Adrian Reed - Australia's Fastest Growing Real Estate Agent

Australian property values rose by an extraordinary 4.2 per cent during the March quarter (RP Data). This is an exceptionally strong growth rate – multiply this by four quarters and we’re on track to achieve 10-12 per cent gains for the year if this pace of growth continues.

With another 0.25 per cent rise in interest rates for the first quarter, I suspect the market will remain strong over the next quarter as upgraders and investors vigorously pursue their next purchase, prior to home loan rates returning to normal levels around eight per cent. The borrowing capacity of most buyers is eroded every time interest rates rise and we’re likely to see an impact on demand in the market when we hit that eight per cent mark.

We’re in the early seven per cents now which means two or three more 0.25 per cent hikes in the second quarter may cause a slow down in demand for the final six months of the year. Even if this happens, prices may continue to rise due to the lack of supply. Time will tell.

If you drill down into the data, there is evidence that rising interest rates are affecting price growth in the more affordable Australian suburbs, but growth in the mid-upper priced suburbs continues strongly, thereby keeping the overall median prices high. In the year to end March 2010, Australia’s most expensive suburbs gained 16.6 per cent while the most affordable suburbs gained 7.8 per cent (still a very healthy growth rate!).

During the March quarter, every single capital city experienced growth in prices, although Sydney, Melbourne and Darwin were ahead of the field by a long shot. Check out the list below to see what happened to property prices in your city.

March Quarter Property Prices (houses and apartments)
• Darwin gained 6.9 per cent, median price $480,000
• Melbourne gained six per cent, median price $452,000
• Sydney gained 5.1 per cent, median price $500,000
• Canberra gained 3.7 per cent, median price $510,800
• Adelaide gained 2.7 per cent, median price $385,000
• Brisbane gained 2.4 per cent, median price $439,000
• Hobart gained 0.5 per cent, median price $323,750
• Perth gained 0.2 per cent, median price $480,000

Based on the March quarter numbers and plenty of anecdotal evidence of exceptional prices being achieved particularly at auction, I’d recommend that anyone thinking of selling this year should aim to do it in the second quarter, if they can. Selling conditions are truly prime right now and home loan rates should remain below eight per cent until Spring.

The Reserve Bank has opted to hold interest rates steady at its most recent board meeting on the 1st June 2010.

“This will be welcome news to mortgage holders who have been hit by six rate rises since late last year,” says Domain.com.au blogger and property writer Carolyn Boyd. “It will give everyone a bit of breathing space”.

Borrowers across the country have been hoping for the good news after being told by the Reserve Bank Governor, Glenn Stevens, that rates were near normal levels. Each 0.25 per cent interest rate rise adds another $50 to the monthly cost of an average mortgage. Australian mortgage holders are already paying about $300 more per month in repayments than they were in September last year.

Despite Australia facing a desperate shortage of properties, which has been putting pressure on prices, the heat appears to have come out of some of the larger metropolitan markets. The property market is still strong but there is not the frenzy that was around a few months ago. That perhaps shows the rate rises already handed out by the Reserve Bank are starting to bite.

Welcome to 2010 and what will likely be the most exciting year in Australian real estate since the property boom earlier this decade.

Average property values have now recovered beyond their 2007 peaks, after which we experienced a relatively softer marketplace during the GFC throughout 2008/09. Things started firing up again in mid-2009 with record low interest rates and an improving Australian economy bringing major confidence back to the property market – and the share market as well.

We’re now heading into a year where property prices above $1 million should rise due to massive demand from upgrading families. Investors should be back, adding a major boost to the market under $1 million as first homebuyer numbers dwindle. The Federal Government’s original First Home Owners Grant of $7,000 remains in place, along with various stamp duty concessions provided by state governments, so first home buyers who missed out on the First Home Owners Boost last year should continue to feel confident about buying in 2010.

Across the country, the average time it takes to sell a house has dropped from around 50 days at this time last year to an excellent 31 days in late 2009 – the average length of a standard property campaign.

I concur with RP Data’s summation that we are currently experiencing “extremely healthy market conditions”. I expect to see a lot of activity in the property market in the first quarter of 2010 – at McGrath, we already have hundreds of auctions booked from mid-February onwards company wide.

If you’re thinking of buying or selling this year, spend some time at auctions next month to get a feel for the action ahead in your particular marketplace in 2010.

