All signs point positive for real estate

Posted on 5/04/2013  

As we get deeper into 2013 the key indicators for real estate get stronger. I’ve been featuring them in a series a conference presentations in Melbourne, Sydney and Brisbane in recent weeks and they’ve made audiences sit up and take notice.

 Here are some of the indicators that point to rising markets:- 

–      Loans for the purchase of residential property are rising. Lending to home-buyers is up 3.5% in annual terms, while investor loans have increased 8%. In the growth states the increases have been considerably higher.

–      Sales volumes have been rising strongly in major markets around Australia. The established pattern in real estate is that a significant change in the number of sales is followed, perhaps 3-6 months later, by a change in prices. (That happens when markets are rising and falling).

–      Rents have risen strongly in the major cities, particularly Perth, Darwin and Sydney, as well as many of our regional cities. This usually leads to price rises, as we have already seen in Darwin and Perth.

–      The various measures of consumer sentiment indicate that, at long last, confidence in real estate is improving. This has been the key factor missing in the past two years.

–      Building approvals have been lagging other indicators, but now they are showing some growth, up 12.8% in annual terms – but, again, in the growth states, they have risen by much stronger percentages, most notably in the Northern Territory.

–      Affordability is perhaps the key driving force in real estate. We have now seen eight consecutive quarters of improving affordability. All three major elements in the affordability equation – incomes, prices and interest rates – have moved in the right directions for a steady rise in affordability.

–      Interest rates are at historically low levels, despite the reluctance of major lenders to pass on the RBA’s reductions in the official rate. There are many attractive fixed-rate options available.

–      Auction clearance rates in the major cities are considerably stronger than they were at the same time last year.

–      The activity of investors always rises when markets are entering an up-cycle. In the past 12 months, the market share of investors has risen from 30% to 35% of sales – and continues to increase. Queensland, Western Australia, New South Wales and the Northern Territory have had double-digit growth in loans to investors.

–      The pattern with prices in the major cities is positive. The September 2012 Quarter figures showed the previous decline in median prices had stopped and the December 2012 Quarter recorded growth in most cities. The early data for the March 2013 Quarter suggest a rise of about 3% as the average result for the eight state and territory capitals – the strongest quarterly result in two years. Darwin, Perth and Sydney continue to lead the price growth.

 

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