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Big surge in housing values (just weeks away)

Big surge in housing values (just weeks away)
October 31, 2023 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

Australia is just weeks away from the commencement of an intense surge in housing values. The evidence is pointing to a window which is likely to produce capital growth rates that are rarely seen.

Despite a few interest rate increases in H1 2023, buyer confidence has progressively improved throughout this calendar year.

Ignoring the variations in individual market performance from city to city, Australian house values increased by 8 percent over the first 10-months of the 2023 calendar year (annualised to 9.6 percent).

So, the evidence says Australian property markets are already booming.

And the rate of growth in real estate values is about to accelerate even more.

In fact, a logical and objective assessment of a collection of evidence suggests that the quarter commencing 1 January 2024 is likely to produce a rate of growth which is rarely seen.

On an annualised basis, circa 20 percent capital growth is not out of the question at all for select locations.

We are currently only weeks away from the window into that period commencing.

Those who are able to sign a real estate contract in the next couple of months will become the biggest beneficiaries from the surge in market activity in Q1 2024.

Here’s why

  • The official data confirms that growth rates are gaining pace. For example, over the 3-months of August through to end of October, median house values in 4 out of 8 capital cities produced annualised capital growth rates of between 10 and 18 percent. Extraordinary.
  • Underpinning the strong growth in asset values that has already occurred in 2023 is the very low volume of properties listed for sale. At a national level, the 245,000 properties listed for sale at the end of September 2023 is a whopping 27 percent less than the same time 5-years earlier, when the population was 1.5 million less than now.
  • Over the next 2 months, supply volumes will reduce by a further 10 percent or so. That’s because December and January always produce the lowest new listing volumes while vendors focus on other seasonal activities.
  • January is traditionally the month for a lot of people to disconnect from the rat-race, to recharge and to set goals for the year ahead. For different people, this includes buying their first home, making a lifestyle relocation, upgrading or investing in their future. Property buyers will have more confidence in this coming January than the previous one, due largely to the now stabilised interest rate environment compared to the previous whirlwind.
  • Regardless of what some commentary suggests, there is a better than average chance of rate cuts commencing as soon as Q1 2024.
  • The surge in buyer activity commencing mid-January 2024, at a time when supply listings are ridiculously low, will create significantly more upward pressure on asset value in Q1 2024 than the quarter recently ended. Official supply and demand numbers will dictate that.
  • Added to the generic pressure that I’ve just explained is the continued influx of overseas migrants. Decades of evidence confirms that the first 3-months of every year produce the largest intake of migrants. And the momentum in this regard is currently at an all-time high, with more than 500,000 overseas migrants over the last 12-months representing enough to fill an entire city bigger than Canberra.
  • The first few months of every year is also when tenants are their most active.

Two things which have proven to stand the test of time are ‘the early bird gets the worm’ and the absolute best-performed property marketshare (is always) among the 400 regional townships, as opposed to the 8 capitals.

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Even the bears are bullish

A noted pleasant surprise that I’ve already observed across the last 6-months is that the (forever) conservative banks and economists have predicted multiple interest rate cuts in 2024.

Australian banks have also recently published their 2024 forecasts for capital city house prices. Macquarie Bank and AMP are anticipating 7 percent growth in asset values, the ultra-conservative ANZ, CBA and NAB each predict 5 percent, while Westpac and PropTrack (Cameron Kusher) are on record forecasting 4 percent growth.

History suggests that’s about as positive as banks and economists will ever get.

With confidence in asset value growth along with the strongest ever rental income streams, the banks have recently started to actively attract a bigger market share of loans for property investors.

For example, CBA recently increased their LVR appetite to a maximum of 95 percent. I’m sure other banks will also roll out initiatives.

History proves that, by the end of every year, the actual change in asset values has always been significantly higher than what all of the banks and economists forecast at the start of the year.

Their own risk averse personalities and very limited personal experience from buying and investing in real estate is not a recipe for well-developed knowledge in the highly specialised field of analysing property markets across this large country.

Consequently, their minds are naturally fixated on ‘imperfections’ within market conditions, at the expense of skilfully analysing the combined sum of *all* factors.

Their commentary always includes remarks which rebut the many positive metrics with fear of the ‘but’s’ and the ‘what if’s’.

Everyone will remember every bank predicting an enormous property market crash to the tune of 20 to 40 percent for 2020 to 2021.

Related article: They all sh!t the bed

The actual result was growth of 30 to 40 percent. That’s akin to comparing an old mule to Phar Lap.

This time last year, the same banks predicted 2023 calendar year falls in real estate values of between 3 and 10 percent.

The 9 percent growth that actually occurred is as much as 19 percent more than the collection of so-called ‘experts’ initially forecast.

With their track record in mind, the 5 to 7 percent growth that banks have predicted for the 2024 calendar year probably means 20+ percent growth.

The aforementioned evidence suggests the super-boom window is just weeks away.

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