Imagine, for a moment, that it is 12 months from today. How will our property markets have fared in 2010?
It know it’s customary to give a forecast at this time of year, but if there is one thing that we have learnt from the Global Financial Crisis, it is that economists and analysts are terrible at forecasting the future – they didn’t see the calamity coming nor the quick recovery that followed. Many economists predicted the Australian property markets would fall in a heap, but they were wrong, as the overall property market grew strongly last year.
I was one of the few who went on the public record this time last year as saying that our residential property markets wouldn’t collapse and I’m going to stick my neck out and make some predictions for the coming year.
But before I do lets have a look at the results for 2009…
| HOUSES | |||
| Area | Median value | Growth | Growth |
| Dec 08 to Dec 09 | 10 year average | ||
| ACT | $493,500 | 8.15% | 10.69% |
| Melbourne | $543,500 | 14.25% | 10.23% |
| Brisbane | $471,500 | 5.31% | 11.98% |
| Sydney | $632,000 | 12.82% | 6.79% |
| Perth | $485,500 | 0.80% | 11.98% |
| Hobart | $369,000 | 5.22% | 12.34% |
| Darwin | $505,500 | 14.92% | 11.39% |
| Adelaide | $396,000 | 7.14% | 10.41% |
| UNITS | |||
| Area | Median Value | Growth | Growth |
| Dec 08 to Dec 09 | 10 year average | ||
| ACT | $393,000 | 5.92% | 11.15% |
| Melbourne | $411,500 | 12.28% | 9.81% |
| Brisbane | $362,500 | 4.70% | 10.58% |
| Sydney | $436,500 | 10.41% | 6.06% |
| Perth | $392,500 | 4.02% | 11.33% |
| Hobart | $273,500 | 7.22% | 11.88% |
| Darwin | $393,000 | 17.61% | 10.82% |
| Adelaide | $307,500 | 6.94% | 11.67% |
Source: Residex.com.au
What these figure show is that the only capital city that has not clearly moved into a period of strong capital growth is Perth.
When we examine the figures more closely and look for the underlying trends, Melbourne shows an outstanding 12% capital growth rate in the last six months. Sydney comes second with 10.2% growth over the last six months, followed by Darwin with 8.5% growth in the same period.
Interestingly, the Metropole Buyers Agency team, who are in the market all day looking for properties for clients, describe the feeling on the ground as “like being in the middle of a property boom.” And if you take the last six months growth on an annualised basis you can understand why as it gives Melbourne a capital growth rate in the order of 25% and Sydney over 21% growth.
Let’s look at the year ahead.
Can this type of growth continue?
The simple answer is NO – not in the long term!
This type of growth is double the average long-term trend growth and unsustainable. It occurred because last year our property markets were driven by increasing consumer confidence, low interest rates pent up demand and a lack of supply of certain sorts of property.
Can this type of growth continue in the short term?
Yes it can – as there is no obvious end to the same fundamentals that underpinned our markets last year, at least not for the first half of this year.
However, as property values keep rising and interest rates increase, affordability is going to again become an issue for owner-occupiers and investors, which should lead to a slowing in the rate of growth in the second half of 2010. At the same time as more potential home buyers remain in the already overcrowded rental market there should be a gradual increase in rental yields
So what does all this mean?
We will end up with a three-tier market as affordability and interest rate increases affect some Australians more than others.
It is likely that first home owners and those living in the working class and outer suburbs are likely to be affected more. On the other hand, those who own properties in the more affluent suburbs of our capital cities, which will have exhibited strong capital growth, will be sitting on a heap of equity and won’t really be worried about affordability.
These inner and middle ring suburbs are likely to keep performing well again in 2010. The more affluent suburbs near the city and the water will become even more expensive and strongly outperform the averages, as owner-occupiers and astute investors chase the small numbers of properties coming onto the market in these locations.
As more and more home buyers and investors find they are priced out of the inner ring they will start looking for affordable properties in neighbouring middle ring suburbs. These will also increase in value, but maybe not to the same extent as the inner ring suburbs.
However, the outer suburbs are usually where home owners are more interest rate sensitive, with many currently struggling to meet their mortgage payments. With the likelihood of further interest rate rises in 2010, property values in these suburbs are likely to languish.
If you agree with what I’ve said so far, this means that 2010 will be a great year for property owners and an excellent year for property investors to get in at the beginning of the next property cycle and ride the next property wave.
As a way of saying thank you for reading my blog, and to pass on some ideas of how you can take advantage of the upcoming property markets in 2010, I’d like to give you a gift of learning: an eBook, The Science of Getting Rich, plus two tele-seminar downloads, including the Great Property Debate where six Australian property experts give their forecasts for 2010. Just click here to receive my gift to you.
Michael Yardney is the director of Metropole Property Investment 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. Look out for the newly updated 3rd edition of his best selling book How to Grow a Multi-Million Dollar Property Portfolio – in your spare time.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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