AUSSIE homes are overvalued to the tune of 5.9 per cent, new Moody’s analysis warns, but a Queensland location has bucked the trend.
The inaugural CoreLogic-Moody’s Analytics Australian Forecast Home Value Index, launched Thursday, warned house prices nationwide were 5.9 per cent overvalued compared to their fundamental values.
But three state capitals bucked the trend, led by Brisbane which has emerged as the most undervalued capital to the tune of -3.2 per cent. Adelaide was undervalued by -2.2 per cent while Darwin was undervalued by -2.5 per cent.
In a second set of figures, Brisbane home values were also expected to weather any rise in interest rates the best of the capital cities, with its house price valuation expected to sit just 2.2 per cent above fundamental value if the RBA moved the cash rate to 4.5 per cent.
Moody’s ran the second set of numbers to test just how much higher interest rates would lower fundamental valuations, and in turn raise the degree of overvaluation in house prices.
At present, Melbourne’s housing market was the biggest overvaluation culprit (23 per cent above fundamental value) while Sydney was 9.5 per cent overvalued.
“House values in Melbourne have appreciated far beyond what income and rental growth suggest is appropriate,” warned Moody’s Analytics – which means Melbourne was “set for a period of near-stagnation while incomes, rents, and the employment market catch up with actual housing values”.
Moody’s Analytics economist Alaistair Chan warned two years of “exceptional home value appreciation and double-digit growth” were over.
“We expect house price appreciation to slow in 2016. Our forecast reflects lower income growth as the Australian economy transitions away from mining-related investment, as well as the strong build-up of housing supply over the past two years.”
But he said over the medium term, it would see recovery if supported with accommodative policy, robust rental growth and a recovering labour market.
Queensland, the analysts predicted, would hold steady but Brisbane would be a star performer.
“House price growth in Queensland will be subdued through 2016, but prices will not decline,” the HVI report said.
“Brisbane’s housing market will maintain its outperformance relative to the rest of Australia. Valuations are expected to rise 4.2 per cent for 2016, helped by good rental growth and relatively strong employment conditions in Brisbane.
“But slower employment growth in the rest of Queensland will weigh on its housing market, with values forecast to rise just 1.7 per cent in 2016 following a subdued 1.8 per cent gain in 2015.”
Melbourne, where values were forecast to rise the highest this year at 7.2 per cent, was expected to go right back to just 1.3 per cent growth next year, according to CoreLogic research director Tim Lawless.
Sydney’s already there, with this year’s forecast at 2.24 per cent growth after last year’s 14.91 per cent – and it’s supposed to slow even further to 1.63 per cent in 2017.
Mortgage Choice chief executive John Flavell said in the past two years the average property price had soared 12 per cent, going past $600,000.
“Australian are taking on more debt than ever before,” he said. “The average home loan has grown 18 per cent since 2012 – from $298,600 to $352,100.”
One in four Aussies, he said, contributed more than 40 per cent of their income to their mortgage.
“Property is expensive and that’s a fact that’s unlikely to change.”
But, Mr Flavell said, historic low interest rates were helping Aussies cope with those costs – and the forecast was that it would “stay in the historically low territory for the foreseeable future”.
Original Publish: http://www.dailytelegraph.com.au/