Confucius says: Study the past if you would define the future. I say: Study the past 16 years of property metrics in Australia and you will see signs that a strong growth period might well be upon us. Now, I know Confucius’ pearl of wisdom fits neater on a fortune cookie, but my advice is just as sage: history is pointing to an exciting trend in property prices and investors would be wise not to ignore the signs.
According to REIA data, the average Australian capital city property was worth $165,000 in June 1997. Despite riding a rollercoaster of peaks and troughs over the following 16 years, the average property grew by 7.6 per cent a year to now be worth $525,000. I think this is a healthy outcome worthy of a closer look.
Plotting the Australian capital city median property value against the national unemployment rate and the RBA cash rate for the period from June 1997 to December 2012 reveals there were three periods of significant interest rate reductions in that time: one during 2001, another in 2009—and, most interesting to us, we are currently in the midst of the third right now.
Hot on the heels of both of the first two of these interest rate reductions was a bigger than normal surge in property values. Booms, if you will.
Significantly for today’s property outlook, interest rates and unemployment rates are both lower now than they were for the booms of 2001 and 2009—and so the smart money would seem to be on another surge in property values being about to ramp up.
Bellowing about boom times is always a bit risky of course, but the trends are there for the taking. And if we add in the long laundry list of current economic factors that can also play a positive role—lowest interest rates in over 50 years; an increase in home loan activity; an increase in consumer confidence as measured by Westpac and Genworth; rising population growth (housing demand); the fact that building approval levels (supply) haven’t kept pace with demand; low vacancy rates nationally; falling stock on market figures across most capitals; and increasing buyer activity nationally—a pretty convincing picture starts to emerge.
In our search for suitable properties for our investors, Propertyology is already observing increased buyer activity and less properties for sale in several markets across the country.
One cautionary note of course is that consumers are currently more conservative with their spending habits and leveraging than they were in years gone by, and this might put the brakes on a fully-fledged boom.
But, regardless, the data points to very strong fundamentals for Australian property markets. And Confucius is well known for being wise!
