I'm feeling optimistic about the Australian property market in 2012. We're not in for any major growth in prices but there are positive signs ahead.
Two interest rate cuts will always stimulate the more affordable end of the market – which is a positive thing for the bulk of the population living in and buying homes under $1.5 million to $2 million.
Latest figures from Australia's largest mortgage broker, AFG, show a big boost in the number of home loans taken out in the month of November following the first rate cut on Melbourne Cup Day.
New mortgages increased by 18.4 per cent nationally (26.7 per cent in VIC, 20.8 per cent in QLD, 16.4 per cent in NSW) compared to October, and while that is partly due to November always being a high volume month, I think the interest rate cut probably gave buyers already in the market an extra shot of confidence to go ahead and make that purchase. The November loans were worth $2.9 billion, the highest number recorded by AFG since March 2009.
It's funny what a shift in confidence can do for the property market. Two rate cuts is a big shot in the arm for people who perhaps delayed buying in 2011 because they were fearful of cost of living pressures and major economic concerns overseas.
We're seeing evidence that Australians are feeling much more conservative about debt and in terms of housing demand, the lower end of the market certainly had the lion's share of buyer interest in 2011. Two rate cuts will certainly bring new confidence to the market but I'd also like to see a resolution in Europe, as I think those debt issues and their potential impact on the rest of us are a major concern for property buyers, particularly in the prestige sector. Banking and finance executives aren't getting the bonuses they used to and this is having a direct effect on property above $3 million. The share market is also very volatile, also due to Europe, so resolving this large-scale economic issue is critical for property prices in Australia.
As always, when conditions aren't great, there are amazing opportunities for those buyers brave enough to buy when others are holding back. One of my favourite quotes from Warren Buffett is "Be fearful when others are greedy. Be greedy when others are fearful." The Australian property market has an outstanding track record for long-term capital growth. If you can get in at a time when a relatively large proportion of the market is holding back, you could do very well for yourself. As long as you do a careful budget with a buffer and buy with a view to holding the property ideally for 10 years or more, now is a fantastic time to buy.
This is particularly the case for investors, with evolving superannuation laws making it easier to buy using a self-managed super fund and exceptional rental returns being achieved in both metro and regional areas. AFG says two in five new mortgages were for investors in November, which is the highest number recorded in six years since AFG began counting. Investors were most active in NSW (44.6 per cent of all new loans), VIC (39.8 per cent) and QLD (37.7 per cent). The QLD stats are very encouraging as there are many depressed markets in the Sunshine State (especially the Gold Coast) offering unbelievable once-in-a-lifetime value for buyers.
A new year always brings a new psyche to the market. We finished 2011 on a good note with two rate cuts so I'm optimistic about this year's autumn selling season, which will formally get underway in early February.
Watch the market from February to April, as this is a traditionally busy period so you'll get a good sense of where the market is headed for 2012.
Wishing you all the best with your property dreams and ambitions this year.