This is our first report for 2016 and is a good opportunity to report on what we have been witnessing over Summer, and also to try and do some crystal ball gazing as to what we can expect to see unfold this calendar year.
Obviously the major event that dominated our mindset, and those visiting the coast over the Christmas period, was the bushfire that claimed over 100 homes in Wye River and Separation Creek. Thankfully there were no lives lost and enormous credit needs to be given to the emergency services response for this. For those of us who live on the coast and for those who are regular visitors, it provides genuine confidence in the ability of all our emergency services to manage these incidents and the protocols they have in place. Although many are still adjusting to the new reality of that part of the coast, looking forward the outlook is very positive. The experience of post Ash Wednesday fires, 33 years ago, showed us that the economic activity generated by the rebuilding had a significant, positive financial impact for the local economies of the towns in the whole area. Housing is a significant generator of economic activity because of the number of trades, suppliers, materials and services utilised during construction and the positive flow on effect can last for years. Also, there now happens to be a major fire break in the heart of the Otway Ranges that will not only help protect the rest of the coast, it will allow management authorities access into previously inaccessible areas to plan and implement the future management of fire fuel loads, which has also been the experience since Ash Wednesday, in the areas surrounding Aireys Inlet.
Although distracting, the fires didn’t stop those who were intent on securing a coastal property from doing so. In fact, it was only 4 days after Lorne had been evacuated on Christmas day that we managed to secure the sale of 123 Smith St Lorne for $3.3m, which was the top sale for the town for the year! It is a beautiful property and deserved the price, but even we were surprised at the timing. Overall the second half of January was much busier than the first for obvious reasons, with a steady number of sales being recorded. Prices were at or above expectation which is pleasing. One particular sale that has occurred since our last Great Ocean Report, that came in well above expectation, was the sale of 26 Banool Road Fairhaven which came in $805,000 over the reserve in early December to sell for $3,005,000. Most of the sales, however, are occurring around the median price points in each of the towns. Overall stock levels remain tight across the board with the limited amount of quality listings being the challenge for both buyers and agents.
The second question we get asked most often (the first being, how’s the market?) is what we think the property market will do in 2016? We are always looking for positive and negative signs or trends that will assist us in advising our clients. At writing we would have to say the outlook is, well, a bit boring. It’s a vanilla, goldilocks, steady as you go environment that is difficult to see a driver which will push it dramatically in any particular way.
Let’s look at some of the usual drivers that can affect the market. Although some economists are suggesting a rate cut is possible, it is hard to see. Inflation was running at 1.7% at the end of the December quarter, which was actually the highest reading for the year. So the trend is up but it is still below the 2-3% range that the Reserve Bank likes to see it between. Nothing to get apprehensive or excited about here. As we have mentioned many times, a low interest rate environment provides a sturdy platform for property transactions to occur and we expect this to remain the case in 2016. What we don’t know is that if the banks will plan rate rises independently from the Reserve Bank to protect their margins. If they do move them up it will not be significantly.
Unemployment is running at 5.8% which is very good by any measure, down from 6.4% 12 months ago. The Australian average from 1978 to 2015 is 6.95%. Plenty of feel good there. It was not long ago that the mining boom was regarded as the backbone and saviour of the Australian economy. To come through the collapse in commodity prices with the unemployment rate under 6% is a great achievement. Go Australia.
If people are employed, they are spending. If they have low fuel prices, they also spend the savings they have left in their pocket which creates extra stimulus in the economy. Because most employed adults also drive a car, this extra saving and then spending is as good as an interest rate reduction because it is so wide spread. Low oil prices may not be good for energy companies and their shareholders, but it is good for just about everyone else. Especially businesses with significant transport costs, who in turn become more profitable and then can expand – and then employ more people. Go OPEC (who refuse to reduce oil supply and therefore flooding the market and in turn reducing oil prices).
The stock markets of the world continue to balance out all this positivity with some underwhelming performances to start the year. With so many people being indirectly invested in it through their superannuation, it can have a dampening effect on sentiment. But there are few conflicting and complex things going on here. It can create caution in investors but it will also point them in the direction of bricks and mortar. We saw this dramatically in 2015 when between 30-40% of all loans written were to property investors, forcing APRA to toughen lending rules for mortgage providers. Also as most participants in the property market are below retirement age and cannot access their super anyway, the impact on their retirement savings is not seen as a direct hit and always has the chance to recover. The bottom line is, that until China’s ridiculously overpriced share market falls to levels that somewhat correlate the value of the companies on their index, then there are a few more tears to come. It will directly affect the sentiment of other share markets. Supposedly their economy still grew by 6.9% in 2015, which is still pretty amazing. But who knows, we are not even sure if they do. Like the European debt crisis a few years ago, these headlines will continue but fade in impact during 2016.
It is an election year in both Australia and the U.S. which will provide some distractions but fortunately Donald Trump doesn’t live in Australia. Whether you sway towards Labor or Liberal, Australians have traditionally respected a strong leader with vision. According to recent polls, the majority of Australians seem happy with Malcolm Turnbull and the economy appears to be responding to this. While this is occurring, it is difficult to see any other outcome than the government getting re-elected which will provide clarity and a measure of certainty moving forward. Business, investors and anyone planning to make a significant financial move are more likely to do so with these elements in place.
We are sure there will be economic events that happen which will cause some concern this year, we know that because it happens every year. The media need headlines to keep our attention and will do their best to do so, however, our view at writing is that Australia is as well placed as any country in the world to enjoy a steady and prosperous year ahead. With this in place, the property markets on the eastern seaboard of Australia will continue to see steady volumes although with a tightening in money coming out of China, the Sydney and Melbourne markets have most likely peaked in this cycle.
We hope you found this Great Ocean Report informative and if we can be of any assistance in any real estate matter please don’t hesitate to call.