OPINION: As the year is quickly coming to an end, by the time I write next month’s newsletter most of you will be so engrossed in the festive season there will probably be a low interest in the housing market and its performance, and the real estate selling season in city areas will have all but closed down.
However, holiday resorts around the country will be gearing up for potentially the best part of their selling year. If you are going on holidays to one of the idyllic locations and looking to buy a holiday home, take care and look but avoid buying during the holiday season. If you are set on a property in one of these fantastic locations, come back and do the deal once you have had time to research and think clearly about it. Outside holiday periods, these areas can perform very different and so often present better buying opportunities.
It has been a better year for most Australians as far as the housing market is concerned. The standout capital city performer was Perth, which achieved growth to October 2012 of some 12% better in the detached housing market and 20% better in the unit market when compared to this time last year. Darwin was the next best performer providing an improvement of 7% in the detached housing market and 17% in the unit market.
Overall, Australian detached dwellings provided an improved result of around 3% while the improvement in unit market was in the order of 3.7%.
Consumer sentiment is improving. The Westpac Melbourne Institute Index of Consumer Sentiment posted a rise of 5.2% from October in November, finally bringing it above the 100 point mark to 104.3. At last it seems RBA interest rate reductions may be having an impact. However, I suspect that the reduced negative press about the problems in Europe may also be playing an important role. I also have a suspicion that the number could have been even better if the coverage of the potential that the mining boom is coming to an end had not been so prominent in the media.
Table 1 presents the outcome for major housing markets to 31 October 2012.
The table presents a number of good news stories in addition to the better capital growth outcome for the year: sales activity has improved in most capital cities – only Hobart and Adelaide have seen sales reductions on a full year basis, and most importantly, there have been some significant increases in rentals. This indicates that stock overhangs are being diminished and better outcomes should be achieved in the year ahead.
The outcome and the trends in the data are confirming the predictions Residex has made over the last few years. 2013-14 should see increases in both rental and capital growth that is higher than what has been seen in a number of years. However, by about 2015 Residex anticipates that the market will again retreat. Markets like Brisbane, Perth and Darwin are likely to see a continuation of stronger rates of capital growth; however, these areas could see growth that causes corrections of larger magnitudes than other markets in the longer term, as Residex expects the RBA to make further interest rate reductions in an attempt to stimulate non-mining areas of the economy. This will be a function of relative affordability and stock shortages. Less affordable markets are unlikely to see the same level of exuberance following rate reductions simply because even with rate reductions housing will remain relatively unaffordable.
Brisbane has seen a relatively long period of correction and is now clearly indicating that the correction period has passed (see Graph 1).
Graph 1
Residex predicts that suburbs in this market will see some of the best growth outcomes for Australia in the next couple of years. However, remember that property investing needs to be for the longer term given government taxes etc. As a consequence, if you do decide to invest in a market like Brisbane, select properties away from the “mortgage belt” because it is these properties that will potentially suffer the most in the event that the economy is particularly poor following the mining boom period.
For those of you who are currently buying or considering investing, the Christmas period often presents bargains. Properties remaining on the market during the Christmas period will be owned by vendors particularly keen to sell; or to put it another way “must sell vendors”.
Finally, Residex Prediction Reports for the quarter have just been released. As always, Residex predictions are non subjective and if you are an investor, these Reports will prove invaluable. These Reports, coupled with a little reading and research, will help you find that special investment property.
Recently, review was done on Residex algorithms used to develop predictions to take into account the very unusual circumstances the world economy finds itself in. Back testing of prediction results was conducted to see how they performed in the recent past, and it was found that they are better and producing quite reasonable results in the current environment. In essence, Residex models now have a higher weighting or regard to the recent past than the longer term past.
I wish you well and success in your investing process and importantly for the sake of the economy. Happy Christmas retail therapy!
By John Edwards, CEO and founder of Residex Pty Limited.*
http://www.residex.com.au/top-100-predictions-report
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