What to Expect for Property in 2014

Graeme Salt

As 2013 draws to a close, I thought I would drop you a line with my thoughts on what will happen to home loans and property in 2014.


We have had two rate cuts in 2013 they have had a significant impact on the property market. However, while there has been growth across the country, it is not in every capital city – which tells us that interest rates are not the sole determinant of the property market (see below).


Many Australians, bitten by the GFC, are focussed on paying off their mortgage rather than getting further into debt. This is particularly the case as many economists believe we are coming towards the end of the mining boom and that there will be an increase in unemployment. So what does 2014 have in store for us?


Variable Rates

Many (though not all) economists believe that 2014 will see further rate cuts; inflation is down and unemployment rising - as a result, many believe that the Reserve Bank of Australia will drop rates in an effort to boost the economy.


Fixed Rates

Fixed rates are primarily driven by what the global money markets are doing. Here the trend is, if anything, upwards. With most of the developed world likely be in (modest) growth next year, cash will become more expensive. And that will have an impact on the fixed rates that you and I pay.


In November, most banks increased their fixed rates by 0.2 per cent. And it is highly likely that this will happen again in 2014. Property So what does that mean for property prices?


Around 90 per cent of home loans are variable. So, for the large majority, any forthcoming rate cuts will mean that property will become more affordable.


SQM Research has forecast Sydney property will increase 15-20 per cent in 2014; I am not so bullish. Given that unemployment is still likely to rise, I believe there will still be conservatism.


Recently, RP Data said, “recent data suggests the Sydney market may already be beginning to cool, with the rate of value growth for the month of November likely to be around half the rate of growth exhibited in October.” Many observers believe that Sydney’s recent growth spurt was just that and that price rises will not be so crazy in the future. Across the country, property has grown at different rates and we see this happening in 2014.


Melbourne seems to be cooling at a more rapid pace. There is quite a large supply of property in Melbourne which means that buyers are able to take their pick. Recently, more-and-more properties are being passed in at auction.


Many commentators see Queensland as a major growth area. Industry expert, Margaret Lomas recently said, “Properties in the Logan Shire area in Queensland have been lasting a day on the market, with 10 offers. They’re skyrocketing and selling for ridiculous prices… foreign investment is huge in the Logan area.”


But Queensland is a massive state, much more than just Brisbane. Markets such as Toowoomba and Mackay cannot be discounted.


Adelaide’s property has been in the doldrums for a while. However, SQM's vendor sentiment index suggests that the bottom may now have been reached.


Perth has been one of the major beneficiaries of the mining boom. But, there are some indications from RP Data's index that this growth has ground to a halt along with levels of mining investment. Given that we will still keep exporting iron ore to China, Perth is still likely to hold its head up.


A Positive 2014


There has been much commentary about property becoming more expensive. But research produced this week by the Housing Industry Association shows property to be the most affordable in a decade. Over the past 25 years, it has remained roughly in proportion to borrowers’ purchasing power and we believe that this will continue into 2014 and beyond.


Our family will be in Europe over Christmas. The kids have not seen their grandparents for years. There will be no blog in January, so all that leaves to me is to wish you all a happy Christmas and a prosperous 2014.


Graeme Salt is a Sydney-based mortgage broker.  He can be contacted on 02 9922 5055.