The final piece to the property puzzle has fallen into place.

For much of last year the Australian housing markets were a “tug-of-war” with low interest rates pulling hard on one end of the rope and poor consumer confidence at the other.

Well… no one rang the bell, but our property markets did bottom in the middle of last year and consumer confidence is slowly returning.

In a moment I’m going to share 9 reasons why I feel our property markets are going to perform well this year, but let’s first look at…

Consumer Confidence
Last week the Westpac/Melbourne Institute index of consumer confidence rose to its highest level in over 2 years. Consumer confidence rose sharply in NSW and Western Australia and recorded healthy gains in Victoria and Queensland.

The index is up 7.2 per cent over the year to February and this is the first big jump in confidence since the RBA commenced its rate cutting cycle which dropped their interest rate by 1.75%.

Now don’t get me wrong… this is good news for our housing markets, but confidence isn’t at the level it was in previous rate cutting cycles and this points to more subdued property price growth than might be expected given the current level of interest rates.

consumer sentimentSource: Westpac

What does all this mean?
Over the last few years global as well as local economic uncertainty caused Australians to stash their cash. Some saved their pennies, many reduced their credit card debt and others took advantage of low interest rates to pay off the principal in their home mortgage.

But things are changing and the average Australian is now feeling more confident about their future and their job security. There has also been a strong wealth effect for households from rising stock prices on the ASX.

If history repeats itself increasing confidence, low interest rates and robust financial  positions will encourage many Australians to ramp up their borrowings again and get into the property market.

The following chart from economist Leith Van Onselen of Macrobusiness plots the annual change in house prices (as measured by the ABS) against the annual change in the Consumer Sentiment Index on a quarterly basis up to December 2012 and shows how rising consumer sentiment is a bullish indicator for Australian house prices.

real house prices

What are the implications for interest rates?
It’s likely we’ll see the increase in confidence feed through to the broader economy, as well as stimulating further rises in our share markets and house prices.

In today’s connected society, as confidence rises there will be a new group of investors who will fear missing out and this will stimulate the investment cycle to once again move forward.

This suggests that the Reserve Bank won’t make changes to interest rates any time soon, preferring to see how the economy responds to the rate cuts it has already made.

9 more reasons I’m confident our property markets will perform well this year:
I’m confident about our property markets in 2013, not only because consumer confidence is rising but….

1.    Last week NAB confirmed that business confidence is also rising.
This is good for our economy and for job prospects.

2.    The Australian share market has performed remarkably well over the last year enhancing people’s wealth, replenishing their super funds and instilling confidence in investors.

3.    The world’s economic problems seem to be diminishing.
China’s growth seems to be back on track with predictions of 8% growth this year.

The USA is slowly working it’s way through its economic problems, and while Europe is still a basket case, no one seems to be worried that it will bring down the world banking system like they were last year.

4.    We have record low interest rates.
This means existing home owners and investors are benefiting and paying down their debt faster; while new borrowers will reap the benefits of being able to borrow more.

5.    Household budgets are in good shape.
Since the GFC Australians have been saving more. Credit card debt is low and 68% of people are ahead on their mortgage payments.  Our robust household balance sheets means we have more money to invest and as people hear more good news stories in the media they’ll start to put their money into property.

6.    Low interest rates and less volatility in our economy make cash and interest bearing deposits unattractive investments.
While some investors will look at getting into the share market, many won’t forget how the volatility of equities burned them a few years ago and will look to the security of bricks and mortar.

7.    After the turmoil following the GFC more Baby Boomers are keen to control  their own destiny by managing their own Self-managed Super Funds (SMSF). Rivers of cash from SMSF’s are going to be flooding the real estate markets over the next few years.

8.    Increasing immigration and a shortage of properties in some inner and middle ring suburbs of our capital cities will see rents continue to increase.  On the one hand this will provide investors with better yields, but on the other it will encourage a new group of first home buyers to get a foot on the property ladder.

9.    Recently economist Christopher Joye used the following graph in the Australian Financial Review to confirm that despite what some of the overseas reports are suggesting Australian houses are more affordable than they have been for over a decade:

mortage repayments

In Summary:
The property markets have bottomed, consumer confidence is returning and the property cycle is moving on.

Already we’re seeing more people attending open for inspections and making offers on good properties and auction clearance rates for the first few weekends of this year have been strong.

The beginning of a new property cycle is a great opportunity for investors to ride the next property wave and doesn’t come around that often. 2013 will be a good year for property but in the short term there will be some challenges and some great opportunities so it is critical to learn from experienced and successful property investors, from someone who has already achieved what you want to achieve and has retained their wealth in the long term.

And that’s precisely what you’ll get at our upcoming Property & Economic Market Update 1 day trainings I will be holding around Australia next month.

I won’t be conducting similar seminars until well into the second half of the year, so please click here now and get the full details and reserve your place. I’ll be joined by various experts in the different states including: economic and finance specialist Rolf Schaefer, property analyst Michael Matusik and accountant Ken Raiss, as well as local experts.

We plan to give you straight forward, no nonsense, practical steps and honest answers to improve your property performance this year and into the future. To reserve your place or to find out more, simply click here now and I’ll give you my personal guarantee your time will be well spent. 

I’m looking forward to seeing you on the day.

[post_ender]



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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'The final piece to the property puzzle has fallen into place.' have 7 comments

  1. February 22, 2013 @ 7:55 am Hillary H

    Thanks Michael – this is a good summary of the various factors affecting property today.
    It will be interesting to see what all those who predicted our property markets would crash are going to say now

    Reply

    • February 22, 2013 @ 8:16 am Michael Yardney

      Thanks Hilary
      Yes the dire predictions did not occur – they never do.
      I’ve found the extremists at both ends are usually wrong. We’re not going to have a property crash nor a property boom any time soon, but we’ll have a segmented market . Some areas will do well. Others still have some troubles ahead

      Reply

  2. February 22, 2013 @ 7:01 pm Roy

    Like Michael I have been in property as a landlord, investor, developer for about 35 years.
    The current market, future market will be “same,same, but different”.
    I never loose sleep over my properties, wish I could say same about my shares.

    RG

    Reply

    • February 22, 2013 @ 10:04 pm Michael Yardney

      Thanks for the comment Roy.The longer you’ve been in property, the more comfortable you become with the cycles

      Reply

  3. February 26, 2013 @ 1:01 am Stuart

    Michael, what ‘s your thoughts on when the next boom will be? We haven’t had one since 2002-2004 and are “overdue” right?

    Reply

    • February 26, 2013 @ 7:07 am Michael Yardney

      Stuart
      No big “boom” ahead for a few years, but we’ve had a few since 2003.
      Melbourne property values doubled since then – it had a significant boom in 2006-7 and again in 2009-10.
      Perth property values boomed in 2006-2008 and so did Brisbane properties

      Reply

  4. March 7, 2013 @ 12:32 am Claude

    After checking out a number of the articles on your website, I really appreciate your way of blogging.
    I saved it to my bookmark website list and will be checking back soon.
    Take a look at my web site as well and tell me your opinion.

    Reply


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