers suggest.

“The outlook for the housing market is also positive for those who have recently entered the market, particularly first home buyers,” Ian Graham, CEO of QBE LMI, said. “Low interest rates, solid growth in rents and housing shortages will create favourable conditions for a strong recovery in residential property prices in the second half of 2010, through to 2012.”

No capital left behind

According to the study, all of Australia’s mainland capital cities will see double-digit growth through 2012, led by Adelaide - where a 23% increase is forecast.

The researchers added that an undersupply in Melbourne and Sydney would continue to stoke prices, with Sydney price growth expected to be around 21%, slightly higher than Melbourne (19%).

Price growth in Brisbane is forecast at +15% as moderate economic conditions offset the affordability advantage, while lower growth is projected for Perth (+12%).

The study discounted the impact of interest rates on the market, arguing that rates will still be stimulatory for some time.

Posted Wednesday 21st of October 2009, 1:48 PM