Property less volatile than share market

The Australian property market has been labelled ‘resilient’ after prices were found to have fallen by just 2.9 per cent during 2008.
Home values fell in most capital cities over the year with the exception of Darwin and Adelaide, according to the recently released RP Data-Rismark International Property Values Indices.
Values in Darwin grew by as much as 11.1 per cent and Adelaide prices rose by 3 per cent.
Meanwhile, Perth experienced the biggest fall in property prices of any capital city in Australia, dropping by 7.3 per cent.
RP Data national research director Tim Lawless says Australia’s residential market has been one of the best performers during the global economic crisis.
While Australian property values decreased by 2.9 per cent over 2008, the fall is not as dramatic as the 41.3 per cent fall in the S&P/ASX 200 and the 20 per cent drop in US housing prices.
Lawless says the resilience of Australia’s market can be attributed to the critical undersupply of housing, estimated to be 140,000 homes and growing, combined with record population growth.
“The Australian residential property market has been protected by Australia’s very strong banking system, where the four major Australian banks all enjoy a ‘AAA’ rating (only 13 banks around the world are currently rated AAA),” he says.
Rismark International head of research Matthew Hardman says residential values in the lower and middle market levels will hold up due to low interest rates and the continued shortage of housing.
“For property prices to fall rapidly, a combination of oversupply and forced liquidity through high unemployment or a significant population exodus is required,” he says.
Hardman doesn’t believe prices will fall by 20 per cent, as predicted by some experts.
He says rising unemployment will put downward pressure on prices but it won’t outweigh the undersupply and low interest rates.
While investors have remained relatively inactive in the market, Lawless predicts investment activity will pick up during 2009 due in part to the proven lack of volatility in the market.
He says prices will rise in the lower end of the market as first homebuyers and investors compete for housing stock.
“The markets most prone to further declines in value will be coastal and holiday regions together with mining towns.”
Australian Property Investor editor Eynas Brodie says unlike some, she hasn’t been surprised by the property market’s resilience in this tough economic climate.
“Multiple data collectors, not just RP Data, have reported that at a national level values fell by only 2 to 3 per cent in 2008,” she says. “The total returns on residential property Australia-wide were actually positive once rents were factored in.
“Ultimately supply and demand are the biggest drivers of market movements and our property market is still chronically undersupplied. This has put a floor under property prices nationwide.”