Another famous market commentator is predicting double-digit growth this year. Why? And if he says that it’s not going to be Sydney in the driver’s seat, what cities will be leading the charge?
Well, it looks like we’re picking up in the New Year where we left off.
You might recall that at the end of last year I was complaining about all these Johnny-come-lately’s stepping on my turf. I’ve been pipping double digit house price growth for over a year now. Now everybody’s doing it.
Never mind that they waited until the market was actually giving 10 percent a nudge before they made that call. Talk about balls.
The latest name to add to the list is Alan Kohler.
See. He’s on television. He must know what he’s talking about.
But he’s useful in my mind as a gauge of where the ‘middle of the road’ is. Since he’s a public figure, reads the news and runs an investment report, his reputation matters to him. A lot.
And so there’s no return for being radical. If he gets lucky and picks a trend no one else saw, there’s not a lot of upside. What are they going to do? Give him another TV show? Give him a run on dancing with the stars?
But if he gets it wrong, his reputation takes a hit, and in his game, reputation is everything. He could lose report subscribers. They might take the news off him.
And so Kohler strongly gravitates towards the middle. He’s drawn to the fence that separates the paddock of bulls from the forest of bears, and that’s where he sits.
And so if we listen to Kohler, where is the middle of the road right now? 10 percent in 2014.
Yep. You got it. The central scenario is now another year of 10 percent average annual house price growth across the country.
And this of course means that there could be plenty of upside to this figure. If 10 percent is middle of the road, we could easily see 15, 18 percent, without any shift in the current setting of the market drivers.
Personally, I think 10% is a lower bound. Analysts views have a lot of inertia. They tend to move pretty slowly. The pessimism of the last few years will still be fresh in their minds.
But not me. I never bought into it. And that’s why I’ve been ahead of the game these past few years.
(If you hoping for an end to chest-thumping this year, sorry, you’re out of luck. When you’re a radical like me no one stops to pat you on the back. You’ve got to take it on yourself. )
And why does Kohler reckon house prices are on the up and up?
In his words, ‘momentum’.
Prices are going up because they’re going up.
This looks at Sydney house prices. It’s not so obvious from the blue line (the level of house prices), but if you look at the orange bars (the year on year change), then the cycle really jumps out at you.
Just to make it clear, I’ve overlayed the cycle in green on to this graph here.
It’s a pretty consistent story. Up for a while. Down for a while. All markets move like this.
And this is what Kohler correctly identifies as one of the key drivers this year. This momentum. Prices will keep growing this year because they are already growing.
There is more and more heat in the market. People start to expect that prices will keep rising. Sellers hold out for more. Buyers loosen their purse strings. Prices rise.
And so even before you get to any of the special factors that are likely to drive the market into super-cycle (like buying from China or SMSFs), you’ve got cyclical momentum already throwing a lot of weight behind the market direction.
And that’s why Kohler is happy to make a call for double-digit growth. The market’s got momentum.
Which is exactly what I was saying last year. (Have I complained about these analysts stepping on my turf yet?)
But the interesting thing is that Kohler isn’t relying on Sydney to prop the market up. Sydney has been well and truly leading the charge up until now, with the other centres dragging the chain.
And the national average last year was well and truly given a shiny polish by the out-performance of Sydney.
However, Kohler reckons that some of the other capitals will be the ones to watch this year. In his words:
“2013 was the first year of solid gains after three years of flat prices. In fact prices have only been rising for nine months, and mainly in Sydney, which saw an extraordinary 15 per cent rise in the median house price between March and December.
That sort of pace in Sydney probably won’t continue (it slowed to an annual rate of 9.6 per cent in December) but other cities that were left out of last year’s boom (Canberra, Darwin, Brisbane) could take over and produce another 10 per cent year for the national average.”
Stop looking over my shoulder Kohler!
These cities, Brisbane in particular, have been on my watch list for a while. I wrote a couple of pieces last year about how the technicals were turning in Brisbane and were pointing to it becoming a buyers market.
Look out for more on that soon.
At any rate, it should give us, as investors, confidence that the market is on a solid footing, and is on a clear drive upwards.
Copy-cats like Kohler wouldn’t be making calls like this if there was any doubt.