The National Hotspots property report from St.George Bank identifies the suburbs that offer the best value houses in Australia.

The best value for home buyers, says the report, can be found in 24 places across the country, taking into account their location, the price of housing and locally available amenities.

The suburbs should prove suitable for both people looking to make a home and investors seeking to make a profit over the medium to long term.

Best Places to Buy a House in Australia

Brisbane: Cannon Hill, Fairfield, Kedron, Keperra, Margate.
Cannon Hill, Fairfield, Kedron, Keperra all lie within 10 km of the central city. Average home prices range from about $400,000 in Keperra to $590,000 in Fairfield. Margate, on the coast, has an average price of $347,500.

Sydney: Granville, Lidcombe, Riverwood, Rockdale, Waterloo.
Sydney’s hotspots are mainly in the west and southwest of the city, with one – Waterloo – within 10 km of the central business district. The average house price in Waterloo is $560,000. Prices elsewhere are: Granville – $347,500, Lidcombe – $475,000, Riverwood – $470,000, Rockdale – $525,000.

Melbourne: Ashburton, Brunswick, Chadstone, Fawkner, Flemington.
Brunswick and Flemington are within 5 km of the city centre. Both have an average property price of about $530,000. Ashburton, which lies 12 km southeast of the central city, was the most expensive suburb in the survey with a median price of $706,750. Fawkner had the cheapest houses of Melbourne’s identified suburbs at $337,500.

Adelaide: Thebarton, Glanville
Thebarton, with an average house price of $390,000, sits within 5 km of the central business district. Glanville, with an average house price of $300,000, is further out.

Perth: Bassendean, Thornlie
Bassendean is within 10 km of the central city and has an average house price of $445,000. Thornlie is further away, with average price $365,000.

Hobart: North Hobart – $335,000

Canberra: Dickson – $505,000

Darwin: Rapid Creek – $523,500

Regional Australia: Gulliver (Queensland), Redan (Victoria). Gulliver’s average house price is $294,500 while Redan, a suburb of Ballarat, Victoria, is the cheapest of the 24 locations, with an average house price of just $190,000

Of the 24, the report’s authors believed the very best were Granville (Sydney); Chadstone (Melbourne); Keperra (Brisbane); Bassendean (Perth); and Thebarton (Adelaide).

Besa Deda, St.George Bank’s Chief Economist commented:

“Over the 12 months to June, all mainland Australian capital city median dwelling values have risen. While Adelaide has recorded the smallest growth at just 0.6 percent, Darwin values have jumped 7.0 percent. Other capital cities have also seen median house prices increase: Melbourne (6.5 percent); Sydney (5.9 percent); Perth (1.9 percent); and Brisbane (1.4 percent).”

The 24 hotspot suburbs identified include an interesting mix of older demographic areas where the majority of dwellings are owner-occupied but have great potential for renovation, and younger demographic areas where the dwellings are dominated by apartments and offer good value for money.

In addition, just about all the hotspots are in close proximity to retail amenities and restaurants, are well serviced by public transport and, most importantly, are all discounted or underperforming for their current location when compared with nearby suburbs. As a result, they are expected to perform well.

“Savvy home buyers and investors should look outside the square and consider the areas which have not attracted the same level of attention as traditional blue-ribbon locations.”

“There are important demographic fundamentals that shed a favourable light on the prospects for residential housing lending and prices over the medium to long term. Population growth nationally is running at its fastest pace in 40 years at a time when there is a national shortage of housing,” said Ms Deda.

Fundamentally, an increasing population fuels demand for housing. Population growth has been running at this robust pace at a time when residential construction has been weak. The current undersupply of housing throughout Australia is estimated to sit anywhere between 20,000 and 80,000 per year. With fewer dwellings being built, the supply shortage continues to be exacerbated and is anticipated to increase over the next few years as the population grows further and the required amount of dwelling commencements needed to fill this shortage goes unfulfilled.

This imbalance between demand and supply has placed a floor under dwelling values and is likely to place upward pressure on dwelling prices over the medium to long term.

Overall, national demographics then are encouraging and favourable for a housing upswing in the medium term, particularly when combined with the current low interest rate environment.

A More Cautious Note

Striking a more cautious note, Associate Professor Steve Keen, an economist at the University of Western Sydney, believes property prices will fall by large amounts in the medium to long-term.

“The boost to house prices courtesy of what I call the first home vendors grant has been substantial,” he told economics correspondent Stephen Long in an interview to be broadcast on the ABC’s PM program tonight.

“It hasn’t only pushed up lower level prices below the $500,000 mark, it’s also boosted prices up to $1 million or more, because when those vendors sold their houses to the first home buyers they got an extra $30,000 or 40,000 in cash, which they leveraged up to an extra $200,000 to go and buy houses in the medium to high price range.”

