Welcome to 2012, I hope you had a good break and on behalf of the team of JPP, I would like to wish everyone a Happy New Year.
Exactly what will occur this year is anyone’s guess. There are many different variables that will all compete and complement each other in the movement of the housing market for 2012. We can also look back over the last decade to see what movement there have been in house prices.
Last year saw the introduction of monthly statistics for median house prices in Melbourne. We now get bombarded with media comment telling us our properties are going up and down in value each and every month. What’s next? Will the statisticians try to put the median house prices up every night on the news with the “All Ord’s” index??? House price trends should be measured in years not hours!
Over the past decade house prices have achieved excellent returns with capital growth in Melbourne at or exceeding 10% p.a. over the past 10 years, and similar over the past 5 years. Even last year over the 12 month period there was still a growth in most suburbs in Melbourne. Add this to the rental return (yield) then you have a very good performing asset; whilst the same cannot be said for average stocks on the Australian Stock exchange. The “all Ordinaries index” has shown a 2.5% growth over the decade, it has been in negative territory over the past five years.
The convergence of so very many financial factors will make predictions the most difficult for the next twelve months. However, with the mining investments beginning to build this year until about 2015 I believe house prices will increase about 8% – 10%p.a. in Melbourne metro areas over that same time frame. I think it will be a slow climb before a very big jump that will start with a catalyst. The jump will be similar to 2007 not 2010, where the climb will be relatively uniform but quite a sharp increase from the flat market of last year.
The catalyst could be anything from a sharp drop in interest rates to a special economic factor out of the U.S. or Europe. For example, the European debt crisis is resolved, or the U.S. economy has a dramatic recovery. It is at this point in time you will make very good money from the properties that you already own.
Properties to target this year should be apartments close to the CBD with strong rental returns and good depreciation prospects for those on a high income. And also properties with development or value add options that have good land components in suburbs with excellent infrastructure.
The real estate market in Melbourne is just beginning to fire up with agents returning from Christmas holidays to find plenty of people interested in seeing what’s new. If you are in the market for a property this year please feel free to call for an appointment and we can have a chat.
Regards
Ian James
Director JPP Buyer Advocates