What's in store for the 2010 property market?

Well, the property price numbers for the 2009 calendar year are out and notwithstanding an unusual level of the "our-data-is-better-than-your-data" chest-beating from one provider, the numbers were remarkably consistent across the country and pointed to 2009 being one of the strongest years on record for national house price growth.

According to APM's report, house prices rose by 12.1% and unit prices rose by 9.8%.  Melbourne and Darwin led the way with house prices up 18.5% and 13.5% annually, with Sydney, Canberra and Hobart not far behind.  Brisbane, Perth and Adelaide were the underperformers in 2009 with house price growth less than the national average.

What's most extraordinary about this result is that it's unlikely you could have found anyone in the first half of 2009 (who wasn't trying to sell real estate) predicting anything but price falls, let along growth above 10%.  The fact that the biggest 12-month fall in house prices that Australia experienced during the financial crises was -5% confounded those predicting house price crashes of greater magnitude than those seen in the U.S. or U.K..

Indeed, even when it became clear that slashing of mortgage rates and the First Home Owner Boost had done a great job of stimulating the First Home Buyer sector between October 2008 and June 2009, there were still widespread predictions that the removal of the Boost would lead to a collapse in prices at the affordable end of the market.

Of course, the Boost began it's expiry on September 31 and finished for good on December 31, and while price growth in the bottom end of the market has slowed or is flat in some areas, there's no real expectation of widespread price falls, let alone catastrophic ones.

In contrast, the top end of the market experienced a strengthening market as 2009 developed.  With the market for the more expensive houses hitting rock bottom in January/February 2009, along with the share-market, the recovery since then has been remarkable.  In fact, it was so strong that in most cities in Australia, the top end of the market has now recovered all the losses experienced in 2008 and early 2009 and moved to historic highs.

What's ahead for 2010?  Well, while it's hard to see quarterly growth rates above 4% continuing, it's also hard to see annual growth slowing by a significant amount in an economy that is already coming down from it's unemployment high, is experiencing historically strong population growth and simply isn't building enough new properties to keep up with demand.  According to the HIA/Commonwealth Bank Housing Affordability report, affordability, while rising, is still well above the levels experienced for most of the past decade.

I expect that the first home buyer market and the more affordable areas in each city will underperform the more expensive regions as the removal of the Boost and interest rate increases start to bite. There's also been some recent concerns raised that rising rates will put pressure on those First Home Buyers that overextended themselves in the euphoria of getting an extra $7000 from the government.  If that plays out, there may be some extra supply coming onto the market that might put a dampener on prices.

The top end of the market is a bit harder to pick. Given many affluent areas are now back above pre-GFC levels, will we continue to see the very high rates of growth experienced in the latter part of 2009?  Probably not, as a certain amount of bargain hunting would have helped prices, and that will taper off now.  That said, investor activity seems to be on the increase and there's still a lot of money around in upgrader's pockets due to selling into a very strong first-home buyer market before September.

Overall though, it's hard to see national house prices rising by much less than the 9%-10% range in 2010. I note also that last week NAB Economics moved their forecast for 2010 property prices from a -5% fall, to a +5% rise, a rather large change of heart within a 3 month period.  Predictions for 2010?  We can always come back in a year and see how we all went.