HIA says big housing price gains behind us

Interviews

Transcription of Finance News Network Interview with Housing Industry Association Chief Economist Harley Dale
 
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from the Housing Industry Association is its Chief Economist Harley Dale. Harley, welcome to FNN
 
Harley Dale: Thank you. 
 
Lelde Smits: Australia’s property market has had a stellar run over the past year but how much momentum do you think is left in these gains?
 
Harley Dale: Look, I think there’s a bit of momentum left in the Sydney market and in the Melbourne market which is your two prominent sources of growth, but I think we’ve seen the biggest run already behind us. Growth is going to continue but probably slow I would suggest, over the second half of this year and into next year, so momentum to come but the really big gains are behind us. 
 
Lelde Smits: Part of the drive behind the year’s property price gains has been record low interest rates. Where do you see interest rates heading this year?
 
Harley Dale: I think rates are on hold for the rest of 2014, so that in itself is a positive for property investment obviously. We’ve got record low interest rates or near record low interest rates depending on your source of borrowing. That’s been a great boon to property investors, it’s really driven a lot of the demand that’s come through, particularly the pent up demand here in Sydney.  But over time I think people have woken up to the fact that interest rates aren’t going to fall any further. So that in itself means people know the next move is up not down, but when that move occurs is probably 2015 not 2014. And probably pushed out a little bit by a reasonably tight Federal Budget. 
 
Lelde Smits: How does your forecast for interest rates impact your outlook for the real estate sector this year?
 
Harley Dale: Well we’ve factored in to both our outlook for new home building and renovations activity, and our general view on residential property prices, the fact that low interest rates will be available for the remainder of 2014, so fixed rates will remain low through a predominant part of that time even if they rise a little. 
 
Variable rates will remain at their near record low levels they currently are, but over time you are going to see that tightening impact come through, probably from about the middle of 2015. And, as people anticipate that and then actually see that occur that’s what takes some of the momentum out of the rate of growth, if you like in property prices, that I think we will see in the 2014/15 fiscal year. 
 
Lelde Smits: Rising house prices have forced a lot of new home buyers out of the market. What would be your best advice to those struggling to enter?
 
Harley Dale: I think the key thing is to recognize we do live in a different environment now post the global financial crisis. There is a much higher requirement for a demonstrated savings record. I think the bar is higher now than it was for people aspiring to get into property now for the first time that are looking to get loan.
 
So that focus on savings, that focus on a strong record is very important. And I think also, bear in mind, there are thousands and thousands of property markets out there that are all doing different things at the same time. 
 
Sure, in an aggregate sense Sydney seems to be moving very, strongly, Melbourne’s moving quite strongly as well but even within those markets, if you do your homework, if you do some research, you do find property prices that are more commensurate with being on perhaps a lower than medium Australian income as you’re entering the market than are sometimes implied by these headline median prices that we necessarily need to focus on. 
 
Lelde Smits: For those investors hoping to make money from the boom times, which areas do you think are likely to show continued growth?
 
Harley Dale: Most of the price growth in Australia at the moment is being driven by the capital cities but you’ve got lots of regional centers out there- the Mid North coast of New South Wales for example, the Sunshine coast in Queensland, that have been quite dormant markets if you like for quite some time. There hasn’t been a lot of price action, but things are starting to pick up again.

They are relatively affordable markets compared to where they were four or five years ago. In the case of somewhere like the Mid North coast of New South Wales, they are relatively affordable if you are looking in the context of capital cities versus those regional areas and it’s worth looking at those kind of investment opportunities outside the capital cities. 
 
Lelde Smits: Harley Dale, thanks for the property outlook from the Housing Industry Association. 

Harley Dale: Thank you very much. 

 
Ends

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