Here comes the property market rebound (but don’t tell the doomsayers)

We’re into the last few months of the year and our property markets haven’t crashed like the overseas doomsayers and many in the blogosphere predicted.

Yet they’re still out there – the property pessimists looking for a reason why our property markets will tumble. Only last week another overseas ‘expert’ claimed that property in Australia was significantly over-priced and likely to crash by up to 60%!

Are they right?

The property pessimists were wrong in 2008, 2009, 2010, last year and this year, so I guess some will push their “end of the world as we know it” predictions into 2013.

I doubt whether they will be right next year either, as there are a number of signs that our property markets have already bottomed.

RP Data‘s Home Value Index covering Australia’s five big capital cities, shows that Australia’s housing market reached a trough in May this year and dwelling values rose 2.5% across the five cities since then.

Some more good news

Last week’s Australian Bureau of Statistics housing finance approvals data showed that, excluding refinancing, housing finance rose by 2.6% for the month and up 5.7% for the year. This means more people are getting set to buy properties.

Around the same time the International Monetary Fund reported that Australia is now the world’s 12th largest economy, steadily moving its way up the list.

It’s important to put this into perspective: our economy has become the envy of all developed nations and is bigger than that of many countries with much larger populations than ours.

And in further good news, Swiss Banking giant Credit Suisse reported that Australians have the highest median net worth in the world – $217,559 per person. By the way, that’s almost four times the net worth of each person in the US.

What does this mean for property?

While in the short term property prices are influenced by a host of macro and micro economic factors, in the long term there are really only two major factors affecting property values:

• Population growth (which pushes up demand) and
• The wealth of the nation (our ability to afford higher priced property)

What’s happening to our population?

The latest demographic update released by the ABS showed our population growing at 1.49% per annum, the highest rate of growth since 2009, and net overseas migration was at the highest level in two years, with just over 197,000 net overseas migrants arriving in Australia over the previous 12 months.

That’s 18% higher than what was recorded a year ago, highlighting how significantly Australia’s rate of net migration growth has turned around.

Add to this the fact that our economy is performing well and I don’t think that anyone would dispute that as a nation Australia will become wealthier over the next 15 years.

This means things are looking good for our property markets in the medium to long term.

So have our property markets turned the corner?

It seems so. The latest RPData figures for the September quarter show growth in Sydney (2.8%), Melbourne (3%), and Darwin (3.9%).

Adelaide has had two consecutive quarters of positive growth (1.2% for the September quarter). And Brisbane is finally showing growth (0.8% percent for the September quarter).

The Perth property market may be turning, with a slight increase over the last month, but it is down 0.2% over the September quarter. Canberra continues its sideways trend, with just 0.1% growth for the September quarter and Hobart’s property market fell 1.8% over the last quarter.

Where to now for our property markets?

While we may have turned the corner, there are still some “interesting” times ahead.

Different markets – not just different state markets, but different classes of property – will perform differently.

I still see a significant oversupply in the inner-city apartment markets in Melbourne and Brisbane, which will keep a lid on prices and rents in those markets. And there is a substantial oversupply of new houses in Melbourne’s western and northern suburbs.

I can’t see the top end of the market (luxury homes) picking up until the business world and our share markets pick up; but there are definitely some suburbs in every state that are outperforming the averages.

These markets are being driven by owner-occupiers getting into the market and strategic investors getting set for the next stage of the property cycle.

We’re not going to have another property boom any time soon

We’ve entered the stabilisation phase of the property cycle – that stage where more buyers enter the market soaking up the properties for sale, but as the numbers of buyers and sellers are roughly in equilibrium, property prices will remain flat or only move up slowly.

However this is a time of great opportunity, which is not always recognised by investors and home buyers.

You see, it’s still generally a buyer’s market, where they can call the shots and set themselves up with good properties that will increase in value as the property cycle inevitably moves on.

In conclusion

As the cycle moves on, and it always does, the combination of population growth and increasing wealth will underpin the strong growth of capital city property values – as they have done for decades.

If you’re interested in securing your financial future through property investment, now may be a good time to buy property. I have always found it a good time to buy when many are still a little uncertain of what’s happening in the market.

Michael Yardney is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Investment Update blog. Subscribe today and you’ll receive a free video training – The Golden Rules of Property Investment.