property outlook 2012 minus doomsdayers

First, Australian home values stopped falling in 2012 and look to be treading water. During the first three months of the year, dwelling values across the eight biggest Australian cities are, on average, unchanged. Drilling down into more detail, home values declined during the seasonally tepid month of January, but have recovered these losses in February and March.

The good news is that Australian house prices are not falling, which makes a change from the deflationary conditions that prevailed during much of 2011. In fact, we’ve had no substantive cumulative decline in Australian home values since late 2011.

What is perhaps more interesting is that if we go back a little further in time to, say, the beginning of 2010, we find that the capital gains and losses over 2010 and 2011, respectively, have cancelled each other out.

The cost of Australian housing has not increased at all over the last two and a bit years (values are up slightly, and certainly not down in actual, or “nominal” terms). This image, of course, looks nothing like the hysterical pictures painted by doomsayers such as Steve Keen, who has variously prophesised 20% to 40% falls in Aussie house prices.

Peering ahead, there are reasons to be optimistic. While the mix of the total returns real estate investors realise has probably changed (with more income and less capital growth), and the total returns themselves will be lower than those that manifest during the 1990s and early 2000s, it is unlikely that we will see another significant slump in prices unless the RBA changes its policy stance.

Recent auction data has been encouraging, with clearance rates in the two most popular auction centres, Sydney and Melbourne, oscillating around the 60% threshold. And contrary to some reporting, leading-indicator data on new home loan approvals over both February and March suggest that housing demand has bounced back, as we expected following the RBA’s (net) 40 basis-point reduction in mortgage rates.

One of the more significant signals apropos the health of the market is the fact that the share of first-time buyers as a proportion of all loans approved printed at a historically high 20% in January. This was well above the 17.5% average recorded during 2011, and also better than the long-run average since the ABS began collecting this data. It tells me that would-be buyers are starting to act on the improvement in their purchasing power.