Why 2013 will be average but 2014 will be better for Australian property markets: Michael Yardney

At the beginning of the new year it’s customary for commentators to give forecasts for what’s ahead. 

Today I'm going to share 10 reasons I'm feeling positive about 2013, but first let me give you my obligatory forecast, which is: Most forecasters will be wrong this year.

• You just have to remember all the things we worried about last year that didn’t happen:
• The European Union didn’t break up and its woes didn’t break the banking system; 
• America muddled its way through its challenges and its economy is picking up; 
• China’s economy slowed down, but didn’t tank like many predicted; 
• The mining boom didn’t end, it just moved on to its next phase; 
• The Mayan prediction of the world coming to an end was wrong; and 
• All those who predicted our property markets would crash were also wrong.

OK – now I’ll stick my neck out and make a prediction... 

The year 2013 will be an average year. 

Now don’t get me wrong – I’m looking forward to this year. In fact, I’m about to give you 10 reasons to look forward to it to. 

Why I’m calling it an average year is that I expect it to be a better year than last year, but not as good a year as 2014 will be.

Here are 10 reasons for optimism for 2013 and beyond

1. The bad news around the world is subsiding 

• While the world’s problems haven’t gone away, many of the fears that plagued us last year are subsiding: 
• China's economy is resuming its rapid expansion, with its manufacturing output growing at its fastest rate in 19 months. 
• The US economy is picking up and didn’t fall off its fiscal cliff of sharp tax rises and spending cuts. 
• Europe will remain a basket case for years, but the European Central Bank seems to have stabilised the situation compared with the crisis 12 months ago.

2. Australia’s economy is in good shape 

Whether we have a budget surplus or not this year, our economy, which has gone 22 years without a recession, is the envy of most developed nations. 

We withstood the deepest global recession since the Great Depression and we are likely to keep growing at around 3% this year.

3. Unemployment is low 

Sure some jobs have disappeared, but around 400,000 new jobs have been created in Australia since the GFC and unemployment levels remain comfortable around 5.6%. 

When people feel comfortable about their jobs, their more positive outlook is good for confidence, good for consumption and good for investment.

4. Australia's inflation rate is low 

Our low inflation rate gives the Reserve Bank room to keep interest rates low or contemplate reducing them further.

5. Interest rates are low and likely to remain so for a while 

Our low interest rates are allowing home owners to pay off their mortgages quicker and giving some who overcommitted some extra breathing space.

6. Household finances are in sound shape 

Despite all the global economic worries over the last few years, recently released ABS figures show that Australian household wealth climbed 18.4% in the past year to $69,422 per person. This makes us the wealthiest we've been in five years. 

Rather than spending, Australians have been stashing their cash. Many have reduced their credit card debts, while others have been saving and yet others have taken advantage of low interest rates to pay off the principal on their home mortgage. 

There has also been a strong wealth effect for households from rising stock prices on the ASX. 

Their robust balance sheets will allow many Australians to ramp up borrowings and get into the property market this year.

7. Housing affordability is high 

The HIA-CBA Housing Affordability index shows that national affordability in the September quarter 2012 is just shy of the highest level in a decade. It is likely the next round of data (December quarter out around the middle of February) will show housing is even more affordable due to higher wages and lower interest rates.

8. Consumer confidence is picking up 

Consumer sentiment (the big missing ingredient over the last few years) has been rising over the last six months, and following the disappointing post-December rate cut 4.1% sentiment decline, this month’s report showed sentiment up slightly (0.6%) placing the level of sentiment at its long-term average.

9. Last year the Australian stock market recorded its biggest gains since 2009 

Typically the stock market starts to pick up a year or two before the economy, and the big money seems to think our future looks rosy.

10. Our property markets will pick up 

Having bottomed in the middle of last year, house prices are slowly rising – a trend forecast to continue this year. 

Of course there is no single property market and some areas will still languish, but a mixture of low interest rates, strong population growth, job stability, affordability and rising rentals will make more people get involved in property this year.

Some will just renovate or improve their homes. Others will take the next step and upgrade to new or bigger homes. More first home buyers will get a foot on the property ladder pushed by higher rents and lower interest rates. 

And investors looking to get set for the next stage of the property cycle will take advantage of the opportunities the property market is offering them.

In summary 

Australians, and particularly Australian investors, have a lot to be optimistic about in 2013. 

We still love property, our tax system favours investors and our banking system is underpinned by housing. 

While there will always be an argument for keeping house prices low and more affordable, with 70% of Australians owning their own or paying off their homes, our major political parties cannot afford to disenfranchise the majority of our population. 

Affordability, low unemployment and interest rates, and pent-up demand in some regions point to a good year for property.

One last forecast for the year… 

The property pessimists will be out there again and will no doubt pick more holes in my arguments than in a block of Swiss cheese. 

I know some will say “this time it’s different” but I suspect it won’t be.

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for clients through independent, unbiased property advice and advocacy. He is best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog. Subscribe today and you'll receive a free video training - The Golden Rules of Property Investment.