This is the strongest quarterly growth in house and unit prices since December 2007.

Australia’s two largest housing markets led the rises with quarterly price rises of 5.8 percent in Melbourne 3.7 percent in Sydney.

Brisbane and Perth are the country’s only property markets with both house and unit median prices under June 2008 levels.

Australian Cities
Average House Prices
June 2009

Graph of Average House Prices ($thousands)
in Australia’s Major Cities
2004 – 2009

Australian Cities
Average Unit Prices
June 2009
(“Units” in Australia are usually apartments)

Mathew Bell, Australian Property Monitors’ economist commented:

“The national housing market has experienced its strongest quarterly growth in both house and unit prices since the global financial crisis took hold late in 2007. The consolidation that began in the March 2009 quarter has now transformed into strong growth across the country.

“While low interest rates, flat prices and First Home Owner Grants supported the affordable end of the market through the end of 2008 and early 2009, its been the upper end of the market that’s driven the strong growth in the major capitals in the June quarter.

“For Sydney, Melbourne and Brisbane, median prices in the top 50% of suburbs grew by nearly double the rate of those of the bottom 50% in the June quarter. Not surprisingly this has coincided with the stock-market rebounding by nearly 30% from its March lows and the economic outlook improving as better-than-expected data flowed in.

“As the First Home Owner Boost begins phasing out in September, demand is expected to remain strong as potential buyers point to low interest rates and previous periods of flat or falling prices as important drivers in their decision to purchase a property within the next 12 months.

“Property investors who have been waiting for the removal of the Boost and the bottom of the interest rate cycle are expected to begin re-entering the market in greater numbers in the second half of 2009 and early 2010.

“Rising unemployment remains the biggest risk to house prices, but this risk has lessened over the past quarter with forecasts of peak unemployment falling below 8% and the economy expected to avoid a technical recession.

“With population growing strongly and strong housing finance figures yet to translate into a significant rise in new building starts, all indicators point to house prices continuing to rise in the second half of 2009 and well into 2010.”

Prices courtesy of Home Price Guide.

Part of the market’s resilience can be attributed to the effect of the government increasing the first time house buyers’ grant from $7,000 to $14,000 or even $21,000.

This measure brought out first time buyers in record numbers in January, when they took 26.5 percent of all Australian mortgages – the largest share of the market ever recorded by first time buyers.

Mortgage rates have also dropped, falling from nearly 10% in August 2008 to around 5% in March this year. The resulting improved affordability has also encouraged house buyers into the market.

Australian Cities
Average House Prices
March 2009

Graph of Average House Prices ($thousands)
in Australia’s Major Cities
2004 – 2009

Australian Cities
Average Unit Prices
March 2009
(“Units” in Australia are usually apartments)

Mathew Bell, Australian Property Monitors’ economist commented:

“Home-buyers have been taking advantage of flat or falling prices in most capital cities over the past year. With interest rates likely to resume their downward path in the second half of 2009, buyers can look forward to the promise of historically low mortgage repayments for some time to come.

“Rising unemployment and a weakening economy still pose the greatest risk to housing but capital city median prices are unlikely to experience large falls, being cushioned by low interest rates, record government fiscal stimulus and an undersupply of housing.

“Despite the likely end of the First Home Owners Boost in the May budget, the fundamentals of the market point to residential property prices stabilising in the second half of 2009 and early 2010.”

Prices courtesy of Home Price Guide.

This was one of the messages Ric Battellino, Deputy Governor of Australia’s central bank, The Reserve Bank, delivered to the Urban Development Institute of Australia in Brisbane Today.

The Australian market was fairly subdued in 2008, he told listeners, with prices falling on average by 3 per cent across Australia.

Some states – such as Western Australia which had a late boom – are now experiencing larger falls than average. Prices at the top end of the market have also been softer, no doubt reflecting the deleveraging that is taking place among high income households following the global financial crisis.

Mr Battellino went on to outline his reasons for believing that the Australian property market would be more robust than those elsewhere most important of which was the fact that Australia did not fall prey to the deterioration in lending standards that occurred elsewhere.

By and large, the vast majority of Australians who took out housing loans have been able to afford the repayments. The 90 day arrears rate on housing loans is only 0.5 per cent, broadly in line with its long-term average, and well below that in countries such as the US and UK.

In the period ahead, there will be forces pulling the arrears rate in opposite directions.

On the one hand, as unemployment rises, more households will have difficulty continuing to service their housing loans.

