The economy and the housing market – getting back on track

Dr Andrew Wilson is Senior Economist for Fairfax – please see what Andrew had to say on 25 May regarding the housing market. General overview is that Andrew expects housing markets to become re-energised with rising demand driven by a strengthening economy

The first and logically the most important factor driving housing market stability is a robust, high-performance economy – or as I described it “an optimised macroeconomic environment”.

Australia is currently moving seemingly inexorably towards this outcome as indicated by the latest Federal Budget, notwithstanding the usual disclaimer of unpredictable external economic shocks.

The Budget accordingly has positive implications for Australian housing markets by reinforcing the foundation for sustainable price outcomes in most centres over the medium-term.

Capital city housing markets have softened over the past six months as buyer activity has weakened. Strong house price growth and interest rate rises have dampened demand with auction clearance rates falling and median house prices declining.

Following strong growth in 2009 and into 2010, Sydney house prices fell marginally by 0.4 percent in the March quarter this year with Melbourne house prices recording no growth.

Other signs of the impact of rising interest rates are emerging with indications of increased mortgage stress amongst home owners as reported by a number of banks.

The pace and timing of recovery in housing markets will naturally be dependent on the relative strength of the supply and demand fundamentals of each market.

The Budget is however forecasting a strong economic performance generally for Australia with GDP predicted to grow by 4 percent in 2011-12 fuelled by the resources boom. As with previous resources booms, strong economic activity has a rippling effect through to local economies – a rising tide lifting all boats.

The budget is predicting increasing demand for labour as a consequence of this growth with the unemployment rate expected to fall to a low 4.75 percent – indicating a full-employment economy. Bellevue Hill.

CohenHandler is a buyers agent that act exclusively for people seeking to buy property in Sydney or rent property in Sydney.

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