What 2014 taught us about real estate?
By Paul Thornhill
13 JAN 2015
In the world of real estate, we used to say the more things change, the more they stay the same.
But the wash up of 2014 shows that some things have indeed changed in the Australian real estate landscape, possibly forever.
Cities ain’t cities
It has been customary for commentators to paint a broad picture about the nation’s real estate. While all acknowledged some divergence between states, 2014 proved these differences are no longer passing, they’re now fundamental.
Just take a look at these price performance numbers from RP Data CoreLogic over the last year. Since the previous peak in 2010, those differences quickly become apparent.
Sydney has been growing at double the pace of the rest of the country, with Melbourne struggling to keep up and now falling back with the rest of the pack.
Perth, which rivaled both in the growth stakes late last year, crawled to a halt in 2014, while Brisbane, missing in action for two years, found a late burst in 2014.
As for Hobart, Darwin and Canberra; blink and you’ll miss their trend.
Growth in each city no longer follows a national lead. Every city’s market follows the beat of a different drum.
It used to be said that as owner occupiers were the majority of buyers, all analysis began and ended with them. That concept has been looking shaky for years, but in 2014 I’d be confident to pronounce it dead and buried.
Investors now take up 50% of mortgages for residential property Australia-wide, and it’s no coincidence that where their share is highest, in Sydney with a record of 62%, the market is strongest.
If you want to know what’s happening in real estate your first and last question should be: what is investor sentiment?
Ask yourself, what is investor sentiment?
Low interest rates lift
Interest rates rose five times in 2009-10 and the market came to halt, but when rates fell to their lowest level since the 1960s, real estate recovered.
If you’re looking for evidence low rates help real estate look no further. Low rates have made many homeowners with equity confident enough to become investors for the first time, or trade in their current property and upgrade to a new home.
Low rates are a key factor driving Sydney’s booming market but you can also see the influence of low rates on up-graders across Australia, most acutely in Perth.
The Perth market hasn’t had a great year, but for a city with fortunes so closely linked to mining’s plunging prices, you would expect to see house price falls of 5 to 10%.
That hasn’t happened and the most telling reason why is low interest rates.
First timers losing influence
When the government first began investigating first home buyers in the 1970s they were 47% of the market, but by the time of the 1980s housing boom, they accounted for only a third of purchasers.
In the 1990s, first home buyers were behind the gentrification of inner suburbs like Glebe, New Farm and Northcote, but by 2007 they represented just 23% of buyers.
In 2009, their share peaked at 29% before settling back to 19% when the doubling of grants ended. Now first home buyers are less than 13% of the market and it’s been like that for over a year.
First home buyers use to be the most influential group of all but now they are a minority in every type of property market we can track.