Australian property market remains weak, but confidence in market is steadily improving; weekly clearances rates in capital cities up to 60%, highest level since August 2010, from 40% at this time in 2012

SURRY HILLS, Australia , March 3, 2013 () – Prices may be weak, but confidence is returning

IT would be misleading to say that Australia's housing market is in full-scale recovery mode.

A better interpretation would be to say that the housing door is opening again. A gust of wind, in the form of even lower interest rates, could blow the property door wide open.

But, just as easily, a deterioration in economic conditions could slam it shut again.

On a national level, median capital-city house prices remained flat last month, after rising slightly more than 1 per cent in January. Melbourne and Brisbane recorded median house price gains of 0.4-0.5 per cent last month, according to figures released last week by RP Data.

However, Sydney (-0.1 per cent), Adelaide (-0.5 per cent) and Perth (-0.7 per cent) all recorded price falls.

The raw data suggests that the property market remains weak, yet there is also growing evidence in the property market that confidence levels are steadily improving.

Auction clearance rates in the capital cities have begun to improve, with Melbourne -- where auctions account for the highest proportion of homes sales -- achieving a clearance rate of 63 per cent last weekend.

Private treaty sales, which represent about 85 per cent of national dwelling sales, have also increased.

According to RP Data, the combined weekly clearance rate across the capital cities is now about 60 per cent -- the highest level since August 2010. Clearance rates have been rising steadily, from a low point of less than 40 per cent this time last year.

Other figures released last week by the Housing Industry Association also indicated improving market conditions. They showed that new home sales rose 4.2 per cent in January -- the fourth consecutive monthly rise.

In the three months to the end of January, new home sales had increased by 10 per cent.

There has also been increased housing activity in the superannuation sector.

Super fund service provider Multiport's most recent poll of its SMSF client base's use of limited recourse borrowing arrangements took a big jump in the December quarter.

LRBAs are, as the name suggests, a ``limited recourse'' loan that restricts the lender to taking possession of the asset that was loaned against.

Multiport said that about 29 per cent of all property held by its nearly 2000 clients held a limited recourse borrowing arrangement over a property in the December quarter, compared with 24 per cent using LRBAs in the previous quarter.

And a further confidence booster for housing came during the week from comments by Reserve Bank deputy governor Guy Debelle, who indicated the central bank had further scope to reduce interest rates, if needed, to counter the effects of the higher Australian dollar.

With the official cash rate sitting at 3 per cent, and property owners already able to lock in three-year fixed rates at less than 5 per cent, the prospect of even lower rate deals is welcome news.

Whether another cut is needed remains to be seen, particularly with the Australian dollar having edged lower over recent days.

There are now strong expectations it could finally drop back below parity against the US dollar. That won't be good news for travellers and importers, but it will be for our exporters.

Yet, while another rate cut may not come along, property investors and home owners can also be reasonably confident that, in the current fragile economic conditions, rate rises aren't on the near-term agenda either. But would a rise in unemployment levels derail the slow housing recovery?

Unemployment levels have been holding slightly above 5 per cent for several years, but the national level is forecast to rise towards 6 per cent over the medium term.

However, fellow Eureka Report columnist Adam Carr believes any lift in the unemployment rate won't pose any serious threat to the housing market.

That's because the biggest segment of unemployed represent the smallest segment of home owners. He points out that unemployment is largely confined to young people.

The unemployment rate among 15-19-year-olds is 16.7 per cent, and for the 19-24 age bracket the unemployment rate is about 8.5 per cent.

Combined, the 15-24-year-old age bracket accounts for 40 per cent of all unemployed people.

Yet, in terms of the overall housing market, 15-24-year-olds only account for about 1 per cent of homeowners.

In comparison, 35-64-year-olds account for two-thirds of the housing market and represent less than 4 per cent of total unemployment. Carr points out that it is true first homebuyers have dropped out of the market, but the grouping with the highest unemployment rates -- 15-24-year-olds -- actually only represent about 11 per cent of this market.

The 25-34-year-old age bracket accounts for 57 per cent of all first homebuyers, and 35-44 year-olds another 24 per cent, and unemployment levels for both of those groups are very low -- 4.9 per cent and 3.9 per cent respectively.

So the evidence is fairly convincing that rising unemployment will have little to do with whether the housing market recovers or not. If anything, it will have more to do with overall confidence levels -- and the evidence so far seems to indicate that confidence among homeowners and buyers is improving.


>> Tony Kaye is the editor of Eureka Report.
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