Employment growth the key to safe investment

PROPERTY NEWS

With gloomy predictions continuing as to the current slowing of the Australian residential property scene, one indicator stands out for prospective yet cautious buyers keen to enter the market – employment growth.

According to the most recent Matusik Snapshot, the areas that do best in terms of new job creation usually do best in difficult economic times. This is in contrast to those areas where new work is hard to come by or where jobs are being lost.

These areas, Matusik says, are more likely to see distressed sellers and possible falls in price. The top 25 “safe” employment areas and the 25 “least desirable” locations in the country are listed in the Snapshot (www.matusik.com.au) but Brisbane readers will be interested to learn that inner Brisbane has recorded a 6.1 per cent employment growth over the last 12 months, placing it in the top 25 performance areas in Australia. The Gold and Sunshine coasts also make the list with increased employment levels.
As Matusik researchers point out, however, they do not envisage a collapse in residential demand, end prices or rents, rather that things are unlikely to miraculously improve after this weekend’s federal election.
“The best outcome for the Australian housing market in coming years is a ‘muddle-though’ scenario where overvaluation is resolved by little growth in end prices and rents, supplemented with wage growth, some fiscal support and a low interest rate environment.
The report also sounds a warning. “If interest rates rise too fast, economic growth slows and/or housing demand slumps, then we could see a sharpish drop in house prices down under."
A rise in interest rates, likely to be 0.25% by the end of the year, can have a dire effect on the property market. Matusik’s analysis of interest rate rises over the past 40 years and their effect on housing suggests that house prices drop 1.5 per cent, often within six months of the rise, and confidence falls by 2.5 per cent, again shortly after any rise.