While we all want to be optimistic and bring New Year cheer, it is also important to be realistic and not create false hopes for sellers nor depress buyers with unfounded predictions of a bumper year ahead.
2014: Growth – but in Moderation
Certainly I am expecting further growth in the state’s housing market in 2014. After all, population growth is picking up again and dwelling completion figures have plateaued, meaning more people competing for existing properties. The big question is, just how much price growth will there be?
To sum up my expectations in a word: moderate. This year has been about recovery in Melbourne’s housing market – the median house price rose by almost 9 per cent in the September quarter (seasonally adjusted). November broke the record for the highest number of auctions in a single month, with more than 4600 in Victoria, up from the May 2010 record of 4455. But the number of transactions is still below the bumper 2010 totals.
I expect this recovery to continue and with the Reserve Bank’s next meeting not until February, the record low interest rates helping drive it will remain into the new year.
Heeding the Warning Signs
But there are warning signs to heed, both in the market and the overall economic conditions. Unemployment conditions have not improved and Victoria’s economy is still growing very slowly, suggesting only moderate market growth in 2014, potentially slowing in the middle of the year.
I am concerned about this economic situation, especially unemployment, and of course hope it will improve, rather than slow or retreat into negative figures. And I hope we don’t see further appreciation in the Australian dollar, placing more pressure on Victoria’s industries and jobs.
Meanwhile, with the high volume of auctions has come a decline in the clearance rate – down from 73 per cent in October to 69 per cent in November. This is in line in the downward trend in consumer sentiment since its peak in March. Historically, clearance rates start to decrease six to nine months after consumer sentiment does.
Then, another 6 to 9 months on, historical trends show house price growth starts to slow. If this pattern continues, we could expect the growth in Melbourne prices to start to moderate around mid- to late-2014.
Much depends on consumer sentiment. In the past few months it has improved but the Reserve Bank is cautious about how long this improvement may last.
First Home Buyers Missing in Action
The REIV’s median house and apartment price figures showed increases in the last few months of 2013, with not only the large volumes of auctions and the “super Saturdays” attracting attention, but numerous multimillion dollar sales. Investor activity also increased – tight rental vacancy rates were good news for them – but there were fewer first-time buyers in the market.
In September the share of loans given to first-time buyers dropped to a record low – just 12.2 per cent, notably lower than the 10 year average of 20 per cent. This is worrying, but is hopefully temporary because some first-time buyers brought forward their purchase to qualify for the first-time buyer grant before it was abolished for existing properties from July 1.
But if first-time buyers continued to be priced out of the market and competing with investors for the same properties, the State Government would do well to consider further stamp duty cuts for them. Those buying early in the year may also consider fixing part of their loan to beat future interest rate rises.
Jobs and Confidence Keys to 2014 Prospects
Hopefully 2014 will see first-time buyers returning to a more balanced market with more increases in transactions. But much will depend on the state of Victoria’s economy, the unemployment rate and consumer sentiment.