As the year gets going we can expect different predictions from various commentators about the prospects of the residential property markets. Usually, real estate agents claim that there’s a buzz in the auctions and the buyers are back, while economists claim that Australian property is still over-valued.
What is actually happening with residential property?
In the past five years the prices paid for Australian property have looked like a sideways ‘S’ snaking along the graph. According to RP Data-Rismark research released two weeks ago, property peaked in May 2007 when it was growing at 4.0 per cent per year, but by early 2008, property value growth had hit zero and was heading south to -1. and -1.5 per cent, where it stayed in negative territory for a year.
Prices recovered in 2009, and from mid-09 to mid-2010 prices growth was almost back to where it had been in May 07; not quite 4.0 per cent but over 3.5.
However, since the end of ’09, Australian property has dipped and in the year to November 2011, prices were negative again.
It hasn’t been a happy or predictable time but I believe 2012 will see a comeback from property.
One reason for this is that the RP Data-Rismark release showed a sign of recovery in residential property during November 2011. Capital city sales posted a gain of 0.1 per cent and regional/non-capital city sales rose by 0.3 per cent.
The gains might be small, but they are the first rises in a year and it’s a good sign that property is heading in the right direction.
Secondly, interest rates were cut twice in two months at the end of 2011, bringing the official cash rate to 4.25 per cent. This means that those 90 per cent of Australian home borrowers who use a variable rate mortgage should be paying between 6.5 and 7.5 per cent for their mortgages.
It’s not cheap, as such, but it’s a comfort zone for most borrowers.
Thirdly, property has a market value where the price is set by buyers and sellers. Currently, buyers are in control, either saving their cash, shying from debt, waiting for a cheaper market or making offers lower than the seller wants.
But these situations are dynamic and when the dust settles from the holidays there could be sufficient people wanting to take advantage of two interest rate cuts, to kick start the auctions.
Moreover, property is an asset measured in 10-year cycles and there has not been a decade since the end of World War II where property values have not risen. Modest asset growth will return when you measure it decade by decade – we just won’t see the asset inflation we saw in the 2000s.
I’ve always told people who seek my advice that the worst thing you can do is delay buying property, or stay out of it too long. It will rise in value over a decade, even if it doesn’t rise one year from now.
As long as you don’t over pay for property, it’s a safe, steady investment that you can live in and use to provide security for your family.
Property prices turned upwards in November 2011, so now could be a good time to be in market. Even if you can’t afford to buy where you want to live, you can buy an investment property and continue to rent in the suburb of your choice.
This newspaper recently reported the top performing suburbs for houses under $500,000 which were Pitt town, Warwick Farm, South Granville, Canley Vale, Oxley Park and Hoxton Park, so take a look and see what’s out there. There’s also the opportunity, if you’re handy, to buy a place that needs work, and get into the market in that way.
Some people go shares with a friend, or with a parent, so there’s a lot of different ways to take that first step. The important thing with property: don’t over pay; make sure you can service the loan repayments; and buy on the basics of schools, hospitals, public transport routes, recreation grounds and parks. These are the things that will keep an area’s value for the long term.
There are no guarantees, but if you buy on the basics, don’t overpay and only commit to what you can afford, property is usually a good bet.
(from The Daily Telegraph)