How high will house prices rise?

Real Estate

Property prices gained around the world last year as Australian house prices jumped almost 10 per cent. Many are asking just how high property prices will continue to rise before the trend is reversed.
 
American home prices climbed by the largest amount in more than seven years in October 2013 from the year before. S&P/Case-Shiller index’s showed property prices gained 13.6 per cent in October 2013 which is 24 per cent higher since a low in March 2012. The Economist reports 18 countries from the 23 countries it tracks have seen house price growth over the past year and it claims US houses now sit at or around fair value. According to its measure British house prices rose at their quickest pace in three years in October which has stoked fears housing may be in a bubble.
 
Across Europe the publication reports Greece, Spain and Italy’s property prices dropped between 5-10 per cent while property prices in the upcoming World-Cup host nation Brazil have boomed 13 per cent. China’s property prices have gained 8.7 per cent based on official figures from 70 Chinese cities over the year to November 2013.
 
The Economist has linked higher global property prices to looser monetary policy and warns the “house-price party” may soon come to an end as monetary policy tightens. The Reserve Bank of Australia (RBA) noted global financial conditions remain very accommodative in its last statement on monetary policy. However, the first batch of local data released this year has not fuelled the case for the RBA to hike the key cash rate anytime soon. 
 
Australia's services sector saw a soft finish to the end of 2013 with activity shrinking at a quicker pace. The Australian Industry Group’s Performance of Services Index (PSI) fell 2.8 points to 46.1 in December - with a read below 50 indicating the sector is in contraction territory.
 
Australia’s key cash rate is widely being tipped to remain on hold in the first half of 2014 as data continues to roll in reflecting the impact of last year’s record low rates. The latest indication on residential construction has shown the sector is recovering from years in contraction territory. The Australian Industry Group (AIG) and Housing Industry Association's Performance of Construction Index slipped 4.2 points to 50.8 as the house building sub-sector rose 1.5 points to 63.5 in December. A read above 50 indicating the sector is in expansion territory.
 
Across the sectors AIG says house building conditions continued to expand in line with the improving trend seen in new orders over the previous six months. Apartment building and commercial construction activity expanded at a slower pace in December and engineering construction contracted after two months of growth.
 
Commentary
 
FNN speaks to RP Data’s Head of Corporate Affairs, Craig MacKenzie about the most active category of buyers in 2013.
 
“Certainly investors led the charge in 2013 Lelde – particularly in Sydney and Melbourne. We’ve been tracking a number of property sales made to investors over the past 12 months and in Sydney and Melbourne we’re up at about the 35-40 per cent levels. So certainly investors were the most active, particularly in the second part of the year. First home buyers the least active, down to about 12 per cent of new loan commitments. And, upgraders reasonably active taking advantage of those lower interest rates.”
 
To watch more of the interview click here:
 
Commercial property sector
 
GPT Group (ASX:GPT) has boosted its stake in its takeover target Commonwealth Property Office Fund (ASX:CPA) to 11.44 per cent. The news comes after Commonwealth Property Office Fund rejected GPT Group’s $4 billion cash and scrip offer in favour of a rival bid from DEXUS Property Group (ASX:DXS) and Canada Pension Plan Investment Board at the end of last month.

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