Be assured, should you need any advice or assistance with your future real estate needs, I am always at your service.

Australia’s economy is unarguably one of the strongest in the world and we are seeing a large percentage of people putting their money back into property as the effects of the Global Financial Crisis are quickly becoming a distant memory.

We are finding that current buyers want to secure good quality property while there still remains a small discount to 2009 prices within many price ranges, and before expected price increases in 2010.

Interest rates, while having had recent increases with several more to come, are still historically low. When you look at rates over the past 40 years you’ll find that seven to nine per cent has been the range people have become accustomed to, so the current 5.5 per cent is still attractive to buyers and investors alike.

There has been a severe shortage of property listings available for sale in the last 12 months and an overwhelming increase in buyers which is creating a wealth of competition in the market place and is resulting in prices being pushed back up. I suspect that as market confidence continues to grow, we’ll see a spike in listings in the New Year.

Market Observations heading into 2010:

- Market confidence is extremely high across almost all price brackets

- Stabilising economy and finance sector will create a price surge in 2010

- Spike in second and third home buyers over recent weeks, market no longer dominated by first home buyers in the bottom end, investors are back

- Record population growth in NSW will keep residential property prices growing well into the future

- First Home Owner Boost expires on 31 December. Interest rates are still low and the original $7,000 First Home Owner Grant remains in place along with stamp duty exemptions for properties under $500,000. No doubt that activity from first homebuyers will pull back somewhat by early 2010 but I think investors will pick up the slack

- The cash rate peaked at 7.25 per cent in March 2008 and is now currently at 3.75%. Hence, interest rates are still more than 50 per cent off their peak. The time to lock in attractive fixed rates has passed with the banks raising their fixed rates several times in recent months, independent of the RBA

- I expect rents to also increase next year by between five and 10 per cent due to the ongoing supply issues and this will keep yields strong

The Reserve Bank have this week raised their cash rate by 0.25% to 3.75%. Interest rates, while having had recent increases with several more to come, are still historically low. When you look at rates over the past 40 years you’ll find that seven to nine per cent has been the range people have become accustomed to, so the current rate is still attractive to buyers and investors alike.

On a global scale, Australian real estate provides outstanding value compared to other major international locations. Here you can purchase a waterfront on Sydney Harbour for under $10 million. In New York and London, and even holiday spots like The Hamptons on Long Island and the Côte d’Azur in the South of France, buyers will routinely pay three times as much.

Today, our property market provides a whole lot more than simply great value – it has also become arguably the safest and best performing residential market in the world.

While other major property markets have suffered significantly due to the GFC, Australian property values lost just 3.8 per cent from peak to trough during the eye of the storm last year. This looks pretty rosy compared to losses of almost 25 to 40 per cent in the UK and US and 30 to 50 per cent across Asia since the sub-prime drama began in 2007.

This year, our market is flying with better than expected gains of 7.9 per cent across the board since January. In August alone, Australian property values rose by almost two per cent, the largest monthly rise since the RP Data-Rismark National Home Value Index was launched in January 2005.

Melbourne is the stand-out at 11.6 per cent, followed by Darwin (9.7 per cent), Sydney (8.6 per cent), Canberra (6.7 per cent), Brisbane (5.2 per cent), Perth (4.1 per cent) and Adelaide (3.1 per cent).

One of the key differences between Australia’s residential property market and those of other major developed nations is supply and demand. The US has way too much property available to the small number of buyers brave enough to venture back into the market. In Australia, we have a shortage that is now estimated to be around 200,000 homes.

The other differences are the strength of our financial sector and general economy, our record population growth and our better than expected unemployment rates.

And things are only going to get better for us. The International Monetary Fund (IMF) says we’re likely to be the only advanced economy in the world to record real GDP growth this year – around 0.7 per cent and rising to two per cent next year. Its average projection for all advanced economies is minus 3.4 per cent in 2009 and 1.5 per cent growth next year. This is powerful.

We’re often referred to as the ‘lucky country’ but there’s a lot more than luck making our property market run hot. As we move towards the end of 2009, my outlook for 2010 remains extremely positive. The most interesting element will be the impact of investors – this important pool of buyers can make the difference between a good market and a booming one… and investors are definitely coming back to real estate.