House prices dropped slightly in the September quarter of this year, but are still higher than they were a year ago, according to the latest figures from the Australian Bureau of Statistics.
Preliminary estimates show the price index for established houses for the weighted average of the eight capital cities decreased 1.8 per cent in the September quarter 2008.
The capital city indexes fell this quarter in Brisbane (down 3.3 per cent), Canberra (down 2.5 per cent), Melbourne (-1.9 per cent), Sydney (-1.8 per cent), Perth (-1.1 per cent) and Adelaide (-0.1 per cent) and rose in Hobart (up 0.7 per cent) and Darwin (up 0.1 per cent).
Over the year to September quarter 2008, preliminary estimates show that the price index for established houses for the weighted average of the eight capital cities rose 2.8 per cent.
Annually, house prices rose in Adelaide (up by 9.7 per cent), Melbourne (up 8.1 per cent), Darwin (+6.4%), Brisbane (+5.6 per cent) and Hobart (+2.4 per cent), showed no change in Canberra and fell in Perth (down 4.1 per cent) and Sydney (down 0.4 per cent).
Economic forecaster and industry analyst, BIS Shrapnel said this week that despite the current global situation, residential property prices in Australia will rise over the course of 2009.
BIS Shrapnel's Managing Director Robert Mellor said that it is not likely that the recent weakness represents the beginning of a sustained decline in prices, of the type that is underway in the US and the UK.
"In the US, there is clearly an oversupply of housing and, combined with much tighter lending conditions, there have been sizeable falls in property prices."
BIS Shrapnel notes that difficult credit market conditions flowing from the US have affected other countries, albeit in different ways.
The UK mortgage market had sourced 70 per cent of its finance from international funding sources, meaning when the cost of debt rose during 2007 and 2008, there were far greater restrictions placed on loans, particularly in relation to loan-to-valuation ratios.
"While UK housing interest rates have declined in 2008 to date, demand was constrained and house prices have continued to weaken this year," explains Mellor.
Australia's mortgage market is less dependent on international funding sources and availability of finance is solid, in contrast to the UK.
"In Australia, there is a clear undersupply of housing and an environment of housing shortages provides fertile ground for interest rate cuts," says Mellor.
"Recent Government policy moves, like the boost to the First Home Owners Grant, are likely to be successful because of the current housing shortages."
BIS Shrapnel believes the global credit crunch will actually support Australian residential property prices in 2009, as financing constraints are reducing the pipeline of new rental developments.
In addition, BIS Shrapnel predicts a return of investors to the market by the latter part of 2009, which will also help to support modest price growth.
Overall, residential property prices are expected to gradually recover in 2009, with growth of between zero and three per cent across the capital cities of Australia as the market strengthens in the second half of calendar year 2009.