What happened to property during 2013 and what can we expect in 2014?
The story so far…
For those of you who are new to the property markets, here’s a brief summary of what’s been happening.
The markets peaked in late 2010, but slumped in 2011. They turned around in mid-2012, and have been making up ground ever since.
So 2013 will be seen as the year investors and homebuyers hopped back into the market, encouraged by:
- historically low interest rates
- an improving economy spurred on by strong population growth (around 400,000 people)
- rising consumer confidence.
One of the main drivers of the housing market upturn has been investor demand, with:
- locals encouraged by low interest rates
- overseas investors keen to place their money in a safe haven
- Baby Boomers buying properties in their Self Managed Super Fund.
What’s interesting is that while upgraders and downsizers were buying new homes, first home buyer activity was quiet. However, the property newbies are likely to return in 2014 needing to find bigger deposits.
Is the ‘property bubble’ about to burst again?
Despite what some doomsayers believe, we’re not in a property bubble. The price rises can be explained by low interest rates, rising wages, and improved housing affordability. (When the housing market bottomed out between late 2010 and May 2012, dwelling values fell by 7.7%.)
Is housing really unaffordable?
Thanks to lower home prices, rising household incomes and lower mortgage rates, housing has actually become more affordable over the past few years. Mortgage repayments on the median-priced home have fallen from 37% of disposable household income in mid-2008 to just 24%-well below the long-run average of 29%.
Despite this, the ‘bubblers’ still suggest houses are “overvalued” because the rise in house prices over the past few decades has vastly outperformed the rise in wages.
However, ANZ Bank (as cited in this article) has a different view:
“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.”
In other words, Australian housing is currently affordable.
So what’s ahead for 2014?
Housing markets are cyclical, and right now they’re in the early stages of an upturn. And with increasing consumer confidence and low interest rates (though they may increase late in the year), the upturn seems set to continue throughout 2014 and 2015.
The upshot of that is, if you’re thinking of buying, do so sooner rather than later, because prices are going to increase. But make sure you run your numbers–objectively–first. We can help with that process.
We’ll be hosting a Property Investment Seminar in February (we’ll announce the date soon), so be sure to come along and see what opportunities the property markets have to offer.
Register your interest in the workshop now to sonja@wiseaccountants.com.au and we’ll send you all the details.