What’s ahead for property in 2014?

We’re coming to the tail end of the year so it’s traditionally time to look at what’s happened to property over 2013 and speculate what’s likely to occur in the year ahead.

And boy are there already some bullish predictions for 2014.

Recently respected property researcher Louis Christopher from SQM Research received a lot of publicity when he predicted the Australian property markets are likely to have capital growth in the order of 7% next year, and Sydney will stand out with 15% – 20% capital growth.

Research house BIS Schrapnel came out with similar predictions and last week ANZ Bank forecast more modest growth expecting our markets to deliver a“15-20% lift in home prices over the next 2½ years.”

But I’m getting ahead of myself. Let’s first look at…

The performance of our property markets over 2013

Peaking in late 2010 our property markets slumped in 2011; turned in mid 2012 and have since recovered lost ground.

2013 will be seen as the year investors and home buyers hopped back into the market encouraged by historically low interest rates, an improving economy spurred along by strong population growth (around 400,000 people) and rising consumer confidence.

1

Source: RPData

Despite a record number of properties for sale this year auction clearance rates have remained high showing the depth of the market as well as the level of home buyer and vendor confidence.

Similarly those properties offered for private sale are selling quickly with vendors not needing to discount their asking prices as much as they did last year.

Currently investor demand has been one of the main drivers of the housing market upturn coming from locals encouraged by low interest rates, overseas investors keen to place their money in a safe haven and Baby Boomers buying properties in their Self Managed Superannuation Funds.

While upgraders and downsizers are buying new homes, interestingly first homebuyer activity has been quiet so far this cycle, but the property newbies are likely to return next year with the need to find bigger deposits.

2

Source: ANZ Bank

But the property bubble is not going to burst

However despite what some doomsayers believe, we are not in a property bubble and the rise in prices can be explained by improved housing affordability brought about by a 7.7% fall in dwelling values between late 2010 and May 2012 (when the housing market bottomed) as well as low interest rates and rising wages.

You know what…even though combined capital city home values have increased by 8.7% throughout the current growth phase, if you take into account inflation over that period, all capital city values remain below their peaks as the following graph from RPData shows.

3

But isn’t housing unaffordable?

Fact is lower home prices in recent years combined with rising household incomes and lower mortgage rates have made housing more affordable over the last few years. Mortgage repayments on the median-priced home have fallen from 37% of disposable household income in mid-2008 to just 24% at present (well below the long-run average of 29%).

Despite this bubblers continue to suggest houses are “overvalued” because the rise in house prices over the past few decades vastly outperformed the rise in wages. However ANZ Bank disagrees explaining:
“purchasing power analysis of long-run trends in house prices, household income and interest rates (ignoring other drivers of house price growth, including housing market balance and mortgage lending criteria) shows the softness in Australian house prices in recent years has driven prices well below expected house prices at current household income levels and mortgage rates. House price gains in the last year have only partially erased this housing finance gap.”

4

Source: ANZ Bank

To be fair many young families trying to get their foot in the door of the property game feel that real estate is unaffordable.

Fact is it’s always been hard to make that first property purchase and there’s good news for them in the following graph showing the percentage on an average family’s disposable income required to by a median priced property in our capital cities is well below the long term average.

5

So what’s ahead for 2014?

Our housing markets are in the early stages of a cyclical upturn which likely to continue throughout 2014 and 2015, buoyed by low interest rates (even though there may be an increase in rates late in the year) and increasing consumer confidence as the media keeps reminding us that some properties are increasing in value by $1,000 a week.

This will be supported by continued population growth that could see our numbers swell by another 500,000 people in the next 15 months at a time when supply just can’t keep up as  shown in the following graph.

6

Source: ANZ Bank

So how high will prices go?

As I don’t have a crystal ball I’ve learned not to try and predict these matters. What I do know is that the fundamentals suggest the market has some time to go before it hits its next cyclical peak. However rising unemployment and the inevitable economic hiccup could cause consumer confidence to falter a little next year and slow things down a tad.

