After two years of price declines, fundamentals are beginning to favour an improvement in residential market conditions, according to a leading report. 

BIS Shrapnel’s Residential Property Prospects 2012 to 2015 said that these improvements will not be uniform across states, with NSW and resource-rich WA, Qld, and Northern Territory beginning to show signs of recovery. Conditions in the remaining states will continue to be dampened by underperforming economies and excess supply, the report said. 

Things look particularly rosy for investors in NSW, which the report said has a substantial dwelling deficiency already in place. In resource states, a rising dwelling deficiency is expected to be exacerbated by weak dwelling commencements in recent years and accelerating population growth. 

The strong position that these markets are expected to be in will be helped by cuts to interest rates, which have seen affordability in their capital cities improve to their best levels since the first half of the decade. 

Despite these indicators, BIS Shrapnel senior manager Angie Zigomanis said purchasers in the main centres of these states will remain shy through to the end of 2012 on concerns over the global economy. 

“The recovery is expected to eventually gain traction through 2013 as continued growth in resource investment spending eventually flows through to other sectors of the economy,” said Zigomanis. 

He added that some stability would return to markets as the local economic and employment outlook became more positive. “With improvement overseas, purchasers are forecast to wade back into the market in greater numbers, translating to greater sales volumes and a pickup in price growth over 2013/14 and into 2014/15,” he said. 

In contrast, tough conditions in non-resource states, namely Victoria, SA, Tasmania and the ACT are forecast to continue. “Economically, these states are underperforming due to a fall off in construction and a negative impact to industry from the high Australian dollar,” Zigomanis said. 

He added that without any supply pressures, median house prices in Melbourne, Adelaide, Hobart and Canberra are likely to show little change and decline in real terms over the next three years.