Aussie John's market outlook for 2014

The residential housing market has seen strong growth over the last year, with combined capital city home values now 7.9% than they were a year ago.

While home values are broadly climbing across the combined capital cities, growth has been fuelled by a large rise in values across only a handful of cities, with Sydney leading the way with 12 per cent growth, while Melbourne and Perth rose 6.5 per cent.

Housing is at its most affordable level in a decade, despite the recent rises in home prices, according to the November Housing Industry Association-Commonwealth Bank housing affordability index, which tracks the relationship between household income, mortgage costs and home prices.

Major factors behind the growth in affordability has been this year’s historic low interest rates and growth in wages.

Sydney’s housing market experienced a spring revival, which has seen prices climb steeply as buyers compete for homes and caused the city to post just a 0.5 per cent improvement in the index, compared with Melbourne at 2.6 per cent growth.

The Reserve Bank’s rate cuts since 2011 have seen variable interest rates for mortgages fall from about 7 per cent to around 5 per cent.

However the drop in rates has not attracted first home buyers, who made up just 12.5 per cent of all loans written in September.

The drop in the first home buyers indicates what I believe will be a growing trend throughout 2014, when investors will continue their domination of property purchases.

This is a long term fundamental shift in the property market, where in many areas first home buyers have simply given up on what has been a long held tradition in Australia – getting started with a small house or an apartment in the suburbs.

First home buyers simply can no longer compete against investors in many hot property pockets of most capital cities, preferring to invest in shares and rent in apartments nearer their workplaces or CBD’s.

Many of the new homes being built are longer distances from the city where there is little infrastructure and a long drive to work or attractions for young people.

This problem needs to be addressed by governments at all levels as the economy needs first home buyers, with the key benefits being they are forced to save for a deposit or pay-off a mortgage, while also stimulating the building industry.

The Federal Government should look at creating tax incentives for first home buyers to save for a deposit, while more affordable new housing should be constructed to accommodate them.

There is currently a boom on mortgage lending, with Aussie posting record figures for October and November, and there is little sign of a drop-off in the new year, following what will be a strong Christmas retail season.

Low rates, which should remain at their current lows for most 2014, will continue to fuel the strong growth in lending.

First home buyers will continue to face challenges to get into the market in this climate and they should avoid the temptation of going after very low deposit loans, as they can lead to dramas with a job loss.

Meanwhile I see more people seeking to address their personal debts, with the big repayments of credit cards and personal loans being made during 2013 expected to continue in the new year.

For those home and apartment owners seeking certainty around their mortgage repayments, I suggest it would be a good time to fix their rates – which have now started to edge higher and will continue to do so in 2014.

2014 will have its challenges for consumers and businesses but I believe better times are ahead of economic confidence improves both in Australia and overseas.

John Symond is the executive chairman of Aussie Home Loans.