Sydney’s home price gains may slow after rising 13 percent above their 2004 peak, according to real estate researcher RP Data.

Prices in Australia’s biggest city have risen an average 9.1 percent in the 12 months ended Aug. 31 to A$580,000 ($582,000) for houses and A$450,000 for apartments, according to a RP Data study prepared for St. George Bank Ltd. Prices are expected to stay at the current level through 2011, it said.

“The good news for first-home buyers is that average Sydney house prices are expected to stay relatively stable in the short term, so they shouldn’t feel rushed to jump into the market,” Justin Smirk, chief economist at St. George Bank, said in an e-mailed statement. “Affordability remains the key factor for property prices in Sydney,” which will help offset a shortage of properties and keep prices level, he said.

Sydney residential prices have underperformed the overall Australian market over the past 10 years, rising 6.4 percent annually, compared with 9.5 percent nationally. A growing population in New South Wales, the state where Sydney is located, and the property shortage will help drive prices higher over time, RP Data said.

Gains in home prices may also be capped after the Reserve Bank of Australia raised its benchmark interest rate by a quarter of a percentage point to 4.75 percent last week and said it welcomed a cooling in housing prices.

Home values across Australian capital cities rose 8 percent in the year ended Aug. 31 because of faster population growth and constrained supply in one of the few economies to skirt last year’s global recession. Organizations including Westpac Banking Corp., Commonwealth Bank of Australia and Fitch Ratings have said those factors, as well as a lack of speculative buying, will keep the market from collapsing.

St. George Bank is owned by Westpac, the nation’s second- biggest lender.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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Not so long ago investors were hearing warnings to expect less spectacular returns from shares, but now the same warning applies to housing.

After a decade of strong gains, including pre-tax returns averaging 21 per cent per annum for stocks in the S&P/ASX 200 in the five years to December 2007, investors were being warned routinely that they should not be getting their hopes too high for the future.

The argument was based on earnings fundamentals.

Earnings yields on Australian stocks were higher at the end of 2007 than for almost all of the time since the early-1990s recession, but further big gains in share prices depended on big rises in corporate profits continuing year after year.

Since the end of 2007, thanks in large part to the global financial crisis (GFC), the S&P/ASX200 has lost investors and average of six per cent annually.

Even in the absence of the GFC, the warning would have been appropriate – outsized increases in share prices and profits cannot continue forever and it would be a mistake to assume they might.

It is a warning that translates easily to the housing market at the moment.

The latest figures from the Australian Bureau of Statistics (ABS) show established house prices rose by 0.1 per cent in the September quarter.

Annual growth is still a strong-looking 11.5 per cent, but virtually none of that was in the most recent quarter and the latest half-year has accounted for only about one fifth of the increase over the whole year.

There is plenty of debate about whether or not the housing market is in a bubble.

The most recent salvos in the verbal battle have been fired by prominent investment manager Jeremy Grantham and the Real Estate Institute of Australia.

Last week, in a newsletter, Grantham reiterated his view that Australia’s housing market was in a bubble.

That assessment is based largely on his observation that housing prices have risen sharply relative to household income.

“The problem is that we live in a mean-reverting world (ie a world where things tend to return to their average level) where all of these things eventually change,” he said in the newsletter.

“In Australia’s case, the timing and speed of the decline is very uncertain, but the outcome is inevitable,” he said.

This latest assertion of Grantham’s view was met with a sharp riposte from the Real Estate Institute of Australia (REIA) on Monday, which dismissed Grantham’s opinions as “outrageous”.

REIA president David Airey repeated an earlier argument from his institute that “if Australia was in the midst of a so-called housing bubble, then we have been there for some time”, saying median price relative to incomes have been “relatively stable for the past ten years”.

What is often missing from this debate is an acknowledgement that housing is a financial asset.

The income to be derived from an investment and its expected growth rate can be used to gauge its value, in the same way a share or a bond can be valued.

The REIA’s own figures show rental yields – making an allowance for expenses but not for income tax – in the capital cities have been steady around three per cent for six or seven years, as strong rental growth has roughly matched price rises.

Ongoing rapid capital gains over the long term will depress rental yields to unrealistic levels, unless there is matching rapid growth in rents, which would in turn make rental accommodation unrealistically expensive.

So while it is debatable that the housing market is in a bubble, there is a strong argument that prices are already so high that another run of price rises measured in double-digits is highly unlikely.

Investors will most likely just have to get used to lower returns from rent and capital gains than they have enjoyed in recent years.

A run of big price rises could still happen, of course, if investors throw caution to the wind and buy in at lower and lower yields.

But if prices do undergo another boom, the argument that there is no housing bubble will become truly unsupportable.

By Garry Shilson-Josling, AAP Economist www.tradingroom.com.au

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The rise in residential property prices in Australia is expected to slow in the last three months of this year and into 2011, according to a new survey.  
Real estate price growth over the last year has ranged between 10% and 12% nationally, according to varying measures of the market. Only the major markets of Sydney and Melbourne have achieved double digit growth.

