What's in store for property in 2009?

By Alex Brooks

As Sydney’s best suburbs spiral down in price, property commentators are in a hairy battle predicting the 2009 property market – will it be a bear year or have the price drops been enough to turn property around and prompt a bull year?.

Australian Property Monitors economist Liam O’Hara says he is a “bear for the short term” and is predicting further price falls up to 14 per cent in prestige areas like Bondi, Mosman and Palm Beach through 2009, which come on top of steep declines during 2008.

Australian Property Monitors preliminary figures confirm the median house price in Palm Beach dropped from $2,512,500 in the year to December 2007 to $2 million in December 2008 – a 20.4 per cent drop through last year. Mosman dropped from a median of $1.2 million to December 2007 to $865,000 – a 27.9 per cent drop.

The optimists and pessimists are locking horns over forecasts for the housing market, with bears forecasting more price falls and bulls arguing doom and gloom will only depress the market further.

Even real estate agents admit prices have declined steeply in premium suburbs, with Barrenjoey Properties’ principal Richard McDonagh saying prices in wealth belt suburbs like Palm Beach were off by 35 per cent in December last year as financiers got caught up with margin calls or job losses and tried to sell the holiday house.

[W] Estate Agents principal Susan Lee says Mosman’s best homes had already fallen in price “at least 20 per cent” through last year (2008).

O’Hara says he there will be more price slides for top end suburbs that rose strongly during the last four years.

 “Sydney will have nominal price falls of 10 per cent but it will depend on where you live because some suburbs will have price increases – mostly those that are the cheapest relative to other stock,” he says.

Outerlying suburbs in the west and south-west, where prices are less than $360,000, are poised for strong growth, especially if close to trains, schools and shops.

“The truth is that no-one has a crystal ball about what will happen with property prices,” O’Hara says.

But there is one thing the bulls and bears agree on - property prices have already taken a hit and the year ahead will be difficult to predict.

Rismark International head of research Dr Matthew Hardman agrees, saying prices will rise and fall in different suburbs around Sydney.

He is predicting a better year for suburbs in the west and south west of Sydney, where prices have fallen so low that it is 25 per cent cheaper for residents to buy now compared to four years ago.

“Those areas are now as affordable now as they were back in 1998,” he says.

Macquarie Group’s head of property research Rod Cornish is forecasting “moderate price falls” across Sydney but says the suburbs that will fare best through a tumultuous 2009 will be cheaper, outerlying suburbs.

Meanwhile, optimistic ‘bulls’ like Commsec chief economist Craig James says conditions are ripe for great home-buying opportunities in the year ahead with house prices lower than previous years, falling interest rates and lower petrol prices boosting home affordability.

“We need people with confidence to act so we can get more momentum in the economy, and I think this will happen soon,” he says.

McGrath Real Estate chief executive John McGrath is confident about the property market, and predicts bargains aplenty in suburbs like Vaucluse, Hunters Hill, Longueville, Northwood, Northbridge, Cremorne, Mosman, Avalon, Whale Beach and Palm Beach.

“These areas count amongst the best in the country, so now is the time to buy in before the market surges back, which I suspect it will in these areas by 2010,” he says.

Hardman says now is the perfect time for cashed up home owners with secure jobs to upgrade to a bigger more expensive home, because the discount is proportionately better in a falling market.

THE PESSIMISTS VIEW

University of Western Sydney associate professor Steve Keens caused a storm of

controversy amongst analysts and economists last year for his predictions that house prices would fall by 40 per cent.

“Those sorts of predictions are just ludicrous because the Australian property market has floors under it and the drops won’t be that drastic,” argues Rismark International head of research Dr Matthew Hardman, who says there will definitely be price falls in some Sydney suburbs this year.

 “Barring a very deep recession or depression, 40 per cent falls in house prices are

unlikely,” says AMP Capital Investors chief economist Shane Oliver.

“But with the economy on track for a mild recession, and if not then a very serious slowdown, house prices are likely to fall 10 to 15 per cent over the next year or so.”

Australian Property Monitors Liam O’Hara admits he is a property market bear “in the short term”, forecasting house prices to fall by around 10 per cent as the appetite for debt lessens, unemployment worries grow and the economy shrinks.

SQM Research analyst Louis Christopher agrees with the bears, saying people are not as keen to take on large mortgage debts – and the banks aren’t keen to give them out – which will wind back prices.

“There aren’t any sensible bulls out there right now, are there?” asks Macquarie Group’s head of property research Rod Cornish, who is also predicting moderate price falls throughout NSW for 2009.

WHAT THE OPTIMISTS SAY

Those most confident about a stronger property market in 2009 are also likely to be trying to sell it to you.

Real estate agents like John McGrath, apartment developers  Meriton and the head of NSW’s Real Estate Institute Steve Martin are happy to talk about their confidence in a the property market.

 “In all my time in real estate, this is the perfect buying platform,” says Real Estate Institute of NSW president Steve Martin.

“Interest rates are attractive, first home buyer grants are attractive and there is a stagnant market.”

While McGrath admits that asking a real estate agent whether it’s a good time to buy is “akin to asking your barber whether you need a haircut”, he says that price falls of have made the market ripe for buying.

“With prices down by 10 to 20 per cent, interest rates falling by 2.5 to 3 per cent and rents up 10 to 15 per cent, an investment in residential property now makes so much better financial sense than it did a year ago when people were lining up at auctions each week,” he says.

Meriton sales director James Sialepis says the stockmarket turmoil and lower interest rates will mean property investors will return.

“Astute investors are also aware that falling interest rates are having a negative effect on their bank term deposits, and with the share market volatile, we expect investors to return to the property market and take advantage of the higher yields on offer,” he says.