At the beginning of a New Year it’s customary for property commentators to give forecasts for what’s ahead.
Today I’m going to share 10 reasons why I’m feeling positive about 2014, but first let me give you my obligatory forecast, which is…
Most forecasters will be wrong this year.
Why do I say this?
You just have to remember all the things we worried about last year that didn’t happen:
- This time last year many were worried the US would “ fall off the fiscal cliff.” Well the US didn’t default on its debts – on the contrary it’s economy powered ahead;
- The European banking system didn’t collapse like some said it would;
- China did not hard land despite reports of “ghost cities” and claims of massive debt;
- Australia did not fall into a recession despite the mining slowdown. And…
- Those who predicted our property markets would crash were wrong.
So what did happen over the last year?
- We endured what must have been one of the longest election campaigns in history and were “led” by 3 prime minsters;
- Our economy continued to grow, albeit a little more slowly than many predicted, at around 2.3% over the year;
- Inflation remained low and the Reserve Bank cut the official cash rate twice to a historic low of 2.5%; And…
- Property values rose 9.8% in our capital cities and much more than this in selected areas of Sydney.
Now here are 10 reasons for optimism for 2014 and beyond, especially for our property markets.
1. The world’s large economies are having a synchronized recovery.
While the world’s problems haven’t gone away, many of the fears that plagued us over the last few years are now subsiding and with the world’s economy beginning the year on its best footing since the Global Financial Crisis, we can expect general world economic activity to accelerate in 2014.
2. Australia’s economy is also in good shape
Sure there are stumbling blocks ahead and unemployment is likely to rise a little over the year, but as our mining boom moves from the construction into the production phase, our exports will increase offsetting the fall in mining investment.
This is of course being helped by the lower Australian dollar, which in part caused the commodity prices index to increase by some 11.7% in the past year.
3. Our population is growing strongly.
Last year our population grew by close to 400,000 people or 1.8% and this will underpin household formation and the demand for residential property.
More importantly our immigration program is augmenting the number of Gen Y’s. The growth in 30-somethings will rise from 10,000 a year across the past decade to more like 100,000 in the future. This demographic will boost our economy by working hard, paying taxes, forming households and buying properties.
4. Australia’s inflation rate is low.
Our low inflation rate gives the Reserve Bank room to keep interest rates low or contemplate reducing them further if unemployment ticks up too high.
5. Interest Rates are low and likely to remain so for a while
Low interest rates encourage home buyers and investors into the property market while at the same time allowing current homeowners to pay off their mortgages quicker.
6. Household finances are in sound shape.
Average household wealth rose to a record $872,000 driven by surging house prices, rising equity markets (the S&P/ASX 200 rose 15.1 per cent in 2013), superannuation funds recording their strongest performance for at least 13 years and an entrenched savings culture.
According to Credit Suisse’s annual global wealth report once again we’re the wealthiest nation in the world with highest median wealth in the world and a very low percentage of poor people.
Now with the media full of good news property stories it’s likely that their robust balance sheets will allow many Australians to ramp up borrowings and get into the property market.
7. Housing Affordability is high
I know the media is full of stories telling us housing is so unaffordable that first home buyers are being priced out of the market, but the HIA – Commonwealth Housing Affordability Index suggests differently with affordability continuing to improve over the year due to lower interest rates and rising wages.
8. Last year the Australian stock market recorded its biggest gains since 2009.
Typically as the stock market starts and picks up in response to improving business performance, the prestige end of the property market starts to take off. Clearly the big money seems to think our future looks rosy as high-end properties, especially in Sydney and Melbourne, are selling well again.
9. Our real estate markets still have a lot of life left in them
Having bottomed in the middle of 2012 our property markets have now clawed back most of their losses of the previous 18 months.
However, despite the concerns of some “property pessimists”, we’re not in a property bubble – there’s plenty of life left in our markets which are now just entering their expansionary phase.
Of course there is not one property market and some areas will still languish, but a mixture of low interest rates, strong population growth, job stability, affordability and increasing confidence will make more people get involved in property this year.
Some will just renovate or improve their homes. Others will take the next step and upgrade to new or bigger homes. And more first home buyers will get a foot on the property ladder as they realise prices are not ever going to get any cheaper
And investors looking to get set for the next stage of the property cycle will take advantage of the opportunities the property market is offering them.
10. It’s much more fun being positive than negative
Last year while the optimists and pessimists argued whether the glass was half full or empty, the opportunist drank it! Those who bought the right properties when I made similar forecasts this time last year are now looking back feeling pleased with themselves.
One last forecast for the year…
While Australian investors have a lot to be optimistic about in 2014, the property pessimists will be out there again and no doubt pick more holes in my arguments than in a block of Swiss cheese.
I know some will say “this time it’s different” but I suspect it won’t be. Those who buy well located properties in our 4 big capital cities will look back in a decade and be amazed how much those properties have increased in value.
Michael Yardney – CEO, Metropole