Despite what the RBA did yesterday (which was nothing), there is already a tidal wave of money heading in the direction of Australian property. The bells are ringing and all the indicators are already pointing north, but you aint seen nothing yet…
I don’t think most people really understand just what’s in store for Australian property this year. Sure, every analyst worth their salt is pointing to a strong year, and all the data are already telling us that house prices are on the move. But that’s not even the half of it.
I think what everyone is underestimating is just how much fire is going to come off the current setting of interest rates. And forget what the RBA does today – that won’t change what’s already in store for us.
Look at where rates currently are. The official cash-rate is just 3.0 percent. That’s a record low. You can get amazing deals out of the banks right now, especially if you push them.
But the really important thing to remember is just how quickly rates have come down. The RBA has knocked 175 basis points off the cash rate in a little over a year. At that rate, you’d think they were selling Persian Rugs or something.
And so this stimulus is taking its time to work it’s way into the system. The housing market has turned the corner and all the data are pointing up, but this is barely a taste of things to come.
We’ve got houses on one side of a see-saw, and interest rates, like some oversized King Kong about to come smashing down on the other. Once they land, watch house values go stratospheric.
…but be warned not all areas will go up…some will go up faster than others…much, much faster. Your job if you are willing to accept it, is put your ear to the ground and track the stampede of money and buyer.
One thing is for sure, by taking action now you will be ahead of the pack.
House Prices Already on the March
As I said, we’re already seen the first signs of what’s in store. House prices are clearly on the move, and gathering steam.
One of the tricky things about the property game is that every man and his dog’s got a house price index. When everyone’s pushing a different view, it can be tricky to get a clear reading on what’s actually going on.
But the interesting thing about what’s going on right now is that the housing data have joined hands in a sweet, sweet harmony, and for the first time in a while are painting a consistent picture: house prices are up….that means some easy money is on offer.
Let’s start with Australian Property Monitors. They’re reporting that national house prices grew 2.1 percent in 2012, accelerating towards the end of the year, and growing a very impressive 1.9 percent in the December quarter. To put that in perspective, that’s a annualised growth rate of a little less than 8 percent a year. That’s a decent clip, and as I said, we’re just getting started.
Now just to drive this home, if you put in a 10 % deposit an you get an 8% return – that’s a huge 75% cash-on-cash return…try getting that in another form of investing in 2013…
And what’s more, the national figures hide some very strong performances by Perth, which grew 6.1 percent in the 2012, and Sydney, which was up 3.4 percent. Both cities have a full head of steam behind them. Only Melbourne seems confused about which direction it should be running.
Looking at some of the other datasets, which use different methodologies, the Residex measure was up 0.53 percent in the month of December, which is an annualised growth rate of 6.5 percent a year.
Residex Chief Economist Jon Edwards (nerdy looking guy, but super sharp) said it’s the best performance in 18 months.
To top it off, the RP Data-Rismark measure was up 1.1 percent in January. That’s an annualised clip of 14 percent a year. Any investor would be happy with that.
Hey, what I have quoted above are “averages.” If you add a little real estate education, you could get 300% better return that the averages.
There is also a solid recovery underway in new home sales. It seemed that investors and existing homes were supporting the market through most of 2012. However, the Housing Industry Association Land Sales Report showed that residential land values increased 3.8 percent in the year to the September quarter. Not bad at all. And I think we’ll see an even better result once the December quarter data come in.
The HIA measure of new home sales also bounced in December. They were up 6.2 percent in the month, and 3.3 percent in the quarter. This shows that the housing market is building a solid and broad base from which to launch its current run.
Aint Seen Nothing Yet…
The current recovery is exciting, and some of these numbers will get investors’ mouths watering, but it’s just the thin end of the wedge.
What we’re seeing is the vanguard of a price surge brought on by the slashing of interest rates over the past year or so. And we’re just getting started.
The RBA started slashing rates in November 2011, and has since knocked 175 basis points off the official cash rate. As you’d expect this is starting to have a big impact on property demand, and therefore prices.
The only thing that’s surprising is that it’s taken so long to get here. If you take the last three rate cutting cycles (1996, 2001, 2008) as a guide, you’d normally expect house prices to be up between 15 and 20 percent this far into a rate cutting run.
But we’re only just starting to see the stimulus come through now.
I think it’s got everything to do with confidence.
The GFC really rattled people. It gave us a sense of how vulnerable we were to the dramas playing out in the rest of the world. And with our eyes fixed overseas, we saw Europe take itself to the brink of disintegration, and America almost drove itself broke.
At the moment, it’s all very quiet on the western fronts…
But those troubles seem to be behind us now, and we’re slowly seeing a pick-up in Aussie confidence.
And that means house-prices have some catch up to do. The rough maths suggests that they’re at least 15 percent behind the curve.
My bet is they’re going to make this ground up very quickly, and from there, just keep heading skywards.
Play your cards right and this tidal wave of money will really float your bank account much, much higher this year.
So the plan is really simple, in every cycle there is a time when there is a lot of easy money on the table…this is one of those times.
Time to accumulate and ride the wave of money coming out of hibernation. It already hit the stock market over the last 3 months…and look what has happened there, market is up about 12% …now it will move to real estate…
Signed with Success,
P.S. Be warned, not all areas will go up. It’s dumb and foolish to think that. I’ve got my eyes on 3 or 4 areas that I am running the numbers on at the moment… I’ll fill you in shortly.