On the other hand, the very large reduction in interest rates has greatly reduced the debt servicing burden of households. On an average-sized mortgage, loan repayments are now $7,000 a year less than they were six months ago. This is a very large reduction, equal to about 8 per cent of average household income.

The majority of households have chosen not to spend the money that has been freed up. Rather, they have maintained high repayments and are therefore moving ahead of schedule in repaying their loans. This will give them breathing space if they do subsequently find themselves in circumstances where their repayments are interrupted.

Mr Battellino also said that even after the large fall in wealth over the past year, Australia’s household sector was still in a relatively sound position.

Looking at household balance sheets, on the liabilities side, households on average have debt equal to about one and a half year’s income. On the assets side, they have a property valued about 4 years’ income and financial assets equal to 2.5 years’ income.

Over the past year, as the share market has fallen, the household saving rate has increased substantially and that more, older workers are either remaining in, or returning to, the workforce.

Sydney
In the December quarter Sydney house prices fell 0.7% and the unit market remained flat. Through the year, house and unit prices fell 4.2% and 3.8% respectively.

Canberra
The average price of a house in Canberra is $30,000 less than in December 2007. Over 12 months, house and unit prices have dropped by 6.7% and 2.6% respectively.

Melbourne
Through the year, house prices rose by a modest 0.9%, and unit values declined 1.5%.

Brisbane
In the past year house prices rose 0.4% and unit prices dropped 6.5%.

Adelaide
In the December quarter, house prices remained flat while unit values increased 2.1%. In the past year, house and unit prices rose 2.9% and 2.7% respectively.

Perth
House and unit prices fell 1.9% in the December quarter. Over 12 months, the picture was bleak, with house and unit prices falling 7.9% and 4.7%.

Liam O’Hara, Senior Economist for Australian Property Monitors said, “The December 2008 quarter housing and unit figures leave little doubt that the Australian residential property market is in trouble. Some capital cities have witnessed the largest price falls in years. This is the second consecutive quarter where values have either fallen or remained very sluggish.

“While the first home buyers’ share of the mortgage market increased in November 2008, these latest figures show that the Government’s first home buyers boost scheme has done little, thus far, to stem falling property prices.

“Australian property prices are unlikely to fall precipitously in 2009, as witnessed in the United States and the United Kingdom throughout 2008. Instead, Australian property market values will continue to slide modestly over the next two quarters. There is now a genuine belief, among even the most optimistic economists, that the current fiscal and monetary policy stimulus packages are not enough. Gross Domestic Product has come to a standstill and we have just witnessed the biggest spell of disinflation in over 10 years.”

Median House Prices
December Quarter 2008

And as credit markets in many overseas markets collapse, Australia recorded a 0.7 percent rise in property lending.

Much of the impetus in the first time buyer market seems to have stemmed from a doubling of the First Home Owner Grant to $14,000 for purchasers of existing homes and a tripling to $21,000 for purchases of new-builds.

Australian residential property does not appear to have fared as badly in the current worldwide economic slump as overseas property. The most recent figures available from Property Monitors show relatively small price changes in Australia’s major cities compared with a year earlier.

House prices in Sydney are four percent lower than a year ago while in Melbourne, house prices are up almost one percent.

In the smaller cities of Adelaide, Brisbane and Perth, prices are up three percent, up 0.4 percent and down eight percent respectively.

From today, the government is going to triple the current $7,000 first-home buyers grant offered to people buying a new-build home. The new payment to buyers will be $21,000.

First home buyers moving into existing houses or apartments will receive $14,000. Extra payments will be available for all contracts entered into before the end of June 2009.

The payments for homebuyers are available to anyone buying a house in Australia for the first time and so are available to new arrivals provided they have legal permanent residence in the country.

The total economic stimulus package consists of:

$4.8 billion in payments to pensioners.
$3.9 billion in payments for families.
$1.5 billion in payments to first home buyers.
$187 million for new training positions.

Mr Rudd said the stimulus package “is designed to support activity in the housing sector because the housing sector is critical to the economy”.

Australia is in a better position than most western countries to weather the current financial storm and Mr Rudd commented that it was time to spend part of the federal government’s $21.7 billion budget surplus.

“The purpose of a surplus in the budget is to cope with tough times… therefore the government intends to deploy this surplus in the ways in which I have just described.”

The government estimates that more than 150,000 first home buyers will benefit from the time-limited scheme.

July statistics from the NSW Real Estate Institute show rental vacancies in Sydney increased by just 0.1 percent in the month with a dire outlook.

Credit reporting agency Moody’s has found that of the 20 highest mortgage default areas in Australia 12 are in New South Wales. The number of mortgage defaults in the first three months of the year were at record highs.

