I’m often asked about property: when to buy to buy, when to sell, what’s happening to the market, have we reached bottom yet?
The latest RP Data-Rismark Home Value Index reflects a mixed bag, showing capital city house prices fell by 1.2% in May – disappointing given the Reserve Bank’s rate reduction to the historically low 2.75% at the start of May.
Still, while monthly stats are informative, most of us need more perspective.
The May figures must be put beside the year-on-year house price index, which shows house prices rising in capital cities by 2.9% between May 2012 and May 2013.
A city-specific look illustrates this further. While Sydney saw a drop in house prices of 1.0% in May, it also experienced a rise of 3.9% over the previous year. Melbourne recorded a decline of 2.1% in May but saw a rise in house prices of 2.1% over the year.
Close followers of house prices are often investors who look for total return on their properties, which combines rental yield and capital appreciation. This can be a good test of overall property health.
RP Data has Sydney’s ‘total gross return’ on property at a solid 8.5%, and Melbourne at a respectable 6.0%.
These are not as high as most investors want (or as high as Perth 11.3%, Darwin 11.2% and Canberra 7.8%), but they are not low enough to dump property and move into stocks and bonds.
We also have to put house prices alongside the Bureau of Statistics’ housing approval numbers. April housing approvals were very small (0.4% growth) but the year to April saw 6.3% growth.
So, the picture for property – while divided by geography and seeming to be going backwards – is actually showing a slow recovery.
Moreover, I always urge people interested in property to take this market in five- to 10-year windows.
Take a look at RP Data’s longer series: the median dwelling price in the three months to May 2013 was $491,000.
If you compared this to the median price in 2010 – $507,446 – you’d think you’d gone backwards. But compare the current median price to May 2008 when it was $446,488. That’s a rise of $44,512, or just under 10% growth in five years – five years of global turmoil and financial crisis.
Property, in the end, is a medium/long term asset: one step back can be countered by three steps forward. But you have to be patient and strategic: your investment needs time. It can’t reach the peaks if you sell in the troughs.
So I suggest people act upon what’s under their control rather than becoming unnerved by property headlines.
This means looking at what affects you, and acting on what you can act upon. With the lowest interest rates I’ve ever seen, with unemployment low, and property prices recovering, this is a good time for smart buying.