Property doomsayers have been slayed by latest stats: Michael Yardney

Last year may be a distant memory to some, but when I recently reviewed various newspaper headlines from 2012 it revealed that we were a sombre lot back then.

Our property market was in the doldrums, the sharemarket hadn’t really started moving and even seasoned investors were wondering if the gloom would ever end.

The pessimists were having a field day

At the same time, the doomsayers had a multitude of things to worry about.

China was slowing down, commodity prices were collapsing and we were being told our mining boom was coming to an end.

The US economy was in trouble, the European economy was a basket case and there were concerns the world banking system would collapse.

And as they have done for the last few years, the overseas (and some local) property pessimists again enjoyed rubbing our noses into our high home prices, forecasting property prices would drop 15-20%.

Well, the doomsayers got it wrong!

But looking back with the benefit of hindsight, 2012 was a pretty good year for some investors. The world didn’t end, the share market recovered well and our property markets turned the corner in the middle of the year.

But not so good for everyone…

While all the action was going on, there were two types of property investor who didn’t do so well:

1. The nervous nellies

These are the potential investors who sat on the sidelines waiting for someone to ring the bell that the property market had bottomed. They have missed out on the strong capital growth that has occurred in most property markets since the middle of last year as can be seen from the following graph from Macrobusiness.

Source: MacroBusiness.com.au/RPData

Of course, certain properties performed significantly better than the average shown in the chart above.

2. Victims of the get-rich-quick crew and property spruikers

Firstly a quick disclaimer: because of my enthusiasm for property, the amount of writing I do and the numbers of emails I send out, I’m sometimes called a spruiker.

But remember, I have no properties for sale and never have had. So my advice is independent and unbiased and my optimism comes from the perspective of over 40 years in property investing.

Interestingly, I seem to have heard of more investors getting themselves into trouble over the last year than I’ve come across for a while.

Some have bought properties off the plan and were disappointed that end project values fell short of their purchase price.

Others bought house and land packages in “affordable suburbs” from developers or their marketing companies, only to find that the vast oversupply at a time when they settled and the valuations on their properties didn’t live up to expectations.

Yet others bought in mining towns.

Some of these investors may not yet realise how much trouble they are in until they try to sell.

Why property is poised for growth

Well, that’s all history, so the question is: where to from here?

As always, the pessimists will find something to worry about, but I think we’re in for a good year in property driven by:

>A stable global economy

>A strong local economy

>Low unemployment – around 5.4%

>Inflation at 2.2%, which is at the bottom of the Reserve Bank’s comfort band

>Low interest rates stimulating consumer and business confidence

>Strong immigration, rising rents and generally low levels of supply of good quality property

>Robust household budgets

>Funds flowing into self-managed super funds – much of it looking for a home in bricks and mortar.

The final nails in the doomsayer's coffin…

Over the last week, a number of leading indicators have made me feel even more confident about property in 2013 as they tend to pre-empt stronger property values.

1. Consumer confidence rose again in March

The Westpac Bank-Melbourne Institute reported consumer confidence rose a further 2.0% in March. The current level of the consumer confidence index is now around 10% higher than the long-term average and has risen 17% since April 2012. This will translate into increasing sales in all areas of our economy, including our real estate markets.

2. Strong jobs growth

While our unemployment rates stayed the same at 5.4%, payrolls rose 71,500 in February, the biggest jump in just over 12 years.

3. The RBA has confirmed the property markets turned last year

RBA governor Glenn Stevens confirmed our property markets turned last year (something those of us on the ground have known for months) and assistant governor Christopher Kent suggested construction of houses and apartments would pick up in 2013-14, and play some role in helping to support a gradual pick-up in economic growth.

4. Rising finance approvals

Australia’s housing finance approvals (in value terms) rose by 2.4% in January, driven in particular by investors responding to the lower interest rate environment.

The bottom has now passed

While some of our property markets offered fantastic opportunities, lack of confidence held back many would-be homebuyers and property investors last year.

I can understand them: it’s hard to go against the crowd and make a significant investment in property if you think the market could fall further.

But as the year goes on and confidence grows, more and more people will realise the markets have turned and this will propel the upturn phase of the real estate cycle, particularly in the middle brackets of our capital city property markets.

The property cycle bottomed in the middle of last year – right at the time the doomsayers were having a field day.

Michael Yardney is a director of Metropole Property Strategists.