THE YEAR THAT WAS AND THE ROAD AHEAD FOR 2014
Published on June 19, 2015
2013 was a remarkable year for many reasons.
Firstly our Prime Minister (at the time) announced an election date in late January that was some eight months away.
Business confidence was still weak from the post-GFC fallout, and a protracted election campaign certainly did nothing to bolster positive economic sentiment.
In January I predicted three 0.25 per cent interest rate cuts were ahead of us in 2013, however it wasn’t until May that the Reserve Bank (RBA) lowered rates for the first time since December 2012.
This took the official cash rate to 2.75 per cent, and interest in the property market really started to fire up across the country, even though it had already made some significant gains in places like Sydney, Canberra and Darwin.
Months of interest rates on hold and the looming election put the country in a sideways holding pattern, that was until the government decided to elect a new leader and the poll was brought forward (albeit by only a week), and the second interest rate cut took effect in August, taking the cash rate to a historically low level of 2.5 per cent.
Low interest rates and the resulting election of a new government certainly provided the fuel needed to bring back business confidence, but most people didn't realise what was happening right under their noses in the property market.
Historically low interest rates, a property cycle on the upswing and a new stable and fiscally conservative government.
Then the inevitable happened - the media picked up on this renewed sentiment and the secondary measure behind the now-famous ‘property clock’ swung into action, especially in states like Queensland.
If you didn't read my article on the property clock, it says when the message is consistent (positive or negative) it’s pretty safe to believe the market is heading in exactly the direction they are saying.
The rest, as they say, is history. According to RP Data’s latest quarterly review of the residential property market and the Australian economy, home values across Australia entered a growth phase in the second half of 2012 and throughout 2013.
Sydney, Melbourne and Perth each had annual growth in excess of 6.5 per cent, and now Brisbane is in the sites of investors as these markets become too expensive.
But you already knew that when you read my article back in January about Brisbane being one of the most affordable capital cities in Australia.
Now about that third interest rate cut prediction.
Obviously that one didn't happen, but if you read a statement from the RBA about its board meeting in December you’ll notice more indicators in favour of an interest rate cut than to keep them on hold.
Why? According to the RBA “an improvement in indication of household and business sentiment”, and “signs of increased demand for finance by households”. Indicators and signs, that’s all.
Interestingly the highly respected NAB Monthly Business Survey for November noted, “business conditions are still lacklustre”.
So if not for indicators or signs, rather than hard data and a simple ‘wet finger in the air’ test, then the December decision would have been a lot different.
So what’s in store for 2014?
It’s now the start of January, and some of us have resolved to start 2014 invigorated and focused on what can be accomplished in the New Year.
Others will pick up where they left off and will experience the ‘same old, same old’ (aka a rut).
Which is it for you?
What I can predict, as sure as the sun will come up tomorrow, is every day you put off planning for your financial future is a day closer to living off a pension.
Where to buy and what to look out for
As I’ve said, Brisbane is still one of the most affordable capital cities in Australia, and my money is on the fact it still has a long way to go in this property cycle.
The South East Queensland housing market is undersupplied. That’s according to research from independent market analysts, the Master Builders of Australia, the Housing Industry Association and the Queensland and Federal Governments.
A report released in mid December by property analyst Matusik Insights predicts the median Brisbane house price could rise $60,000 over the next three years due to residents' rising disposable income.
A great tool from the Australian Bureau of Statistics, House Price Indexes: Eight Capital Cities supports this view, showing the difference in median price between capitals between 2001 and the first quarter of 2013, and the affordability of Brisbane compared to Sydney, Darwin, Canberra, Perth and Melbourne.
And there’s plenty of other research to support my view – you just need to look for it (or let someone like MRD do it for you).
For investors intent on treating their property investment like a business (which you should do)
If you currently hold property in Sydney, Darwin and Canberra where prices have peaked in this current property cycle, or even in areas nearing their peak, such as many parts of Melbourne and Perth, speak with MRD to have your equity unlocked.
This will enable you to position yourself (with new deposit loans) to take advantage of new opportunities in areas like Brisbane which are still undervalued. This strategy is fundamental to The MRD Way.
Failing to plan – planning to fail
All successful property investors don’t just happen to “get lucky”. It starts with a decision, and a commitment to permanently change their lives, and what better time than the first day of the New Year.
The next step then involves creating a plan, based on where you currently are, and finishing where you would like to be.
It also means keeping your ear to the ground, noticing what is really happening in the property market and not just what the media is saying. It involves staying on top of your plan and reviewing it regularly.
And knowing who to have in your property wealth building team, to help you get where you need to go.
Is it your time?
Only you know if you are ready to face this New Year with a renewed focus and determination to have your best year yet, however if you are, we’re here to help you make it a reality.
This is your time and we can help you to design a workable plan to reap the benefits of using residential property as an investment vehicle to achieve financial freedom for your retirement. We would love to partner with you in 2014 and beyond.
Let us know how MRD can assist you build long term wealth for your family’s future or what questions you have that you would like answered.
Simply email email@example.com or telephone us on 1300 883 854.
Oh, and about those interest rates
One last thing before you head off to enjoy the first few days of the New Year, what about interest rates?
Well, one thing is for sure, interest rates will rise and fall, and many times over during the life of your property investment portfolio.
What you need to remember is that residential property is a forgiving asset class over the long term, so it’s not about picking the highs and lows of the market, but rather staying the course.
For what it’s worth I think we need another rate cut to set the country on the right path for financial recovery, and on the balance of data available today, I am still expecting one in the early part of this New Year. However as I pointed out in the RBA statement in December, decisions are sometimes made on indicators and signs rather than what’s really happening.
I hope they’re right.