Australian Property Market Outlook 2015
The property market is helping us to become the wealthiest population in the world
First off an interesting fact. Even when taking into account the impact of inflation, the growth in capital city residential property values has made Australia one of the wealthiest nations in the world.
A recent article in the Sydney Morning Herald supports the notion that property has made many Australians wealthy:
“Thanks to their properties, Australians are the wealthiest people in the entire world.…. Well that’s what the investment bank Credit Suisse think. The 5th yearly study conducted by the Swiss bank of global wealth trends found the median Australian adult was worth more than $US225,000 ($258,000) in June, well ahead of the second wealthiest population on this measure, the Belgians, at $US173,000.”
Which direction will the RBA go from here?
If you want to understand the RBA’s cash rate decisions, its worth keeping an eye on the Aussie dollar. The Aussie dollar dropping in value against the USD (which is happening at the moment), theoretically gives the RBA more flexibility to lift rates. A lift in inflation could potentially mean a rate rise. As it is, inflation remains low meaning variable interest rates should stay low. Some are even predicting 1 more interest rate cut this year.
Commentators are saying it will not have much effect on the property market, but they do not discuss sub-markets. As for western Sydney as a whole it will continue to grow but not as much as last year.
Why are house prices continuing to rise?
It has been long established that the cost of Australian housing has been on the rise because of a lack of supply. Strong population growth has further added to the damaging impact of this supply shortfall. Basically the demand for housing is exceeding the rate of supply. Government regulatory demands, particularly in capital cities, have gradually pushed up the price of one of our most fundamental needs, that is, shelter.
John Edwards of Residex (who measure property trends) has said: “It is this high level of un-affordability that probably leads many to think we are in a “housing bubble”. However I don’t think so, as something has shifted: The buyers in the property markets. Our measure is more than likely no longer as useful as it once was, because the buyers in this market are no longer average income families. Middle-income families residing in the average priced areas of Sydney are mostly renting.
Give it to me straight doctor.…
Well you asked for it, “It’s the government regulatory scarcity (releasing of land) that is driving Australian house prices to massive levels of unaffordability, not just SMSF and Chinese investors. Immigration into Sydney and Melbourne are at an all-time high, so cutting red tape and loosening of constraints/land is the only way to bring house prices within reach of younger people’s incomes.”
The chart below sums up the affordability situation around Australia.
When will housing price growth slow?
Housing price growth will slow from it’s dizzy growth over the past 18 months (phew!). However, Eastern States will continue to see significant growth. Brisbane 17%, Sydney 9%, Melbourne 5%, Adelaide 6% and Hobart 6%. Lagging somewhat behind will be Darwin 2%, Canberra 1% and Perth is expected to a decline of about 2% over the period.
Economic growth at the national level is expected to remain subdued. As a result, there seems to be no significant incentive for the RBA to rush and raise interest rates. Over the forecast period, interest rates are expected to rise by only 1%.
It is apparent that the number of first home buyers continues to abate (possibly not as significantly as some may believe). Currently, investors are by far the most active market segment. Although, this is expected to go on, their numbers will slowly dwindle due to rising property prices and rising interest rates impinging on returns.
About Aaron Sainsbury
With expertise spanning mortgage lending, property law, property investment and borrowing to invest within Self Managed Superannuation, Aaron Sainsbury offers more than 25 years professional advisory expertise.
He is an enthusiastic supporter of financial literacy, working closely with clients to help them gain and maintain control of their financial future.
Aaron is thoroughly committed to building lifelong relationships with clients based on the highest quality service, advice and trust.
Contact Aaron direct on 02 9818 8643 .
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