And while some people are still confident of further price increases, more are now expecting price falls, the survey by Westpac and the Melbourne Institute shows. Sentiment is consistent with recent data showing a slowdown in a broad range of housing indicators, with house prices falling over the last quarter.

The Westpac-Melbourne Institute Consumer House Price Expectations Index declined to 51.1 in October, from 58.8 in July. The index is now well below its peak of 80.3 in January.
In October, 63% of consumers expect price increases over the next year, down from 70% in July, the survey found. On average, consumers expect a rise over the next year of 2.6%, down from 3.6% in July and 5.7% in April.

Matthew Hassan, senior economist at Westpac, said consumers have continued to pare back their expectations for house prices despite interest rates staying on hold since May. The general consumer outlook still points to a soft landing for the housing sector in general.
‘The fact that most still expect prices to rise also suggests that those looking to sell properties will be more inclined to postpone selling until a later date than accept materially lower price offers now,’ explained Hassan.

Perth, Sydney and Adelaide are predicted to be the country’s strongest real estate markets in the next three years, according to a separate report. While a lack of economic confidence in Queensland is expected to prohibit capital gains in Brisbane.

According to the QBE LMI Australian Housing Outlook report researched and written by BIS Shrapnel, property price increases of about 20% on average are predicted in Sydney, Perth and Adelaide through to 2013.

More modest house price growth is expected in the three years to June 2013 in Brisbane, where prices will rise by 15%. Hobart prices are expected to increase 13%, Darwin and Canberra by 12% and Melbourne just 9%.

‘There is a greater degree of caution, but people continue to surprise me by what they are prepared to pay for properties, not just in the top but in the middle end,’ said BIS Shrapnel managing director Rob Mellor.

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AUTHORITIES in Victoria aim to avoid house-hunters having their hopes for their dream home dashed because of lower-end price quotes in property ads.

Real estate agents in the state will be banned from using “price-plus” advertisements, to stamp out under-quoting.

The use of terms such as “$500,000-plus” will be outlawed and agents will instead have to publish an expected selling range, such as $500,000-$550,000.

The pledge follows complaints from heartbroken house hunters duped into visiting homes they cannot afford and wasting money on property inspections.

Authorities have also come under attack for prosecuting only a handful of agents despite hundreds of under-quoting claims in recent years, and the problem is not confined to Victoria.

An investigation by The Daily Telegraph in July this year revealed more real estate agents in NSW were underquoting property values to lure buyers to auctions.

A survey by the paper found nearly half of buyers were quoted a price guide more than $100,000 less than the reserve. Almost 90 per cent said they were given an estimated price guide at least $50,000 cheaper than what the house sold for.

The Sydney Morning Herald said underquoting complaints to NSW Fair Trading had surged earlier this year, but there were no prosecutions.

It is believed the NSW State Government will bring new laws to protect consumers to Parliament which would take effect in January and would aim to bring NSW into line with federal laws.
Victoria’s Consumer Affairs Minister Tony Robinson said new laws, to be introduced if the State Government is re-elected, would give more certainty over prices and property values.

An education campaign highlighting auction and sale practices and the need to research prices obtained for similar properties is also promised.

“Buying a home is the most important investment most Victorian families will ever make,” Mr Robinson said.
“By strengthening our existing real estate pricing laws that outlaw misleading advertising, we will create more confidence in the industry.”

Agents will still be able to publish a price range that is supposed to be based on recent sales in the area.

But home seekers know the ranges that many agents publish have little relevance to the actual sale price.

A Herald Sun investigation last year found only two properties from a sample of 74 sold within the price range quoted by agents.

Real Estate Institute of Victoria president John Grabyn said the ban would make it easier for consumers to compare properties for sale and help alleviate confusion.

“The banning of price-plus will not restrict the price a property will be sold for as the market will determine this, but it will make it simpler for consumers and bring some consistency into property advertising,” Mr Grabyn said.

Story by Karen Collier and Craig Binnie www.heraldsun.com.au

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The rise in residential property prices in Australia is expected to slow in the last three months of this year and into 2011, according to a new survey.  
Real estate price growth over the last year has ranged between 10% and 12% nationally, according to varying measures of the market. Only the major markets of Sydney and Melbourne have achieved double digit growth.

And while some people are still confident of further price increases, more are now expecting price falls, the survey by Westpac and the Melbourne Institute shows. Sentiment is consistent with recent data showing a slowdown in a broad range of housing indicators, with house prices falling over the last quarter.

The Westpac-Melbourne Institute Consumer House Price Expectations Index declined to 51.1 in October, from 58.8 in July. The index is now well below its peak of 80.3 in January.
In October, 63% of consumers expect price increases over the next year, down from 70% in July, the survey found. On average, consumers expect a rise over the next year of 2.6%, down from 3.6% in July and 5.7% in April.

