The first big week of auctions has come and gone and with it sounds that the Reserve Bank wanted to hear SOLD!!! SOLD!!! SOLD!!!
It was not just the REIV clearance rate that was at 76% on Saturday, but both RP Data and APM were also at around that level. It was also the numbers at the auctions that has shown us the lead into this year’s selling season. I attended a couple of auctions on Saturday and both went well over expectations. Both properties were quoted ridiculously low and both went on the market well after expectation. Both had 4+ bidders.
There will be many reasons why people will buy homes this year. The greatest in the median priced homes will be the lowering of interest rates. And not only the actual dropped but the perceived longevity of the lower rates, espoused by the chairman of the Reserve Bank, Glenn Stevens. For many families it will actually be cheaper to pay off a home loan than rent in some instances; if they have enough deposit. This is the area that investors with cash will also enter. At the lower end of the market where the houses are fairly new, the rental return, lower interest rate repayments and depreciation will combine to make a revenue neutral product for anyone with equity in their current home or a very good direct monthly return (rent) for those with cash.
The upper end of the market will also lift substantially this year. The stock market has increased substantially over the past few months. This is partially due to the interest rate drop and also to some extremely good management of some of our largest companies. Whilst commodity prices are dropping, which makes our miners unhappy, the Australian Dollar has also dropped. This mitigates some of the drop in commodity price, but assists when companies earn US dollars and bring them back to the country.
Speaking of bringing money into the country, any foreign investors coming into our property market will have a little more money to spend as well. With the fall in the Aussie Dollar, overseas currency is worth more and therefore they can bid just a little more than they could 12 months ago when the Aussie Dollar was closer to parity with the US Dollar.
This comes as no surprise. This is simply a statement of fact. And it is the absolute exact outcome the Reserve Bank was trying to achieve. Every time someone buys a house, they pay Stamp Duty, a conveyancer earns money and pays tax, and the estate agents earn money and pay tax. The purchaser needs to move. The removalist earns money and pays tax. The Purchaser buys some new furniture and some new appliances. The retailers hire another sales person who pays some tax, the retailer earns money and pays some tax, the manufacturer has to deliver the goods and the truck driver earns money and pays tax and finally the manufacturer doesn’t close his doors and retains his workforce who all PAY TAX.
And this will assist our country in the long run. The mining industry makes up 20% of Australia’s economy. It is time for the other 80% to pick up the slack. If Glenn Stevens continues on the path of stimulating the economy with these interest rates, I would expect to see an increase in property price this year of close to 10%. If you are looking at a $750,000 property right now, I would be expecting to see you paying $820k – $830k this time next year. If you are looking at $2.0M then expect to pay $2.2M this time next year.
This is nothing unusual. The top third of properties in Melbourne have had an average annual growth rate between 8% & 10% for the past 30 years IF you are contemplating a property purchase this year, please do not hesitate to give our office a call.
JPP Buyer Advocates