The RD Data-Rismark Home Value Index for June showed that combined capital city prices increased by 3.8% during FY2013. Activity is continuing to be driven by investors and upgraders. However, there is no likelihood that we will see a return to the spectacular growth of previous property cycles. Household debt remains at historically high levels: 147.3% of disposable income. The chart below shows that this debt to disposable income ratio has not changed for the past 7 years.
The second factor affecting the property market outlook is the current trend for greater household savings; now at the highest level since October 1987.
And finally we are seeing a welcome (in my view) change in consumer spending habits. People are using their own money and not credit cards to make their household purchases. There is a strong swing towards the use of debit cards with total debit card transactions increasing by nearly 14% over the year! While credit card balances remain at relatively high levels the trend is down with average balances reducing by 3.5%.
Other factors which have influenced recent property price booms are not as significant. There is no sharp drop expected in unemployment, interest rate cuts have been much more modest than with previous cycles, and inflation is at much lower levels.
This overlooks the fact that each capital city market is trending differently in response to individual circumstances. In Sydney the property market is anticipated to perform relatively strongly. Over the past 10 years price growth has been below inflation and dwelling construction still remains insufficient to redress the demand/supply imbalance in high demand locations. There fore we are seeing certain micro markets such as the inner west perform quite strongly.
Acknowledgement: in preparing this Property Update we have sourced data and quoted from publications issued by Westpac Bank, RP Data and ME Bank.