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Residential markets across Australia weakened considerably through 2008. However, substantial reductions in interest rates and the expansion of first home buyer incentives appear to have halted the decline in early 2009. Together with rising rents and yields, the improved affordability is having a positive influence on price, particularly at the more affordable end of the market. Nevertheless, the economic environment has continued to deteriorate and unemployment is rising. How will all these factors play out in the short term, and what does this mean for the price outlook over the next three years?

How well will the residential market hold up in the face of a deteriorating economic outlook and sentiment?

• How will underlying demand be influenced by the prospect of weaker economic growth?
• What is the potential for further declines in interest rates, and how will this impact on affordability?
• How will the tight rental markets influence rents, yields, and subsequently  inventor demand?
• After weakening in the second half of 2008, are prices likely to decline further, possibly leading to negative equity for home owners?
• Will lower interest rates and rising rents put a floor under prices?
• Do any regions offer more positive prospects for capital growth than others?

Kellie Osta

PH: +61 2 9959 5924