INSIDE INVESTOR: The gentler, patchwork housing recovery

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For Australians, real estate is something of a national obsession.

That’s understandable given it often is the biggest investment most of us will ever make.

For more than a decade now, there have been alarmists and scaremongers claiming the Australian property market was a bubble awaiting a pin.

Bets have been made, reputations were staked upon it. Mostly academics, they made comparisons with events in the US and Europe, digging ever deeper into complex calculations designed to prove their theory.

The crash never arrived. Instead, Australia experienced an orderly slowdown in property prices which in some areas was quite steep. Price declines of around 7 per cent represented some of the biggest falls in history.

It’s clear now though, that our property market is in recovery. There have been some solid gains in residential real estate prices since they troughed last year. But on a national level, Australian residential housing is still well below the price levels of 2010.

It is pretty clear that the interest cuts of the past 18 months now are beginning to make their mark.

But this time around, the recovery is likely to be different.

In previous property recoveries, prices have moved higher in the early phase at a cracking pace, usually between 10 and 20 per cent.

That’s unlikely to happen this time around. Instead, the real estate recovery is likely to be tentative and patchy.

Perth is likely to maintain a healthy premium for a while even as the mining boom begins to wind down. But Sydney, after serious falls during the past two years, is where the action is right now.

There is more demand for housing in Sydney than there is supply.  Melbourne has the opposite problem. Two years of government sponsored construction has left the Victorian capital oversupplied and there is an abundance of inner city medium density dwellings on the market.

It is a similar story in south east Queensland, and particularly the Gold Coast, where property owners have notched up some spectacular losses during the past three years.

In the next few weeks, we’ll look at the investment case for real estate and how it stacks up against other investments like shares.

We’ll also check out how to benefit from a real estate recovery without the expense of buying a property.

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With record low interest rates I thought property prices would be growing at around 10% like Stephen Koukoulas said earlier this year but record low interest rates aren't pushing up prices then my questions are what is going to happen when interest rates do rise. or if unemployment rises.

When first home buyers are no longer present in the property market the pyramid system ceases to work.
First home buyers have now almost totally abandoned the market, so it's becoming overwhelmingly speculative.
With current mortgage holders maxed out, first home owners departed and landlords selling each other investment properties showing woeful returns how can you have a housing recovery? Mmmmmm.

This article should come with the disclaimer

"This is a paid infomercial from The Commonwealth Bank" one of Australia's largest holders of housing mortgage debt.

Australians are well known for holding onto unaffordable housing. They will go without holidays and entertainment, work double shifts and weekends to pay for their houses. The only thing that will force their hand is unemployment.

If unemployment gets above 7.5% we are going to see a massive amount of mortgagee auctions, one income is not enough to support it anymore.

All economy's are cyclical. Its been 21 years since the last one and we are headed into another. My expectation is that it Australia will resist calling it a recession until it's unavoidable.

You can put lipstick on a pig, but its still a pig.

Ian were you not around when negative gearing was suspended and prices dropped 40% overnight ???....and as a third generation Estate Agent now retired talk of prices today is gobbly gook generated by people with little or no principle. My grandfather would roll in his grave to know what is going on today.

The fact that real estate has become something of a national obsession in Australia during the last decade is a clear indication for me that we are in the midst of a real estate bubble.

Delaying the inevitable bursting of our real estate bubble will only make the final economic devastation worse. Our bankers and politicians have been guilty of short term thinking.

Bankers at least will be walking away with huge bonuses while tax payers and depositors will be left holding the bag. No banker or politician will ever be held responsible for creating a debt crisis by implementing policies that encouraged low interest rates and cheap easy credit.