Hi all..
Wanted to share with you my summary of 2009: the year that was, which I wrote and shared with my clients locally for early December. I’ve been writing monthly market updates, but never sharing them.. and thought this might be the ideal platform to do so.. and hopefully receive in return some feedback on whether you agree with my summary, what you are noticing in your own local market and how you communicate that to your market place.. and basically any general thoughts you’d like to share with the Gen-Y community.
I always enjoy hearing the Gen-Y market reflections.. given that we always seem to be so upbeat, positive and perhaps not as tainted by past experiences as our older generations.
2009: The year that was..
THE FACTS:
- The Reserve Bank has lifted rates for the second straight month – the first back-to-back rate hike since March 2008. The cash rate was lifted by 25 basis points to 3.50 per cent. Rates had stood at a 49-year low of 3.00 per cent before the decision in October to lift the cash rate.
- Even with the latest rate rise, monthly mortgage payments are still, on average, about 25 to 30 percent lower than what they were in August last year when variable mortgage rates were averaging 9.6 percent.
- Residential property prices in Australia increased 3.7 per cent in September to a six year high, heightening the likelihood of a third consecutive rate hike this month (December).
The two interest rate rises seen over the last quarter in consecutive months, is consistent with the view that, while the economic recovery is still patchy, it is now solidly underway.
After a very bumpy start to the year in the wake of the global financial crisis, with a substantial reduction in property values greater than we’d seen before on the northern beaches, our market has continued to gain momentum on a steady basis until the last quarter of 2009, when conditions suddenly improved beyond any of our expectations, even beyond government budget forecasts.
Early November, the Federal Government upgraded growth expectations for the Australian economy, forecasting growth of 1.5 per cent in the 2009-10 year, up from a forecast of a 0.5 per cent contraction made in the May budget. The Government also slashed its projections for the unemployment rate, which is now expected to be 6.75 per cent by next June, down from the 8.25 per cent forecast in the budget. The jobless rate is currently at 5.7 per cent.
The economy’s unexpectedly strong performance during and following the global financial crisis appears to have been fuelled in part by record-low interest rates that the RBA is now nudging higher to prevent inflation picking up.
Even after the two recent RBA rises, our market continues to prosper, and we are currently positioned with pressure on the market to begin to increase in value due to the current lack of stock on the market, and increasing number of buyers entering the market. The only factor appearing to hold the market back from increasing at present is the potential and reality that interest rates may again increase throughout 2010.
If the RBA were to continue to ‘normalise’ rate settings over 2010, there is a good chance that our market will absorb the impact and be able to sustain our recovery and potential growth, so long as they continue to move in 25 basis point increments. At this point in the cycle, a move of 25 basis points strikes a nice balance – it edges the cash rate back to more normal levels without threatening the economic recovery. The RBA arguably went too far with rate hikes in 2007 and early 2008, and a repeat could have a seriously detrimental impact on our market.
Without a crystal ball, it is near impossible to predict precisely how the market will change over the first two quarters of 2010. It has been widely suggested that the cash rate will be at 4.0 percent by February of next year and by June the yield curve suggests a cash rate of about 4.50 to 4.75 percent. The Reserve Bank has previously indicated that the “normal” or neutral cash rate is around 5.00 per cent. A neutral cash rate means that monetary policy is neither expansionary nor contractionary, so even at a cash rate of 4.75 percent, we are outside of, and below what is to be considered as a neutral stance from the RBA.
December 8, 2009
Great article Alana & a refreshing insight into the property market.
The recent interest rate hikes by the Reserve Bank could have an impact that will mostly be noticed around the Christmas cash registers this year.
I think because we are dealing with such low interest rates any further rate hikes could increase unemployment & hurt the property market.
I wonder if the RBA realise that they don’t have to raise rates by 0.25% each time. They can go up by 0.1% at a time and still send out a similar message about the economy.
December 11, 2009
Interesting market wrap up!
I wonder how your response went with your clients?
To me it doesn’t seem specific enough to your area. I live in Seaforth on the Northern Beaches and would be interested to see how the growth for the area has gone and specifically some of the surrounding houses.
Perhaps specific examples of sales that went under “market value” during the tougher times pre 2009 and then great sales results in 2009. Using vendor purchase prices and eventual sale prices and give the percentage of growth. Even the growth charts from RP Data would be interesting to the subscribers.
This is not a dig at the article, as it is very interesting and informative. I just feel it could have been more specific to your target area.
I agree with your summary and have also noticed a very positive attitude to purchasing throughout 2009 and specifically the last quarter. If the rates are not hiked too high then the market should stay in a positive mindset and not be scared to commit to a real estate purchase.
December 12, 2009
Alana & James, Did you see the condescending video that Westpac put together to explain why they increased their interest rates by 0.45%.
Surely, they could have used a spokesperson & made it a more personalised approach rather than comparing the price of Banana Smoothies in something you’d expect to see them showing on Play School.
If you haven’t seen it as yet, here’s the link http://www.youtube.com/watch?v=gzbBUC3XsPs&feature=player_embedded