Everything points to better times ahead

SOURCE: The Sydney Morning Herald

THE property market will be drawing a collective sigh of relief as the year comes to a close.

As we look back on how the market performed in 2011, we may well see an overall correction of up to 10 per cent – a significant drop for the property market but a fraction of the sharemarket correction of 2008.

As we gaze into the crystal ball and wonder what 2012 has in store for home owners and property investors, there are a few indicators that suggest we are entering calmer waters.

With Europe in crisis, the US economy anaemic and China cooling, interest rates are on the way down. Experts predict the Reserve Bank will cut rates on Tuesday by 25 basis points and there will be a further reduction of up to 100 basis points throughout 2012.

Falling interest rates instantly increase affordability and entice people back to the market. Buyers rushed back in 2001 and 2009 mainly due to falling interest rates. The main difference next year is that it is unlikely to come packaged with increased first home buyer incentives.

Property is a great Australian pastime and this continues to be the case.

Web statistics show that, although competition for property was soft in 2011, web browsing continues to be very high. Nielsen’s online analysis of real estate portals suggests more than 3 million Australians search for property each month. That means about 15 per cent of the population is actively looking at property at any onetime.

This activity flows on to the physical market, with many agents reporting high numbers at inspections for good quality homes. Despite the level of interest, many people believe that 2011 has not been the right time to buy.

This means first home buyers and investors have stayed out of the property market. The effect is increased demand for rental property and a lowering of supply. As a result, we are likely to see rental yields lift next year.

According to the Reserve Bank, household savings rates are at their highest levels since the mid-1980s. They have been moving up since the mid-2000s, reaching 10.5 per cent of disposable income in the June quarter.

Many borrowers have been making substantial excess principal repayments in recent years and this will increase their equity and cash flow positions.

For many people, myself included, money begins to burn a hole in our pockets. The people who have been saving and have job stability – which is 95 per cent of the population – will start to realise the sky is not falling and will begin to make a move.

All markets are cyclical and often the greatest period of growth comes directly after the biggest falls.

I think when we look back on 2012 in years to come these factors will likely result in a bounce in median values, and the market will be back to where it started before 2011 hit.

Mark Armstrong is an independent property analyst and creator of propertytycoon.com.au, Australia’s first online auction tipping competition.