Winter is normally a gloomy time in real estate but this winter is more dour than most in the nation’s capital city house markets. Agents report that buyers are thin on the ground and the ones that are around are cautious. And factors that would normally give the market a kick along – a buoyant economy, low unemployment and comparatively low interest rates – don’t seem to be helping much.

”We’re finding it a lot more challenging than it was at the same time last year, or for the whole calendar year last year,” a director and auctioneer at Cooley Auctions in Sydney, Damien Cooley, says.

At the moment consumer confidence is low and it seems people would rather pay off their debts than add to them, says a senior research analyst at RP Data, Cameron Kusher. ”If people aren’t willing to pay a few hundred dollars in a shop, their propensity to spend $600,000 to buy a home is lessened as well,” he says.

Yet if you think the property market’s a bit flat in Sydney, console yourself with the following. This city is in far better shape than anywhere else in the country.

The latest data from the Fairfax-owned Australian Property Monitors – released this week (and used throughout this story) – shows the median house price for Sydney is $644,658 – up just 0.1 per cent in the June quarter.

It’s a less rosy picture during the past 12 months in which Sydney prices have struggled to grow at all and are actually down slightly – 0.2 per cent – from June last year.

But it’s a much better result when compared with the much larger price falls that occurred in every other capital except Darwin during the same 12-month period. And in the three months to June 30, Melbourne and Hobart recorded no growth, while the rest sank into the red. Interestingly, while the APM statistics showed that Canberra’s median house price fell in the quarter, it had been growing at a relatively healthy 1.8 per cent for the previous three months.

In Sydney, auction clearance rates have also been weaker compared with last year but, APM’s senior economist, Andrew Wilson, says, at least they’re showing signs of improving.

”Certainly Sydney’s got the best prospects of anywhere to move upwards,” Wilson says.

One reason Sydney’s property market is holding up better than most is that the city hasn’t experienced the explosion in house prices in other cities, where prices got too far ahead of people’s ability to afford them, Kusher says.

In the past decade average values have increased less than 5 per cent a year in Sydney, well under the national average, he says.

Things have been far gloomier in Melbourne, for example, which had extraordinary growth of 22 per cent in house prices in the 12 months until June last year.

Another reason for Sydney’s buoyant market is the chronic shortage of houses and fast-rising rents. ”It’s highly competitive whether it’s buying or renting in Sydney’s inner city, which means fundamentally that Sydney house-price growth will continue,” Wilson says.

The city has a two-speed housing market that is driven mainly by affordability – quiet at the top but moving in the centre and the bottom, especially in the inner and middle western suburbs, the north-west and parts of the south, he says.

Cooley says while the overall market in Sydney is ”challenging”, there are ”deals out there taking place and there are properties that are selling pretty well”. His company’s strongest region for auctions in June was the inner west, where the clearance rate was a bullish 20 percentage points higher than the rest of Sydney, at 75 per cent. ”It was no surprise, it’s been the strongest market for quite some time,” he says.

An inner-west agent, Paul Pettenon, the principal of Raine and Horne Concord, says house prices in his area stretching from Canada Bay to Rhodes are still fairly strong, although buyers have been more reluctant to spend as freely as they did in the past year. ”Pricing properties now is very important,” he says. ”Buyers are a bit more savvy and aware of the market conditions. They know what they want.”

Melbourne

Median: $554,610

Quarter: EVEN

Year: DOWN 2.1 per cent

Melbourne’s levelling off of prices reflects ”buyer confidence holding up despite extraordinary prices growth through 2009 and 2010”, Wilson says.

What sets Melbourne apart from the rest of the country is that thousands of houses and apartments are still being built. Kusher believes this could put a lid on price growth, while Wilson expects prices will move sideways ”for a while” as a result. But the strong Victorian economy, coupled with the fact homes in the $1 million to $1.5 million bracket are still good value compared with those in Sydney, eventually will lead to more demand for ”the middle and upper band which might drag prices up”, Wilson says.

The chief executive of RUN Property, Rob Farmer, says there is still plenty of interest in houses that are ”priced correctly”, especially in the inner suburbs of Essendon, Ascot Vale, Kensington, North Melbourne and Brunswick. The shortage of competition from buyers at some sales should encourage more into the market.

