The financial year in review: Home values up, interest rates on hold for a while yet

The financial year in review: Home values up, interest rates on hold for a while yet
The financial year in review: Home values up, interest rates on hold for a while yet

It's the end of financial year, and here's how RP Data's much loved Daily Home Value Index finished up very strongly for the month of June, after 'falling' in May.

The best performing major capital city market over FY14 was, unsurprisingly, Sydney (+15.5%), actually tracking just a shade ahead of our forecasts for the calendar year to date. 

The weakest performing capital city market of those covered by the index was Adelaide (+2.9%), where prices were recorded as being down over Q2, despite interest rates near record lows. 

And the rest of the cities, erm, well, somewhere in between:

RP's index is a useful enough indicator over time, but not a reporting tool to take too literally on a day-to-day, or even month-to-month basis.

Over the past quarter, the index has shown moderate gains for Sydney (+1.14%), Brisbane (+0.83%) and Perth (+0.62%), and declines in Melbourne and Adelaide.

The most likely outcome for H2 appears to be continued moderate price increases in all of the major capital cities, with ongoing headwinds in Canberra, and perhaps Hobart.

It's been a great year for creating wealth, largely thanks to ongoing low interest rates which continue to drive capital away from fixed interest products and into shares and property. I wrote yesterday whether shares of property has been a better bet over the past 10 to 20 years.

This past year, as usual, some people would have lost money on the share markets through chasing fast returns.

But had you simply held the XJO (ASX 200) index you'd be on track for a very smart +14% annual return even before dividend payments are thrown in. 

Adding in the dividend component, annual returns would be approaching +19%.

As it transpired, all of the share market uplift was in the first half of the financial year.

All of which, by the way, all comes off the back of a romping +20% gain in the 2013 financial year.

These are the best back to back gains that have been seen since the heady pre-financial crisis days.

Meanwhile, Australian property prices are up by around +10% in the past year too, with Sydney comfortably leading the way.

BIS Shrapnel recently came out with a paper which stated that the Sydney apartment market boom has plenty of gas left in the tank, predicting another +15% of capital gains in the next two years.

We tend to agree that certain parts of the Sydney market will likely keep rising in price until interest rates do. 

We won't be right all the time, of course, and since property markets are illiquid, the timings of market movements are much harder to predict than they may appear.

But we'll never be wrong through lack of research.

Our extensive chart packs which track hundreds of metrics and are updated daily (and not only for Australia, but also for the US, UK, Europe and China) would not allow it.

For example, we could never have predicted an Adelaide property boom over the last five or six years as many experts have, because every metric - population growth, jobs growth, the unemployment rate, household formation, interstate migration, GSP, State Final Demand, private new capex, real wages growth, building approvals, housing finance, investor loan finance...everything - told a different story.

And that still continues. 

When RP Data releases its June 2014 figures later this week, it will record dwelling price declines of around -0.5% for Adelaide in Q2.

On the flip side, I was comfortable calling out Sydney as the standout capital city market in my book, even after Keen had predicted a 40% crash, because the data suggested that the market fundamentals were strong.

If market consensus is right, the ABS series will confirm that Sydney dwelling prices are up by around +47% over the past five years:

Past of the problem with a lot of (most) Aussie property market commentary is that it comes from the point of vested interest i.e. "I own a property here, so it must always be referred to as a great location to invest."

We've seen a lot of this with regards to some very ordinary regional centres and even some capital cities over the past half decade, and it appears likely that there will be more of it to come with regards to several mining towns as the resources construction boom turns to bust.

The awesome thing about comprehensive chart packs which are updated daily is that, whether you like it or not, they force you to change your opinions as the outlook shifts. You can't easily ignore reversing trends when the daily data sets give it to you straight between the eyes. 

New home sales plateau

Pete Wargent

Pete Wargent

Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

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