NATALIE CRAIG AND MARC PALLISCO
December 13, 2009
AUSTRALIAN house prices are likely to boom for at least three years following a record month for auctions and sales of nearly $1 billion yesterday, according to a leading economic forecaster.
”This is only the beginning,” warned BIS Shrapnel chief economist Frank Gelber.
”The market will continue to grow, maybe not at this frenetic pace, but we need to build more to satisfy demand and we’re not doing that. By the time this is over in three or four years’ time, we will have built momentum into a boom … and if we’re not careful, a price bubble.”
So much for the bubble deflating this year – other economists had predicted prices would fall by as much as 30 per cent in three years following the onset of the global financial crisis in late 2008.
Melbourne prices have instead grown by 12.5 per cent since March, and real estate agents are headed for a record month of sales in December.
About $922 million worth of property changed hands yesterday, and once today’s auctions are complete, the tally is likely to approach the record set two weeks ago of $949 million.
The clearance rate remains at about 80 per cent, compared with a typical weekend this time last year when one in every two properties was passed in.
Real estate agents say population growth, record low interest rates and a relaxation in foreign ownership laws are fuelling demand, as are stronger employment prospects.
Australian Property Monitors and the Real Estate Institute of Victoria are expecting growth to continue until well into 2010.
But Dr Gelber is much more bullish, arguing that now is the first time since 2003 that there hasn’t been a brake on the property market. ”Every time the market wanted to break out, something stopped it,” Dr Gelber said. ”Interest rate rises, the financial crisis – prices started to rise and then they were stopped again.
”Now there’s nothing to stop it. The trouble with keeping a lid on a pressure cooker is that when it comes out it comes out really strongly.”
A slight dip in prices at the beginning of the year was tempered by record low interest rates and supercharged first home buyers’ grants. The extra cash for first-time buyers runs out at the end of the month, and official interest rates have risen three times in the past three months, adding about $140 a month to a $300,000 mortgage.
But Dr Gelber says it is upgraders and investors who are now fuelling demand, and it will take more than the 1 per cent interest rate rise forecast for 2010 to dampen their appetites.
He added that price rises were necessary in order to fuel much-needed construction.
But economist Alan Moran warned impending price rises would only worsen the situation for desperate first-time buyers.
