The latest figures from Residex show that the recent surge in house prices in all capital cities other than Perth has undone the damage to the property market wrought by the global financial crisis, and that our property markets are on the up and up.
An interesting trend is that the unit market outperformed the housing market over the last few years, and this is likely to remain a long-term trend. This is partly an issue of affordability and partly related to our changing demographics. With more single and two person households, and as our major capital cities mature, more Australians want to live in medium density housing near our major metropolises.
The question many are asking is: how did all those who predicted the collapse of property and that we sell up our properties get it so wrong?
I guess another question that could be asked is: why should we believe the current round of predictions that the property markets will remain buoyant now that interest rates are rising and affordability is becoming an issue?
Firstly let’s look at the latest figures:
I clearly remember a queue of investors coming into our offices late last year convinced that they had to sell up their property portfolios, because the bottom was about to fall out of the property markets.
The problem was that they were listening to well meaning, but inexperienced, commentators in the media, including some celebrity economists who grabbed headlines scaring us that property values would drop 30 to 40% like they did overseas.
So what happened?
A combination of historically low interest rates, tight rental markets and generous grants to first home buyers worked their magic to push home prices at the lower end of the market higher.
What the pundits who made these dire predictions got wrong was as simple as the law of supply and demand. Demand for homes is being spurred by improved affordability, the fastest population growth in 40 years and weak returns on other assets. At the same time, we are experiencing an under-supply of homes through lack of building over recent years.
Demand for homes exceeds supply and this initially put a floor under property prices and has now translated to increasing values.
Of course, some segments of the market are experiencing problems, especially holiday locations, some regional areas and in particular the upper end of the market.
Clearly the situation could have turned out much worse. Fortunately business and consumer confidence increased due to lower interest rates and the stabilisation of the stockmarket. Now with the news that Australia has avoided a recession, and the good news on property values, existing home owners will have the confidence that their largest investment has been a secure way of storing wealth while other asset classes have decreased in value considerably.
And it will give builders and developers the confidence to go out and start building the new dwellings we desperately need.
While initially the property recovery has been lead by first home buyers, we’re now seeing more established home owners and investors moving into the market.
Will property values keep increasing, especially now that interest rates are on the rise?
The simple answer is – yes they will. For an explanation of these fundamentals and to get an idea of how interest rates will affect our property market, check my blog from last week here.
Michael Yardney is the director of Metropole Property Strategists, a best selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.
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