House prices to rise in 2012 - maybe

14/12/2011

SQM Research managing director Louis Christopher has predicted house prices will return to growth in 2012. While he conceded this was a "relatively bullish scenario", Christopher said it was a scenario that depended largely on what happens in Europe. "Yes, Europe is the key. The risk is clear and present," Christopher said.

Large scale banking defaults in the Eurozone would likely cause a major credit squeeze in Australia, in turn causing the banks to "ration housing credit" and reduce LVRs, Christopher claimed.

"Of course, if the squeeze is large enough, banks could come up with additional ways to reduce their balance sheets. At its worst this literally could include calling loans simply because the loan-to-value ratios have risen too high due to drops in property prices," he said.

Christopher still contended that Australian home values were set to increase in 2012 in a lower interest rate environment, but gave the caveat that this was contingent upon Europe "muddling through" without a default.

Source: Australian Broker News