Here are 10 reasons for optimism for 2014 and beyond, especially for our property markets.
1. The world’s large economies are having a synchronised recovery.
While the world’s problems haven’t gone away, many of the fears that plagued us over the past few years are now subsiding and, with the world’s economies beginning the year on its best footing since the GFC, we can expect general world economic activity to accelerate in 2014.
2. Australia’s economy is also in good shape.
Sure, there are stumbling blocks ahead and unemployment is likely to rise a little over the year, but as our mining boom moves from the construction into the production phase, our exports will increase, offsetting the fall in mining investment.
This is of course being helped by the lower Australian dollar, which in part caused the commodity prices index to increase by some 11.7 per cent in the past year.
3. Our population is growing strongly.
Last year our population grew by close to 400,000 people, or 1.8 per cent, and this will underpin household formation and the demand for residential property.
More importantly, our immigration program is augmenting the number of Gen Ys. The growth in 30-somethings will rise from 10,000 per year in the past decade to more than 100,000 per year in the near future. This demographic will boost our economy by working hard, paying taxes, forming households and buying properties.
4. Australia’s inflation rate is low.
Our low inflation rate gives the Reserve Bank room to keep interest rates low or contemplate reducing them further if unemployment ticks up too high.
5. Interest rates are low and likely to remain so for a while.
Low interest rates encourage homebuyers and investors into the property market, while at the same time allowing current homeowners to pay off their mortgages quicker.
6. Household finances are in sound shape.
Average household wealth rose to a record $872,000, driven by surging house prices, rising equity markets, superannuation funds recording their strongest performance for at least 13 years and an entrenched savings culture.
According to Credit Suisse’s annual global wealth report, once again we’re the wealthiest nation in the world with highest median wealth and a very low percentage of poor people.
Now with the media full of good news property stories, it’s likely that households’ robust balance sheets will allow many Australians to ramp up borrowings and get into the property market.
7. Housing affordability is high.
I know the media is full of stories telling us housing is so unaffordable that first homebuyers are being priced out of the market, but the HIA-Commonwealth Bank Housing Affordability Index suggests differently, with affordability continuing to improve over the year due to lower interest rates and rising wages.
8. Last year the Australian stock market recorded its biggest gains since 2009.
Typically, as the stock market starts picks up in response to improving business performance, the prestige end of the property market starts to take off.
9. Our real estate markets still have a lot of life left in them.
Having bottomed in the middle of 2012, our property markets have now clawed back most of their losses of the previous 18 months. However, despite the concerns of some property pessimists, we’re not in a property bubble – there’s plenty of life left in our markets. They’re now just entering their expansionary phase.
Of course there isn’t one property market and some areas will still languish, but a mixture of low interest rates, strong population growth, job stability, affordability and increasing confidence will make more people get involved in property this year.
Some will just renovate or improve their homes. Others will take the next step and upgrade to new or bigger homes. And more first homebuyers will get a foot on the property ladder as they realise prices aren’t ever going to get any cheaper.
And investors looking to get set for the next stage of the property cycle will take advantage of the opportunities the market is offering.
10. It’s much more fun being positive than negative.
Last year while the optimists and pessimists argued whether the glass was half full or half empty, the opportunist drank it! Those who bought the right properties when I made similar forecasts this time last year are now looking back and feeling pleased with themselves.
One last forecast for the year. While Australian investors have a lot to be optimistic about in 2014, the property pessimists will be out there again and no doubt pick more holes in my arguments than in a block of Swiss cheese.
I know some will say “this time it’s different!” but I suspect it won’t be. Those who buy well-located properties in our four big capital cities will look back in a decade and be amazed how much those properties have increased in value.