REINSW President Steve Martin commented:

“The rental market is already under immense pressure and the added impact of people defaulting on mortgages and becoming renters will only inflame an already critical situation.”

Inner suburbs of Sydney fared worse than others with a 0.2 percent drop in rental vacancies to 1.2 percent. Middle Sydney rental vacancies rose 0.2 percent to 1.3 percent, while outer Sydney vacancies rose 0.1 percent to 1.0 percent.

Rental vacancies in Newcastle have fallen for a second month in a row down another 0.3 percent to 1.5 percent – this figure now being less than half of the available vacancies in May.

The Central Coast showed an improvement, with an increase of 1.4 percent to 3.2 percent. Wollongong also had a slight increase, up 1 percent to 2.3 percent.

“The NSW government’s staunch refusal to acknowledge this growing crisis is going to lead to thousands of people suffering housing stress. Unless matters such as land tax and stamp duty are addressed immediately the consequences could be dire.

“The downward trend of these figures is set to continue if the state government insists on sticking its head in the sand on the issue of rental vacancies,” said Mr Martin.

“In 2008, the main challenges facing the real estate market will be low home loan affordability, the possibility of more interest rate rises, the ongoing fallout from the US sub-prime problems, and an extremely tight rental market driving rents up,” he said.

During 2007 the real estate market was split between established home owners, who enjoyed a “vintage” year, and new entrants who experienced a “less fortunate” time.

The institute’s outlook for 2008 suggests house prices will continue to rise in all states except New South Wales, where the market is more subdued, and Western Australia, where activity has settled.

The Australian average median house price was $442,758 in the September quarter 2007, the REIA said.

Sydney had the highest median price at $538,400 followed by Perth ($455,000), Melbourne ($431,000), Canberra ($425,000), Darwin ($400,000), Brisbane ($383,500), Adelaide ($320,00) and Hobart ($317,00).

“Well-located property, close to employment opportunities and infrastructure will continue to perform well,” the outlook says.

“The upward movement in prices for other dwellings suggests that many home buyers are considering medium and higher density housing as more affordable options in a market where affordability is very low. It is likely that this sector will experience ongoing price growth during 2008.”

The institute says price rises are being driven by population growth, demand for newer and more environmentally-sustainable housing in areas close to employment and essential services, and a shortfall in the supply of new dwellings.

The transfer of infrastructure costs into the pricing of new homes was also pushing up prices of established homes and dwelling approvals were not keeping pace with the demand for additional housing stock.

“The prospect of higher interest rates will potentially see this continue into 2008 with an accompanying tightening of sales volume, as people become more resistant to selling,” the REIA said.

First home buyer numbers have fallen below the long-term average and the institute says the outlook does not look positive.

This compares with a 20-year average of 3.6 percent. The industry benchmarks anything below a 3.0 percent vacancy rate as indicative of an undersupply of rental accommodation.

Australian Bureau of Statistics data show that all States and Territories experienced population growth over the 12 months to June 2007, ranging from 0.7 percent in Tasmania to 2.3 percent in Western Australia.

‘This has contributed in part to the shortage of housing stock, with the construction of new dwellings lagging well behind demand,’ says Noel Dyett, REIA President.

‘Investors are also behaving cautiously in an environment of interest rate rises, with potential for more to come.

‘As a result of very tight vacancy rates, over the past year, rents have increased significantly right across Australia,’ says Noel Dyett.

Darwin is now the most expensive rental location, with a 34.4 percent annual increase in the median rent for a three bedroom house to $440 per week and a 51.1 percent annual increase in the median rent for two bedroom other dwellings to $340 per week. Sydney and Canberra renters also pay $340 median weekly rent for two bedroom other dwellings.

The cheapest rental location is Adelaide at $255 per week for a three bedroom house, and $205 per week for a two bedroom other dwelling, although this represented annual growth of 8.5 percent and 7.9 percent respectively.

‘Increasing house prices and declining home loan affordability are keeping more people in the rental market, with the short-term outlook difficult for lower income earners in particular,’ says Noel Dyett.

‘Over the medium term, there should be an improvement in vacancy rates, and a slowdown in rent increases, as improved yields make it more attractive for investors to place their funds in the property market.

‘There were double digit annual returns on three bedroom investment houses in Melbourne, Brisbane, Adelaide, Canberra and Hobart in the year to September 2007. Returns on two bedroom other dwellings were even better with only Sydney investment properties returning less than 10 percent.

Three Bedroom Median Weekly Rents for September Quarter 2007:

• Darwin $440
• Canberra $350
• Brisbane $300
• Perth $300
• Sydney $295
• Hobart $270
• Melbourne $260
• Adelaide $255