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RBA Forecast: Rents to Rise, House Prices Not
Topic Started: 7 May 2012, 09:20 PM (805 Views)
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RBA forecast: rents to rise, house prices not

May 7, 2012 - 2:31PM

Two years ago, Reserve Bank governor Glenn Stevens gave punters a very public warning not to bet on house prices rising.

It turned out to be good advice.

Now the RBA is pointing to housing remaining subdued until lower purchase prices, higher rental yields and population growth get us building again.

Before the GFC focused the RBA's attention more urgently elsewhere, our central bank regularly railed against the various government policies that have helped make housing more expensive than it should be. The latest quarterly statement suggests state governments are showing some signs of trying to improve their housing performance, but relief remains some way off:

“The near-term outlook for residential building activity has been revised lower, with recent data suggesting that there are few signs of an imminent turnaround in demand,” the central bank warns.

The anonymous industry heavies the RBA consults gave three main reasons for that: “Poor sentiment regarding job security, notwithstanding recent low levels of unemployment; softness in established housing markets, consistent with expectations of flat or declining house prices; and relatively tight credit conditions for developers.

“It is expected that residential building activity will in time pick up, as lower purchase costs, higher rental yields, population growth and pent-up demand following an extended period of weak growth in building activity combine.”

The RBA statement suggests the housing industry is undergoing its share of restructuring along with the rest of the economy.

From an investor's point of view, there's a hint or two that the way ahead will be more about rental income than the reliance on capital growth that fuelled the landlord class explosion over the past couple of decades. In another part of the statement, the mandarins observe:

“The slower growth in housing debt has been associated with weakness in the housing market. Weak demand has been reflected in a fall in Australian capital city dwelling prices of around 6 per cent since their peak in early 2011 and low housing turnover. Notwithstanding this, it appears that in recent months dwelling prices might have been declining at a slower rate. With declines in dwelling prices, the ratio of dwelling prices to income is back around its 2002 level.

“In contrast to dwelling prices, the various measures of rents grew by 4 to 5 per cent over the year. Reasonably strong rental growth, together with falling dwelling prices, has lifted rental yields to around ½ percentage point above their mid-2000s level. Rental vacancy rates have been around 2 per cent since 2009, above the very low levels seen in 2006–2008 but still low by historical standards.”

Read more: http://www.smh.com.au/business/rba-forecast-rents-to-rise-house-prices-not-20120507-1y8e4.html#ixzz1uB5YKxHw
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