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Property

Property – Where to from here Part 2

Glenn Fairbairn
Director/Private Client Adviser
23 Oct 2011

Oh how the media loves a bad news story. Not only have they been licking their lips with the sovereign debt issues in Europe and the US, but now they are jumping on the “property crash” bandwagon, with commentators consuming headlines with excessive predictions such as a 40% drop in property values.

We are not predicting the doom and gloom that other observers are for a number of reasons. As  reported in our previous blogs, we expect there will be a reduction in house prices of around 15% by early 2012 since the first half of this year. The focus of recent reports has been that Melbourne property prices are expensive on a price to income basis, as highlighted by Chart 1. This measure is determined by dividing median dwelling prices by median household income.

Recent statistics also  show that population growth in Victoria is slowing and dwelling completions are rising (refer to chart 2 and 3). The combination of these factors apparently justifies the argument that property prices in Australia face major headwinds. 

In addition, just because property markets in the US, UK and parts of Europe have fallen by in excess of 50% does not mean that Australia will suffer the same predicament. 
In contrast,  Australia has extremely low unemployment of around 5% and household incomes are expected to rise on the back of solid economic growth and wage increases. Whilst affordability is an issue, if the property market comes off and real incomes rise, as expected, we expect affordability will slowly return to appropriate levels.
Predictions of a 40% drop in property values by some commentators is great for making headlines, but is unsupported and unlikely in our market.
    

 

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.