By the way that’s not a bad thing. If property values keep rising by the equivalent of 20% a year (as has happened in Sydney and Melbourne over the last quarter) then this cycle is likely to be cut short earlier as this level of growth is unsustainable.

I also know the market will be fragmented – regional Australia is likely to underperform the capital cities, not all capital cities will grow at the same rate and within each city some properties will out perform the others. So as always careful property selection will be crucial if you’re planning to invest in property. I’ve positioned myself to take advantage of the next property wave – what are you going to do about it?

What are you going to do about this?

If you want to take advantage of the opportunities our growing property markets will offer you now is a good time to consider your options.

If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level. Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.

Just click on this link to find out more and reserve your place.

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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


'What’s ahead for property in 2014?' have 11 comments

  1. November 8, 2013 @ 7:03 am Neil Small

    Thanks for the good summary Michael.
    2013 has been a good year for me in property and I’ve enjoyed your regular commentaries, keep up the good work.
    Let’s hope 2014 is an even better year.

    Reply

    • November 8, 2013 @ 9:47 am Michael Yardney

      Thanks Neil – yes it has been a good year in property for those in the game.
      Unfortunately for those who were predicting a property price crash, they’re sitting on the sidelines and further behind
      Like you I’m looking forward to 2014

      Reply

  2. November 8, 2013 @ 10:30 am Barbara Finch

    Michael and co,
    I believe the property market will crash dramatically in 2015 / 2016.
    If I was to secure a loan at today’s rates, even fixed for 3 years, I will encounter huge increases in interest rates in the following years, as high as those in the 80’s – 18% and more.
    I believe, just like the election this property market is engineered by the banks and the government in an attempt to lift the recession. It will fail as we are battling a collapsing western world economy.
    I appreciate it is your business to encourage property purchases, but, as a professional advisor, the full story should be told to your clients so that they can prepare under your instruction.
    By holding back, I will have the opportunity to purchase at very low prices, realising very healthy profits. After all, the profit in real estate is the purchase price and time.

    Reply

    • November 8, 2013 @ 6:28 pm Michael Yardney

      Barbara
      Thanks for your comments. I realize you’re not the only one waiting for the market to crash, but sorry – that’s not going to happen. It didn’t in the 80’s – I know i was investing then, and it won’t now. I’ve given my reasons in previous blogs. I will slow down and drop a little – it always does, but there is nothing to suggest a crash.
      I’ve been writing this blog and my newsletter before for 13 years – I’ll still be here in 2015/16 so let’s see who is right

      Reply

  3. November 9, 2013 @ 12:12 pm Dean

    Michael, thanks for the great weekly updates. I sure hope that you’re right about the next cyclical peak being 2 years away. That would be perfect for me! But as Barbara illustrates, many possible futures exist. This late into a bull cycle it’s good to be reducing leverage.

    Reply

    • November 9, 2013 @ 12:26 pm Michael Yardney

      Thanks for your comments Dean
      There are some uncertainties ahead for our economy as outlined this week by the RBA’s statement, this may slow the property markets down a little which is a good thing. I think the worst than could happen is a mini boom as the faster and further the markets go up now, the longer and further the next slump phase of the cycle.

      Reply

  4. November 12, 2013 @ 11:08 pm warren king

    Hi Michael
    Was hoping to get your opinion on option contracts to buy land with settlement up to 10 years down the track at current prices with the opportunity to flip them before settlement dates?

    Reply

    • November 13, 2013 @ 12:27 pm Michael Yardney

      Warren – thanks for the question
      I know there are seminars that sell this concept, but to me it’s pure speculation, not investment. There are too many unknowns and road is littered with people who’ve lost money in these schemes

      Reply

  5. July 29, 2015 @ 1:15 pm Cat

    I would be very interested to hear your thoughts now regarding said 2016 crash – especially in regards to property. Thank you

    Reply

    • July 29, 2015 @ 4:04 pm Michael Yardney

      Cat – the world has moved on a lot since I wrote this article over 18 months ago – it was good to revisit it and see my forecasts where on the conservative side – Melbourne and Sydney performed strongly in the intervening time. I’ll give my thoughts on 2016 in a future blog real soon

      Reply


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