The 2014 property year began on a high note: Low interest rates, a record number of auctions and auction clearance rates of more than 70 per cent combined to push Melbourne’s median house price up more than 7 per cent in the final quarter of last year.
So with more than 3,400 auctions held around the state last December and a record 5000 in November, expectations have been high for the first months of the new year. Early figures show that with the Reserve Bank leaving interest rates at record low in February, its first meeting for this year, those with high hopes have not been disappointed.
In January – traditionally a quiet month with many people still on their summer holiday – the REIV House Price Index for Melbourne increased by 1.1 per cent to 153.9 and remained at its peak. The Property Market Sentiment Index also rose in January – up by 7.6 per cent to 113, a buoyant start to the year and a rebound after a fall last December. This was higher than the 94 recorded at this time last year. REIV members were most optimistic about price growth and turnover in the three months following the slower January period.
Melbourne had two “super Saturdays” in February – that is, weekends with more than 1000 house auctions, and strong clearance rates. There were more than 2,300 auctions held across the state in February, with almost 2,100 of those in Melbourne. This is 18 per cent higher than at the same time last year.
This total is even more significant when you consider that in the past 10 years February has averaged only about 2,015 auctions. This is also the highest number of February auctions since 2,510 in February 2010 – also a time when the market was rising.
On Saturday, February 22, the clearance rate of 73 per cent was up 1 per cent on last December. The month’ s average clearance rate was 70 per cent – up on the final two months of 2013. So buyer confidence was buoyant, despite increasing pessimism about jobs.
Media coverage has been excited about the strong early performance of the market with words such as frenzy, unprecedented and even boom making an appearance. There are predictions of even stronger Melbourne housing market performances in March and April. REIV believes this confidence and the favourable borrowing conditions mean that in these early months of 2014 the market will continue to grow.
Caution: bumpy road ahead
But some business analysts have been more wary and REIV’s own analysis suggests that some caution is justified. There are clouds on the horizon. We believe that rather than tipping a bumper year, it is more reasonable to say that there will be growth but it will be slower later in the year.
Recent months have brought news of the demise of Australia’s car industry with reports of the flow-on effect on jobs varying from losses of 10,000 to 200,000. And in mid-February we learned that Australia’s jobless rate had risen to 6 per cent in January, with Federal Treasurer Joe Hockey predicting a rise to 6.25 per cent. Major companies and government-funded bodies have been lining up to release news of job losses – Telstra, Qantas, Geoscience Australia, Anglo American, IBM.
The unemployment rate news came just days after it was revealed that consumer sentiment had fallen to its lowest level in seven months – a warning sign because historically, declining clearance rates follow declining consumer sentiment.
Tough times for first-time buyers – governments should help
Also, the number of first home buyers in the market has fallen with the high prices meaning it is tougher for first-time buyers to put their deposit together and with these buyers competing with investors for the same properties.
The Real Estate Institute of Australia, has asked the Federal Government to help in its budget on May 14. It sought uniform assistance to first home buyers across all states and territories and it also urged an annual review of the First Home Owner Grant to maintain relativity with house price movements. That would mean if house prices go up, the grant goes up.
REIA wants first home buyers to be allowed to access their superannuation to buy their home. Treasury says Australians have more than $1.5 trillion invested in superannuation – equivalent to our national GDP. It’s a huge amount of money. So it makes sense for young buyers, struggling to get a foot on the property ladder, to tap their superannuation to get a start in acquiring their own home – for most Australians, their single largest asset.
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