Housing market continues state of flux

09/10/2008 - 13:25

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Some good and bad news for home buyers with one research firm saying the property cycle looks to have bottomed out while a survey from another says trading conditions are likely to deteriorate over the next six months.

Housing market continues state of flux

Some good and bad news for home buyers with one research firm saying the property cycle looks to have bottomed out while a survey from another says trading conditions are likely to deteriorate over the next six months.

According to the Housing Industry Association's inaugural Business Expectation Report, nearly a third of businesses involved in the housing industry expect trading conditions to fall further over the next six months.

Of the 1650 respondents to the survey, more than 50 per cent of respondents expected a further contraction in already tight profit margins while 70 per cent expect some degree of tightening in credit availability.

"Given that such a subdued set of business expectations comes at a time when new building is already enduring a fifth straight year of weakness, the importance of recent and future interest rate cuts is immediately apparent," HIA's chief economist Harley Dale said.

The Reserve Bank of Australia cut its cash rate by a full percentage point earlier this week, on the back of a quarter percentage point easing in September.

Financial markets are predicting further rate cuts in the months ahead.

"An easing monetary policy cycle over the next 12 months will provide both households and businesses with needed relief on borrowing costs and create an environment where budding first home owners can contemplate dipping their toe in the market," Mr Dale said.

"At the same time it remains vitally important that all levels of government play their part in ensuring structural barriers to housing come down so that the residential sector can play its traditional role in leading economic activity in Australia back up again in 2009/10."

Meanwhile residential property research firm RP Data in-house analyst Tim Lawless said he believed the property market cycle "in all likelihood" has now passed through the lowest stage of the cycle.

He said that following the RBA's aggressive rate cut, it is "likely the broader consumer market will begin to view the residential property market with a much higher degree of confidence".

"The return of more buyers to the market is likely to be gradual. Globally economies are slowing, financial and equity markets are very volatile and a great deal of uncertainty remains," Mr Lawless said.

"Such unstable conditions will stand in the way of any dramatic rises in consumer confidence."

Mr Lawless forecasts Sydney as the market likely to show the first signs of improvement with overall house values still below the 2004 peak of $598,700 and the city now recording the lowest vacancy rate of any capital city at around 1 per cent.

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