The residential property outlook for the year ahead

Over recent years I have always waited until late in January to look at predictions for the coming New Year, but this year I am breaking that habit.

2014 was an extraordinary year for the residential property market. Across the board for new apartment projects, for the house and land sector and for established homes nobody needs to be told it was an amazing year.

Although led by Sydney, there have been big market movements nationally. However I think that we shouldn’t forget that this market has now been with us since the second half of 2013. Those six months were also very hectic and trends have continued now for 18 months and so as we move into 2015 that’s the first point to keep in mind.

But first I would like to take a quick look at some of the suggestions that were made about what might happen in 2014. For buyers I noted that it would be a good idea to have a plan of attack, that is I suggested buyers needed to remain alert and do their homework and research to help find the best opportunities and the best price and so not miss out on finding that ideal property. Certainly I think that was sound advice as markets did move rapidly and if caught napping, then buyers missed out. Today Sydney remains largely a sellers market, but will that continue for all of 2015?

Some of the other headlines included the prediction that ‘Higher House Prices Were Here To Stay’ which proved in the main to be correct, and in many markets that was a bit of an under statement, as auction clearance rates broke previous records and many new apartments for sale off the plan hit the market at record prices.

Another key trend forecast was the difficult outlook facing first time buyers, and in that area again predictions of more difficult times ahead did unhappily I admit, prove to be accurate and that’s despite continued low interest rates. Some of the other key points highlighted included the important role the delivery of infrastructure projects would play, not only for markets, but in the wider economy.

The continued strong influence of property investors was also accurately highlighted and investors are now aggressively driving selected markets. Another driver of activity was the recovery of supply anticipated in 2014, and while supply has improved there is still some way to go.

Interest rates, the fate of the Aussie dollar, rising unemployment, state planning, the Federal Tax Review and Federal Budget and China’s growth prospects were also big picture issues on the horizon at the start of 2014. And so now what’s the outlook for 2015, will it be more of the same or will the 18 month long bull-market start to run out of charge?

Some Issues Remain, Others Join the List

If the last 18 months look extraordinary then the next 12 months look even more so. The list of factors that will come together to make up the fortunes of the housing market for developers, buyers and sellers is long. It includes the direction of house prices, employment, the many aspects of the finance sector, interest rates, affordability, demographic shifts, government planning policy and the emergence of new product, plus others. Overall though I get the general feeling that we are entering 2015 in a slightly pessimistic disposition, consumers are a bit restless, and we may all need to be more assiduous in 2015.

Perhaps the one big question is what direction will house prices take in 2015, it’s a good starting point as prices are the most visible sign of any shift in market sentiment. I think that one overriding factor is that prices will become much more segmented, area and product related, and this is a trend already apparent.

This may well see pockets of higher demand and higher prices, but other factors will act to make the trend far less general, higher prices will not be universal. The variants between a sellers market and a buyers market may be shifting and there is already some price resistance building. Despite that, we continue to see keenly contested auction results. I think markets will be more fragmented, more regional, and anticipating any fall in prices looks unlikely.

The level of interest rates and un-employment will be key factors in 2015 and to an extent both are linked. This time last year there was an expectation that rates would have seen a possible increase mid-year, but that did not happen, rates did rise in New Zealand and there is now the expectation of a rate increase soon in the USA, but both of these economies are different from ours, and now locally a rate cut or two looks more certain in 2015. The collapse of commodity prices is a big factor and there is little reason to expect a quick recovery.

Any move in rates either way will end a long period of stability, but with continued upward pressures on unemployment figures, a cut looks certain if only to help encourage more jobs. Jobs are now a very real issue as even the mining industry is shedding jobs.

There are concerns however that any rate cut could add more pressure to the housing market, and the federal government appears not to be interested in any measures to dampen the housing market in any way, largely because construction is a big driver of activity and employment. If lower rates bring more buyers into the housing market, then despite the banks protesting, some loan or other restrictions may be warranted.

However if unemployment increases, the rental market will cool and this may well influence investor sentiment. And we are yet to see how the banks will react to lower rates, given the home-loan market is already very competitive.

Last November the unemployment rate was 5.8%, and today that figure is 6.3%, official rates were and remain at 2.5%, the last cut in rates was August 2013. It is reassuring that the Reserve Bank has held rates thus far, because in 2015 they will have room to make cuts, which would not have been an option if cuts had been made sooner.