The Australian property market is likely to be driven by investors in the months ahead, as they look to take advantage of rising property prices and historically low rates.
While many economists have been predicting an interest rate rise in the not-too-distant future, it now seems all but certain the cash rate will stay on hold for the time being, thanks to a lower than expected lift in inflation and a slump in consumer confidence.
According to the Westpac Melbourne Institute of Consumer Sentiment, the government’s federal Budget has caused consumer sentiment to slump, with the index recording a 6.8 per cent drop to sit at 92.9 – the lowest level in more than two years.
Further, recent data from the Australian Bureau of Statistics found inflation figures were lower than expected, taking the annualised rate to 2.9 per cent – perfectly within the Reserve Bank of Australia’s target band range.
With this in mind, the Reserve Bank has no reason to change the official monetary policy setting – a sentiment they continue to champion.
At the June board meeting, Reserve Bank of Australia governor Glenn Stevens went so far as to say the current “accommodative stance of policy is likely to be appropriate for some time yet”.
So, with the Reserve Bank all but saying the cash rate is unlikely to change in the foreseeable future, what will this mean for the property market?
According to recent research by RP Data, property price growth is showing signs of slowing, with dwelling values falling 1.9 per cent across the combined capital cities in May.
Furthermore, over the past three months, capital city dwelling values are up 0.7 per cent, the lowest rolling quarterly rate of dwelling value appreciation since the three months ending June 2013.
But while this latest data suggests property values may not climb at the same pace as last year, it is fair to assume dwelling prices will continue their upwards trajectory.
In fact, property prices have already climbed by more than 3.5 per cent this year and this percentage is likely to climb higher still before the year is out.
This solid value growth combined with historically low rates is making the property market very lucrative for investors.
As such, it won’t be surprising to see a lift in this type of buyer entering the market over the coming months.
Already, Mortgage Choice is seeing a spike in enquiries from this buyer segment, with investors currently accounting for 30 per cent of all loans written – slightly higher than previous years.
And, according to Mortgage Choice’s recent investor survey, almost one in three future investors said they would purchase an investment property as a way to secure their financial future.
With that said, it is fair to assume that the property market will remain hot for the rest of 2014, buoyed strongly by investor demand.