For most of Australia the year starts the week after Australia Day. I unfortunately did not have that option of hanging out with the kids and going to the beach. Vendors woke up early in 2016 and I was busy doing listing appointments. In January we picked up six properties for the team to list and I have at least another four in the pipeline.

Something changed in people’s minds in 2016 which has led to this increase in activity.

Late in 2015 things were tough in real estate. Some inner city listings we had moved really slowly. Specifically Pyrmont, which is normally a slam-dunk for a 10 to 20 day sales path, took nearly 45 days! In January buyers were back in a big way. We listed a property in Maroubra and had 157 enquiries in 12 days. Those sort of numbers were typical of the environment pre the APRA tightening of lending requirements in August 2015.

So when I finally got the time to stop and think in February this is what I saw.

Interest rates: These were down all over the world. In fact in Switzerland they were negative ie the governments were actually charging people to use their money. In Japan they continued to be almost zero while Europe and the US sported 10-year rates that were less than 2%.

In Australia 10 year government bonds were below 3% and mortgage rates where increasingly below 4.5% with some banks offering sub 4% such as HSBC, CUA and U Bank.

Country 10 year government bond interest rate
Switzerland -0.30%
UK 1.56%
Germany 0.29%
US 1.85%
Canada 1.12%
Japan 0.19%
HK 1.53%
Australia 2.54%

Source : Bloomberg.com

By all accounts these rates are attractive rates and in my view abnormally low, but this does not mean they will go up in a hurry either.

Shares: The slide in interest rates seemed to have been triggered by concerns about economic growth. China in particular was a real concern. As a result shares like BHP have fallen from $30 to $15 in rough terms while CBA was down from $95 to below $73. Overseas, US shares are down more than 10% over the last year. Similarly in Japan they are down 18%, Germany down 24%and in China they are down a whopping 48%!!!

Energy: Oil prices are down from $60/barrel to $30/barrel. Gasoline has also fallen – down from $200/gallon to $100/gallon. This will help the average Australian as they will have to spend less on petrol.

Property: property has been much more solid, particularly for the 2 bedroom unit market. I have randomly picked suburbs from the eastern suburbs, north shore and the northern beaches.

Suburb 2 bedunit 3 bedhouse
Chatswood +23.5% +31.7%
Wahroonga +3.1% -3.2%
Surry Hills +9.4% +24.6%
Bondi +7.0% -1.4%
Curl Curl +8.5% +27.1%

Source : sqmresearch.com.au

Interestingly there have been patches in the 3 bedroom housing market that have been a little softer such as Wahroonga and Bondi.

So clearly there are signs of distress in the world at the moment. I can only speculate that one of the reasons I have been so busy listing property in early 2016 is that some people are cashing in their property chips on fears that these might be the next thing to fall in value.

To offset this gloom I would also add that with interest rates being so low property is more affordable than ever, and the fall in energy costs will reduce living costs for the average household too. Slower world growth also means that interest rates will stay lower for longer. Add to this a continued undersupply of housing in Sydney driven by a growing population and we have less cause for concern over the medium term.

 

*DISCLAIMER: This post is not intended to be taken as financial advice of any kind. Please consult a licensed financial advisor or accountant for advice.