2014: The year ahead

The housing recovery buoyed the economy in 2013 and will again be the key to an overall economic upturn in the year ahead.

While it is widely expected that capital growth in the housing sector will continue in 2014, RP Data’s research director, TimLawless, says it is unlikely to be as strong as the market growth recorded in the previous year.

“The reason being that the growth in home values has largely been driven by the two largest capital cities [Sydney and Melbourne] and Perth,” Mr Lawless says.

“There have already been signs of slowing market conditions in Perth over the past quarter. On the other hand, we would expect affordability constraints to start entering into the Sydney and Melbourne market over the next year.”

However – and at least partially offsetting the expected slowdown in these markets – Mr Lawless predicts stronger growth in other cities, particularly Brisbane and Adelaide.

“Both of these markets have recorded minimal growth in home values during the recent market recovery and are starting to look much more affordable relative to values in Sydney and Melbourne,” he says.

Mr Lawless also noted several economic indicators to watch in 2014 that could influence the performance of the housing markets.

“Consumer confidence is a key driver of both value growth and sales volumes in the market; if it starts to trend lower – for whatever reason – it would likely impact on capital growth prospects,” he says.

The weak employment market is also a point of concern and it is tipped to soften further in 2014.

“Employment participation rates are trending lower and federal Treasury is forecasting that the unemployment rate will peak at 6.25 per cent next year,” says Mr Lawless.

“If it reaches that mark, it would be the highest unemployment rate since September 2002,” he says.

But while the soft labour market could potentially dampen growth in the housing sector, Mr Lawless doesn’t anticipate it will have a great impact in 2014.

“Overall, I would expect value growth to continue in 2014; however, it will likely be at a more moderate pace ... potentially transitioning away from Sydney and Melbourne toward Brisbane and Adelaide,” he says.

Watching the rates

The interest rate environment, currently at an unprecedented low, is a further area to keep an eye on. After two 25 basis point cuts in 2013, the official cash rate has been widely tipped to have reached the boom.

For one, AMP chief economist Shane Oliver says he believes we have reached the bottom of the cycle, with interest-sensitive areas such as housing now responding well to current monitory policy settings.

“I think the rate will do nothing for most of the year, before [there are] a couple of hikes in the last few months to lift the rate to 3 per cent by the end of next year,” he says.

The cash rate, of course, isn’t the only influence on bank interest rates; the cost of funds and other factors also need to be monitored. Several lenders increased fixed rates in the later half of 2013 without any movement at all by the Reserve Bank.

According to FAST chief executive Brendan Wright, the current environment is perfect for brokers to demonstrate their value as clients seek guidance in uncertain times for rate watchers.

“At some stage, rates, because they are at record lows, will need to pick up – what the fixed rates actually do, we will just have to wait and see,” he says.

“The opportunity for brokers is to offer help, guidance and advice, to understand their customers’ needs and meet those needs,” he concludes.

A great time for brokers

Choice chief executive officer Stephen Moore says he expects 2014 to be a great year for brokers.

“Our expectation is that credit markets will continue to creep up from where they are currently tracking, at around five per cent growth,” he says. “We really are moving into a very positive stage for brokers.”

Mr Moore says brokers are perfectly placed to take advantage of the improving housing market and recommends they “make hay while the sun shines”.

“Strong property growth leads to great opportunities,” he says.

Market research, however, shows brokers are already well aware of the opportunity and are feeling good about their businesses.

“According to our recent broker survey, broker sentiment is very, very positive right now – 70 per cent of Choice members expect their business to be up in 2014,” Mr Moore says.

“That is a significant turnaround from 12 months ago and is a sign of the very positive broker sentiment that is now starting to shine through.”

Mr Moore adds that he expects investors and re-financers to again lead growth in the financing market during 2014, although he does have concerns about the lack of first home buyer activity.

“We have seen falling growth in first home buyers, while at the same time, very high growth in the investor segment and in re-financing too,” he explains.

“We are keen to see increased activity in the first home buyer space, and feel that that is an area in which more is needed to be done.”

So, as investors drive up prices and first home buyers struggle for a deposit, the debate about high LVR loans has once again reared its ugly head.

According to Mr Wright, these products are already available and can be another great opportunity for brokers to demonstrate their value.

“Many lenders in the industry are already offering these high LVR loans,” he says.

“That's a great thing for brokers – they can be er serve their clients by identifying and accessing the lenders who provide these sorts of products.”