Matthew Hassan, senior economist at Westpac, said consumers have continued to pare back their expectations for house prices despite interest rates staying on hold since May. The general consumer outlook still points to a soft landing for the housing sector in general.
‘The fact that most still expect prices to rise also suggests that those looking to sell properties will be more inclined to postpone selling until a later date than accept materially lower price offers now,’ explained Hassan.

Perth, Sydney and Adelaide are predicted to be the country’s strongest real estate markets in the next three years, according to a separate report. While a lack of economic confidence in Queensland is expected to prohibit capital gains in Brisbane.

According to the QBE LMI Australian Housing Outlook report researched and written by BIS Shrapnel, property price increases of about 20% on average are predicted in Sydney, Perth and Adelaide through to 2013.

More modest house price growth is expected in the three years to June 2013 in Brisbane, where prices will rise by 15%. Hobart prices are expected to increase 13%, Darwin and Canberra by 12% and Melbourne just 9%.

‘There is a greater degree of caution, but people continue to surprise me by what they are prepared to pay for properties, not just in the top but in the middle end,’ said BIS Shrapnel managing director Rob Mellor.

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It’s one of those clichés you’ll often hear in real estate … properties that are priced appropriately are selling. It seems so obvious, really. When you’re making such a big investment surely you’d only do it at the right price? But of course buying houses is emotional and there’s so much more that goes into it than rational thinking about whether it is money well spent. It could be the look and feel, the layout, or the location that sways one buyer to pay a whole lot more than the rest.

If you want to look at how complicated human decision-making is just look at how we pick which political parties will win government. Now that there’s a federal election looming, we’ll all have more than enough opportunity to gawk from the sidelines as votes are won or lost on looks, tone, sound, hair colour, and a little bit of policy, real or perceived.

Nevertheless, when it comes to houses, a lot of real estate agents are saying that buyers are being a lot more careful, and really weighing up where to put their dollars. Less competition from other buyers is providing house hunters with more choices, and they’re taking their time, choosing wisely, and demanding properties are up to scratch.

It’s one of those clichés you’ll often hear in real estate … properties that are priced appropriately are selling. It seems so obvious, really. When you’re making such a big investment surely you’d only do it at the right price? But of course buying houses is emotional and there’s so much more that goes into it than rational thinking about whether it is money well spent. It could be the look and feel, the layout, or the location that sways one buyer to pay a whole lot more than the rest.

If you want to look at how complicated human decision-making is just look at how we pick which political parties will win government. Now that there’s a federal election looming, we’ll all have more than enough opportunity to gawk from the sidelines as votes are won or lost on looks, tone, sound, hair colour, and a little bit of policy, real or perceived.

Nevertheless, when it comes to houses, a lot of real estate agents are saying that buyers are being a lot more careful, and really weighing up where to put their dollars. Less competition from other buyers is providing house hunters with more choices, and they’re taking their time, choosing wisely, and demanding properties are up to scratch.

Agents are saying many vendors are yet to catch up with the swift market cooling of the last couple of months and want higher prices than buyers are prepared to fork out.

I saw a great example of the old price-is-right mantra this week when I spied a sandstone home for sale. Double fronted, it looked like the perfect family pad – except that its immediate neighbour was the car park of a sex shop, and only four doors down, across the road, was a train line. Oh and it had a pretty busy road a few doors the other way.

It could have easily been a house that languished on the market while the vendor held out hoping that the prestige of the neighbourhood that it bordered might rub off. But the vendor was either in a hurry to sell or had a good sense of where the market was at because the home was priced at about $200,000 less than comparable places just a few streets away. On the first open there was a surprising buzz – not quite a swarm – but a healthy hum of activity from house hunters.  And less than a week later, a big SOLD sign was slapped up out the front.

Part of the problem for vendors is the market has been moving so fast lately that it’s hard to keep up. One moment it’s hot and the next it’s not. In pockets there’s still plenty of buying action, for example one Sydney agent says she had 53 people inspect a property in the trendy inner west over the weekend. But in others, real estate agents are ringing around trying to drum up interest.

When you’re selling working out what price you should go for is hard. But just as house hunters are told to find up to a dozen recent comparable sales when they are researching a house’s value, vendors can do that too. The advice for house hunters is to look at the prices places nearby have sold for in the last six months, being careful to compare apples with apples by finding properties that have similar land size, bedroom numbers, layouts and car parking. Sales in the last three months are particularly telling.

If you’re a vendor and you want to find out where the buyers’ thinking is in terms of money, you’d do well to do that research. That way you will find out which direction the market is going in your area, and will be using the same pricing method as your buyers. Of course, if you decide your home has special features and it’s worth holding out for a better price, you might just be lucky – after all spring is just around the corner and the warmer weather brings out the buyers.

Story by Carolyn Boyd – Domain.com.au