Aston Ryan Malcolm, Accountants, Auditors, Financial Advisors, Victoria

What’s happening in our housing market?

 Investing in residential property has been a popular way for Australians to build long-term wealth but like everything there is a time for growth which is usually followed by a period of slowing down. So what’s on the horizon - will property prices boom again?

 There is no simple answer because every property is different and its value depends on its location, individual characteristics and local demand. For instance, in the 12 months to March 2011, house prices rose 1.1% in Melbourne and Canberra, but went backwards by 3.6% in Brisbane. Nationally, over the course of the year to December, house prices decreased by 0.2%.

Prices are all about supply and demand and government forecasts suggest we are not building enough new homes to keep up with demand. Rental vacancy rates of below 2.0% nationally are very low and as rents increase, demand for investment property may increase.

Is housing affordable?

Even with assistance packages new home buyers are finding housing still too expensive. Housing affordability has been falling since 2000 and is at its lowest level since the early 1990s when interest rates were in the high teens. With lower interest rates and some slight easing in housing prices, affordability has improved slightly but first home buyers are wary due to the uncertainty around interest rate movements.

Is housing overvalued?

Compared to average wages, average house prices are very high. In Sydney, for example, average house prices were 4.5 times average income in 1986 but over 6.2 times by mid 2010. All other capital cities have experienced a similar sharp rise in this multiple, particularly since 2001.

Average rental yields for 2010 were around 4.7% for three bedroom houses and around 5.4% for units, however, this level of return is not attractive unless capital gains are more probable.

Will superannuation make a difference?

With the significant tax advantages available to superannuation, investors may consider super to be relatively more attractive than residential property and move their money to super. As usual it all depends on the individual investor.

While there may be local residential property opportunities available, the conclusion seems to be that housing in Australia is over-valued and there may be better opportunities in overseas property or in other asset classes.

Richard Vaughan