Confidence in the real estate market continues to build, especially in the metropolitan centres. Weighing against this is a further lift in fixed mortgage lending rates, with the likelihood of more to come.
A belief that the worst of the economic crisis is now behind us, combined with relatively attractive borrowing rates, has spurred the house market into action.
After a string of five consecutive quarters of rolling backwards, the economy has finally kicked into forward gear. Questions still surround the durability of the upturn given the imbalances that remain. We anticipate a lower trend rate of economic growth over the next few years.
The OCR will be increased in the next year, which is leaving borrowers uneasy. However, given the positive and steep slope of the yield curve, we see little value in any fixed rates beyond one-year. While borrowers need to be prepared for higher rates, structural changes mean the OCR will not push up anywhere like what we have seen in previous cycles.
Indicators continue to point to further rises in unemployment despite the economy emerging from recession. Hours worked per employee has fallen to record lows, which indicates considerable labour slack that can be mopped up in the early stages of the recovery. Hence, the unemployment rate will not only increase in the coming quarters, but will likely remain elevated for some time. This will have an effect not only on job mobility (such as Generation Y chopping and changing), but also on household’s perceived job security and hence their spending decisions. We see this dynamic as accentuating the need for households to rebuild their precautionary savings buffer.
An urban/rural split of the real estate statistics reveals a marked divergence in house prices since the previous low in 2001. By our reckoning, urban real estate prices peaked (and pulled out of the latest trough) earlier than that of the rural areas.
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