Matthew welcome to FNN. Now official house prices across Australian capital cities fell by 2.2 per cent in the first quarter of 2009, worse than the median forecast for prices to remain unchanged, and down by 6.7 per cent on last year. What’s behind this?
Matthew Bell: I think the ABS figures are capturing a lot of the top end of the market, some of the other private provider figures out including APM’s are closer to flat across the March quarter, and not quite as far down on the year. ABS figures capture only detached housing where as APM’s figures we use town houses and a lot more of those sort of properties that you would expect in the more affordable range. So it definitely was a weak number, I think it captures a bit more of the top end than other figures, and that’s going to persist probably for the rest of 2009 I would expect.
Emma Pearson: And will they fall further?
Matthew Bell: It’s hard to say. APM sees the market as in a sort of consolidation phase. We expect some flatness and even some slight rises in some areas. I think in the top end of the market it’s still going to be weak for the year and there will be big falls, or there will be continued falls, there have been big falls already. In the more affordable end of the market where the lower interest rates and First Home Owners Boost and Grant is still having an effect, they’ve shown some strength in the last six months and we figure that will keep going for the rest of the year.
Emma Pearson: And is that necessarily a bad thing given so many people have been locked out by high prices for so long?
Matthew Bell: Yeah there’s always a good side to lower prices and that is that more people can get into the market and I think that is why you are seeing a lot more support at the affordable end, along with lower interest rates and the First Home Owners Boost, people are seeing that prices have been flat or falling for the last couple of years particularly in Sydney, and I think it’s a good time to get into the market – they’re paying $30,000 to $40,000 less than they would have been a couple of years ago.
Emma Pearson: Now given the recent shakeout in asset prices, real estate included, what’s the long term outlook?
Matthew Bell: Well in terms of asset prices if you’d been in property for the last couple of years while the stock markets fallen by half you’d be in a pretty good position. You would only have been in a better position if you’d been in cash. I think in terms of the economy, probably the stock market is going to lead the real economy out as it does in nearly every recession, but you’ve got to balance that against what sort of risk you want to have in your private portfolio. So I think real estate is probably going to a relatively good place to be in the next year or two, and we expect maybe later in 2010 a bit of a return to the more historical rates of growth.
Emma Pearson: Now the boost to the First Home Owners Grant has seen a jump in first home buyers flood back into the market, the Rudd government has decided not to extend the boost to the grant past June 30, what impact will this decision have?
Matthew Bell: I think initially there will be a fall in volume’s there have been a big jump in terms of levels of sales, particularly in the those first home owner areas around the country. I think a lot of people discount the importance of the halving of mortgage rates over the last six months, it save you a lot more than the $7,000 that the First Home Owners Boost gives you. On a $400,000 mortgage for instance you’re saving $13,000 or $14,000 in terms of annual interest payments compared to six months ago, and that’s still going to be a big plank of support for that end of the market even after the boost finishes. So as long as interest rates are low and prices are still sort of ‘plateauing’ I guess or I should say hitting their trough, there’s going to be good incentives for people to get into the market.
Emma Pearson: Now commenting on the results from APM’s rental series for March, you said Australia’s rental market is easing, with asking rents holding steady in the March quarter in majority of the capital cities. What are the influences behind this easing?
Matthew Bell: I think the big influence is the general economic environment. When landlords have less incentive to, or justification to raise their rates and people have less willingness or capacity to pay those higher rates, and those two combined factors reduce a bit of the tension that’s been in the rental market for a fair few years in the country.
Emma Pearson: And what do you think needs to be done to improve vacancy rates?
Matthew Bell: Well in short we need more buildings. So we need more houses and units, and that’s probably not going to happen. There’s a few fundamental factors that limit that, a lot of regulatory sort of frameworks that aren’t allowing too much building going on. But also we haven’t seen investors getting back into the market yet. Last data we saw, investment loans came back but they’ve been particularly weak, and I have heard that a lot of investors are holding out for the bottom of the rates cycle as well as holding out for the First Home Owners Boost to expire, they see it has a bit too much heat in that end of the market and they’re sort of waiting to see what happens when it finishes. So we expect investors to get back in at the end of the year and that’ll I guess boost that sort of level of building in terms of investment properties.
Emma Pearson: And where are the housing bright spots in the Australian housing market?
Matthew Bell: Well the stand out one of course is Darwin, which is the only capital city that has had rises quarter on quarter and year on year for both houses and units. Maybe not sustainable in terms of the last quarter, Darwin went up almost 10 per cent in terms of unit prices and 20 per cent for the year. That’s due to just a really different economy in Darwin, unemployment is not rising like the rest of the country, they’ve got a lot of infrastructure building still coming on, and I think there’s also a bit of transitioning of resource workers from some of the weaker states like Perth and Adelaide up to Darwin. In terms of other areas I think really the affordable end across most capital cities particularly Sydney, is going to have that stability in prices that you’re still not seeing at the top end of the market.
Emma Pearson: Now not withstanding softer prices, sales are still taking place. Do people buying no something that the rest of us aren’t aware of?
Matthew Bell: It’s going to be a very local area specific sort of affect in terms of what markets there’s activity and where there’s no activity. People are still seeing prices move around their markets, for instance in the inner east and the northern shore of Sydney where there is not much activity at all, there’s still people with interest because they know there’s some discounting of prices and eventually that market will pick up and there’s some bargains to be had around the place most definitely.
Emma Pearson: Last question. What is your outlook for the property sector for the last 12 months?
Matthew Bell: We expect pretty much for the rest of 2009 a stabilization in terms of medium prices. We don’t see too many big falls, there will be areas where there are some decent falls particularly at the top end, but overall we see a pretty flat to slightly rise in 2009 with a return to some decent rates of growth maybe later in 2010.
