As we venture into the new year, the Australian property market remains the subject of much discussion with views varying markedly. We (of course) have our observations and will try and de-mystify what is going on for you.
The thing to remember is that the Australian property market is not one market. It is lots of small property markets that get affected by different geographical, demographical and economical factors.
What over arches these factors is international sentiment and the current crisis in Europe. The Europe debt crisis is the latest generation point of negative headlines for most of the world's business media. Not to be flippant about this but, if we look back, we see that so called impending world doom was also associated with the GFC, The Iraq war, September 11, the Dot Com boom, right back to the Middle East oil crisis in the early 1970s.
Not surprisingly we survived all these but at the time, they caused great concern around the world, just as Europe is now. What you need to accept is that there will always be some sort of crisis in the world and that in our increasing information age, the reporting of these will be amplified. The battle for our attention has never been greater and what holds our attention more than anything is the possibility of impending doom.
What tends to happen is that there is a period of concern as the media really hits us hard with a new crisis and then, as time goes on, most people realise that their personal situation hasn't really changed that much and actually get sick of hearing about it. In our opinion we are starting to enter that phase now with Europe.
Europe will take many years to resolve its issues. Will people put their lives on hold waiting for a resolution? Some may, most will just move on following the opportunities allowed under their personal circumstance. As we get sick of hearing about Europe and our attention wains, we will be hit with wars, earthquakes, ash clouds, floods, road tolls (everyday) and all manner of other catastrophes by the media to hold our attention. This unfortunately has become the norm in the quest to hold our attention, which is disappointing but to date effective.
Ultimately it comes to our personal circumstance as to what we do, what we buy and when we do it. When everyone is cautious, we become cautious too, when everyone is buying, we buy, it's called the herd mentality.
There are periods of consolidation in between and that is what we feel will happen in 2012 in most Australian property markets. This time last year there was still strong talk by economists of more interest rate rises, as usual most of them got it wrong and we have since had two interest rate cuts. This tangibly affects the personal circumstance of many people. Potential property buyers start to reignite their interest. Fixed interest investors look for alternatives and mortgage holders take solace from these.
Talking to agents in Melbourne, the numbers at open for inspections have increased substantially and this is usually the first sign of increased confidence. Apart from the usual people who sell or buy for their personal needs, as costs of funding reduce, first home buyers increasingly engage but particularly investors, who want to take advantage of a subdued market to buy correctly.
In the past as interest rates decline, it has usually been on the back of some economic instability. This usually causes the stock markets to become volatile, investors lose money and investment security becomes a sought after requirement. Australian bricks and mortar has an excellent track record in providing this and even if short term capital gain is not assured, it is better than losing money. The fact that they can physically touch it and have control over it is psychologically comforting and often that is enough to make it attractive.
In discretionary lifestyle property markets, the performance of any particular area will vary substantially, based on location. The example of this is that we have seen a great summer in Victoria and this has provided some excellent sentiment for buyers looking for justification to purchase.
The reverse is true the further north you head, as the east coast from Sydney up have experienced a second very wet holiday period, due to the lingering second year of the La Nina. This has been forecast since July and has come to fruition. This will effect buying of discretionary property in those areas and no doubt the media will be keen to call it a 'housing slump' but really, it is quite logical that there is less incentive to buy if the initial emotional attachment doesn't occur due to adverse weather.
Our local area has seen enquiry pick up in the past two weeks after a great summer and increased talk of interest rate cuts. The enquiry levels are highest around the median ranges and lessen as the prices get higher. This reflects who is buying.
Those with excellent job security are happy to take advantage of a flatter market (medical, legal) whereas the high level corporates who are used to receiving regular bonuses, have their eyes on Europe. They are usually our buyers over $1.5m and so it is easy to understand why this is a more difficult price range at present. Because of that, there are some excellent buying opportunities in those upper price ranges at the moment.
In summary, we believe in 2012 you will see volumes (the number of sales) increase off the historically low levels of 2011. The amount of volume will dictate price rises in any particular area, but overall it will be a year of consolidation for most areas.
Economists who are picking percentage numbers of rise and fall are completely crystal ball gazing and will probably get it wrong as usual. This is simply because it is too difficult to predict when the herd will turn. It will turn from its current over cautious stance because every asset market is cyclical.
However it will come down to the perceived reality of each person's personal circumstance. Australians remain the luckiest 22 million people in the world no matter what the news media tries to tell us – and our position in Asia and our natural resources are unique assets. The level of comfort that this provides to Australians will reveal itself over time and the performance of the Australian property markets will be the most obvious barometer.
We hope you find this Great Ocean Report informative and if we can be of any assistance in any real estate matter please do not hesitate to call on 5220 0000.
See you on the beach.
Marty Maher, Director | Great Ocean Properties
Links
- Great Ocean Properties website: www.greatoceanproperties.com.au
