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Can housing trends be predicted through logical reasoning

2010035775_2_FSHow easy would investment-making become only if we had a rough idea of housing trends. If only we knew how prices would fluctuate and where would the property market find its support and resistance levels. This however is wishful thinking. The Housing Industry Association (HIA) tries to find out the future trends, writes Charlotte Cossar in an article for realestate.com.au

 

HIA believes that Australia is well placed in terms of its fundamental economic values and hence the prices would be steadier for at least about 10 years more. HIA hasn’t tried to predict the trends through crystal-gazing (I must hasten to add). It has worked on logical reasoning and tried to evaluate the principal determinants that affect prices and housing trends. Cossar puts up a few findings for us; it is worth making a note of them:

House prices of residences

Residential prices have not shown strong signals in the past few years and this has brought down the number of sales too. This trend has succeeded a phase of buoyancy which had prevailed in the market after the Global Financial Crisis. HIA firmly believes that because of the kind of saturation we have, there won’t be a significant northward or southward movement in prices.

House prices and its relation with earnings

This is difficult to achieve, feels HIA, as most of the figures are based on assumptions. Historically speaking, the house prices on an average have always rallied close to 4.5 times the yearly income of a household. After the turn of the new millennium, this figure has risen from 4.5 times to 5.7 times. The figure, it must be noted, is trending close to the long-term average and hence it is suggestive of steady prices.

Mortgage repayments

This ratio is trending marginally above the long-term average. It goes without saying that the haphazard rises and cuts in interest rates have also played their part in bringing the ratio where it is. With the present ratio treading a more conservative 40%, trends are quite indicative of a stable property market ahead.

I think that these determinants certainly have a lot to say when you try to predict housing trends. As an aside, it is also notable that most of our intrinsic values are in place. We are not looking at unsustainable inflation anytime soon. RBA is happy with its lending rates and its overnight money lending rate is not going to burden it except through a rare case of fiscal crunch (only possible through unexpected global events). Things look well in a short and a long run with the market presently running quite close to the long-term moving average for many determinants.

Do you think that the fall in median prices would also affect property prices in CBD areas?