At this time of year it’s customary to look at the year that’s just passed and make some forecasts for the year ahead.
BY MICHAEL YARDNEY
Well… 2011 will be remembered as the year the property market slumped. It didn’t crash like many property pessimists predicted, but it stalled in some areas, dropped a little in others and prices fell significantly in a few spots.
Ongoing economic uncertainty, the worry of rising interest rates for much of the year, decreasing affordability and political uncertainty were a volatile mix that stalled the property markets.
To see what really happened over the past year, here are the latest figures from RP Data:
The markets are fragmented
What these figures don’t show is how fragmented the markets really are.
Did you know that the median home price in 80 per cent of Sydney suburbs has actually had capital gain of around one per cent over 2011? It’s only the most expensive suburbs in Sydney that have been the hardest hit and have suffered price declines. In these suburbs prices fell around 3.2 per cent over the year.
And the markets are similar right across Australia. The most expensive homes across the country experienced the biggest capital losses and the lowest priced homes have dropped in value by much less.
By the way, there’s nothing unusual about this – the lower end of the market has always been less volatile.
What I call ‘investment-grade properties’ – good properties in the middle price range (say $450,000 to $950,000), in prime locations and with an element of scarcity – are still selling well and holding their values, even though there’s clearly less interest from both owner-occupiers and investors than there was before.
On the other hand ‘B’ and ‘C-class’ properties aren’t selling well. Some have dropped in value by 10 per cent or more and some can’t be given away. Well, it’s not really as bad as that, but you’d have to give a very steep discount for someone to buy them in areas like the Gold Coast.
And all the key indicators suggest the slow down will continue well into the first half of 2012. The number of properties on the market is high, properties are remaining on the market for sale longer and many buyers are still nervous about making a decision.
2012 – the year ahead
I’ll cover myself with my first prediction being that most predictions will be wrong.
Just look at what happened in 2011…
For much of the year we thought interest rates were going to rise and they’ve fallen. We thought Europe would sort out its financial problems and things got worse. And many people predicted Australia’s property market would crash – and it didn’t!
Looking forward I think 2012 will be a better year for property – but not by much. 2012 will be another year of crises. But if you think about it, every year has its crises.
The European debt crisis will still dominate over the first few months of 2012. The US economic recovery is likely to slowly continue, but many of its property markets will fall further. China’s booming economy will slow a little and the Australian economy should chug along nicely as strong business investment spending will counter the lower growth in consumer spending and housing activity.
Interest rates have come down twice over the last two months and it looks like they’ll drop further in 2012. This will increase housing affordability and slowly entice buyers back into the market.
When the government tried to stimulate our property markets in previous downturns, it combined rate cuts with first homeowner grants (2001 and 2009) and this caused people to rush into the markets. I can’t see a first homeowners boost being brought back in 2012.
My observation is that the recent rate cuts have increased confidence in buyers, but many are still sitting on the sidelines waiting for something else.
Some are waiting to see how the problems in Europe play out, others are interested to see what happens in our local political scene and others want confirmation that property prices won’t fall any further. They don’t want to buy in a falling market.
In the meantime many savvy investors are back picking the eyes out of the market. I was interested to read John Gandel, one of Australia’s biggest property investors, is looking to buy again. There must be a lesson in that somewhere.
It’s likely the average homebuyer won’t need to see a lot of price growth to regain confidence; they just want to know that home values won’t fall further. Meanwhile they’re stashing their cash waiting for someone to ring the bell that the market has bottomed.
Of course no one will do that, so I like to remind buyers that they’re not buying ‘the market’ but an individual property in the market.
If they buy well and purchase a good property below it’s intrinsic value they’ll be covered even if the market drops a little further. And when they look back in a few years time they’ll be pleased they took action while others waited for the bell to ring.
Michael Yardney is the director of Metropole Property Investment Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Investment Update blog