Canberra

Median house price: $551,065

Quarterly change: DOWN 2.8 per cent

Year-on-year change: DOWN 2.6 per cent

RP Data describes Canberra as Australia’s best performer in the April quarter. Its citizens are paid well and there’s been low unemployment over the past few years. But APM’s latest data shows price drops. Wilson says the reason is that the city’s economy is starting to soften, especially unemployment which is starting to creep up, and this is affecting prices.

Others see a two-speed market in Canberra. Cory McPherson, the director of Ray White Kingston, says the public service and the ancillary jobs that support it is drawing people from other parts of Australia, to the extent that almost at ”every auction we’ll have someone bidding from interstate or overseas”.

The mid- and lower-priced areas where most public servants typically live are doing better than the top, he says, which has not recovered from the financial crisis in 2008. ”There’s quite a bit of overpricing at the upper end of the market … [but] what we’re finding is there’s a lot of turnover in the outer suburbs. Prices have come back a bit but supply and demand means it’s always fairly competitive.”

Brisbane

Median: $446,778

Quarter: DOWN 1.3 per cent

Year: DOWN 4.9 per cent

Flooding at the beginning of the year is one reason the housing market in Brisbane is one of the worst in the country but it’s not the main one. Like Melbourne, Brisbane had a strong growth in values, especially in 2007 when house prices rose 27 per cent and ”overshot the mark a bit”, Kusher says.

Another traditional engine of the Brisbane property market, migration from other states, has also been noticeably absent since the financial crisis, he says.

Other factors haven’t helped either, such as the high Australian dollar which, according to Wilson, has battered the Queensland economy, particularly its tourism sector. But he predicts the market should start to pick up in the next six months. ”Improved economic performance and reconstruction activities should see the market bottoming out by year’s end,” he says.

Farmer agrees. He thinks the worst is over and buyers, especially first-timers, who are being lured by government incentives, will return in greater numbers. ”On the property clock, we’ve gone past 6pm and we’re moving towards 9pm,” he says.

Perth

Median: $535,617

Quarter: DOWN 1.5 per cent

Year: DOWN 5.8 per cent

Another stellar performer in past years – especially in 2005-06 when prices shot up 45 per cent – Perth is now the capital city with the worst-performing housing market. Wilson says Perth has entrenched low buyer and seller confidence in the marketplace, which is proving hard to shift. ”There is a glimmer of hope with a significant lift in home loans approved in May,” he says.

The rest

In the smaller markets of Adelaide and Hobart, Wilson says there are fewer buyers at the moment and that is because there are some question marks about the strength of their economies. In Adelaide, where the median price is $441,775, people are waiting for the expansion of the Olympic Dam project to give them a shot of confidence, Kusher says.

The market has slid back 2.1 per cent since last quarter and 3.1 per cent since this time last year.

Down in Hobart (with a median of $329,307), the housing market relies on retirees and others such as tree-changers to create demand and there is not a lot of them at the moment, Kusher says. The market has remained steady during the quarter but has dropped 2.6 per cent since June last year.

While Darwin (with a median of $593,642) had the largest quarterly fall of any capital city at 3.6 per cent, it was also the only one to record positive growth during the year – 1.3 per cent.

Darwin’s volatile results were ”as a consequence of seasonal economic activity and a shortage of housing”. Wilson says.

‘It’s a lot more affordable and a lot easier to get around’

Ace Popovich’s life has turned full circle. The architect and building contractor grew up in Canberra before moving to London and then Sydney, where he and his English-born wife lived for about 10 years in a small terrace in Waterloo.

Now with two young children, they are back in Canberra and about to move into a four-bedroom house on 800 square metres they bought in the inner-southern suburb of Narrabundah. They are among a wave of interstate migrants to the nation’s capital, that is helping keep some parts of the Canberra housing market relatively strong in the face of a national market in the doldrums.

The couple sold their two-bedroom Sydney terrace on 140 square metres for about $725,000 and, after spending $660,000 on their Canberra house, had enough left over to renovate before they move in next month. They hope to be in the same financial position as they were in Sydney but with a house they can live in for years, close to family and good schools. He and his wife have settled in ”really well”, Popovich says, and have both found jobs. ”We’re at a stage in our lives where it’s very convenient living in Canberra,” he says. ”It’s a lot more affordable and it’s a lot easier to get around.”

Source : Antony Lawes of the Sydney Morning Herald 30 July 2011