Melbourne property market recovery to build in 2014

In 2014, the Melbourne property market is likely to maintain and even build on the momentum of 2013, according to Monique Sasson, founder of Wakelin Property Advisory:

2013 was a year of recovery with values of many properties recouping the losses since the last peak in 2010. We anticipate this trend to continue, and that the momentum of the last 12 months should carry the Melbourne market upwards in the first half of 2014.

There will be many Super Saturdays – weekends with a thousand-plus auctions – throughout the autumn of 2014. Nevertheless, robust demand should soak up this supply and see auction clearance rates remain at around 70%.

In a typical year, the first serious auction weekends don’t occur until mid or late February. But the auction season may well open a little earlier than usual in 2014 and we may see a lot of deals in the private treaty market as early as January.

The greater unknown is what will happen in the second half of 2014.  In large part, the trajectory of the property market will be determined by the Reserve Bank’s attitude to setting monetary policy.

It may well be the case that the RBA decides to leave interest rates steady through most of 2014. If that scenario eventuates, then expect to see Melbourne price growth in 2014 to be strong, and potentially reaching double-digits.

I doubt the Reserve Bank will be entirely comfortable with this potential outcome – especially if there is a similar result in Sydney.

Consequently, there is a reasonable likelihood of a modest tightening in monetary policy – perhaps 25 or 50 basis points – from around the middle 2014, or even earlier. This would dampen capital growth in the second half of the year and possibly see a retracing back of some of the earlier 2014 growth.

Should the Reserve Bank cut rates again, then I expect this will accelerate capital growth in 2014. However, in our view, another rate cut seems unlikely and unwise. As well as fuelling price inflation, cutting rates to 2.25% or lower leaves the Reserve Bank with little in the way of monetary ammunition to respond to any unexpected shocks such as the banking crisis in 2008.

Image: Renjith Krishnan

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