There’s an incredible amount of concentration on the state of the world’s economic situation and what it bodes for the average mum and dad investor in Australia. However does anyone really understand all the implications of the data being reported and interpreted by journalists and economic commentators?
BY CATHERINE CASHMORE
Let me give you some idea of the range of opinions hitting the papers each week. A recent article in the UK Telegraph by Ambrose Evans-Pritchard suggested the US economy is not only rising, but “within five years or so” America will be well on the way to “self-sufficiency in fuel and energy”. The report makes plenty of other bullish assertions under the premise that the “American phoenix” is on the rise once again and indicates a return to prosperity, which would no doubt hit the real estate sector.
I love reading upbeat reports that offer a sense of certainty and future security, because the repercussions have positive effects on the investment market as a whole and give a much needed sense of hope that we can wave goodbye to the long winded economic depression shadowing the world’s major players. However, if you care to investigate a little deeper and read the US Energy Information Administration’s Annual Energy Outlook 2011, you’ll see anything but a bullish review of America’s journey to self-sufficiency, with the disclaimer American “estimates of technically recoverable resources and well productivity remain highly uncertain”. Consequently, the ‘predictions’ outlined in Pritchard’s article are a long way from being set in stone and a close read of the ‘real’ statistics in the report makes this abundantly clear.
Closer to home we can also read two sides of the coin on the property market. Commsec chief economist Craig James came to the fore recently making the call that 2012 should be a year for housing market recovery, a view widely held by others. However less bullish predictions come from SQM Research managing director Louis Christopher, who says should interest rates remain on hold, “by June 2012 home prices
in Melbourne, Brisbane and Perth will be as much as 15 per cent below their 2010 peaks”. He’s not alone in his pessimism, with others warning we’re at the start of an impending crash.
So who do you want to believe? If you have pre-conceived ideas of your own, you’ll take the side that backs your personal perspective. It’s natural to do so – it’s incredibly hard to be completely subjective about anything.
No one’s been immune from the property market malaise throughout 2011 – in fact, it’s been a very difficult atmosphere for industry professionals to muddle through. Turnover is down, with buyers sitting on the sidelines, and sellers have needed to ‘meet the market’ and make some hard decisions. However, I have only one outlook for the next year – and the subsequent 10 years following – providing we don’t have a catastrophe of monumental proportions (I’m talking earthquakes and tsunamis), the only way for property to go in 2012 and beyond is up.
Our property market is based on a simple formula – supply versus demand. Australia is a mere teenager compared to Europe and we’re growing at a dramatic, unstoppable pace. Much of this growth comes from Australia’s immigration program aimed at attracting people of working age with the needed skills to benefit our economy. The simple equation is: the bigger the population, the bigger the economy. Whether this has a major effect on our wealth as individuals is arguable, but what can’t be denied is the overall effect the population boom will have on the housing industry. Most are trying to squash into areas that are already bursting at the seams (our capital metropolitan regions) and the best seats are taken.
Unlike areas in Europe and the USA where first homebuyers are able to move out of the capital cities and feasibly live in locations with a lower median while taking advantage of reliable public transport systems and the decentralisation of jobs, Australia has ensured the bulk of its population and jobs remain confined to inner urban regions. Therefore, when the market’s not growing, rents are rising and an increasing number of first homebuyers find they’re unable to build up a sufficient deposit to get a foothold into real estate.
This year alone, rents have increased up to (and in some cases beyond) 10.1 per cent. Affordability is constrained and the market may well see only marginal growth throughout the course of 2012 – especially if confidence remains on a knife-edge due to factors largely out of our control (both at home and abroad). However if interest rates drop further, logic alone assumes we’ll see a revival of those desiring to pay their own mortgage and not someone else’s!
We’re already hearing from various mortgage brokers that pre-approvals have increased dramatically. AFG – Australia’s largest mortgage broker – recorded a whopping 18 per cent rise in approvals throughout the course of November. We’re not out the doldrums yet, but it’s reasonable to assume that once the starting gun fires an air of confidence and certainty into the atmosphere we’ll see upward pressure on house prices. The only question is how fast those rises will be throughout 2012.
The only way to reduce risk when investing in property is to invest in those areas that have the best potential to maintain consistent solid demand. At the moment there’s little to suggest our population will diminish or demand for property will decrease so the more time you spend worrying about tomorrow is time away from taking advantage of today.
Catherine Cashmore is senior buyer advocate and property advisor for Elite Buyer Advocates. With extensive experience in all matters regarding real estate, Elite Buyer Advocates purchase and negotiate over $100 million worth of property each year for their clients. For more information, visit http://www.elitebuyeradvocates.com.au/