It was another stellar month for the Australian share market, with the All Ordinaries Index increasing by 6.2% in February to close at 5,898.5 points. The Australian share market has now increased by more than 9% for the 2015 calendar year, outperforming even the most optimistic forecasters’ expectations.
Global shares were stronger across the board in February, with the US Dow Jones Index gaining 5.6% the London FTSE gaining 2.9%, the Hong Kong Hang Seng Index gaining 1.3% and the Japan Nikkei 225 Index gaining 1.3%. Clearly, investors were keen to acquire growth assets in the month.
In somewhat of a surprise decision the Reserve Bank Board cut the Target Cash Rate to 2.25% per annum in February. The RBA board meets again on Tuesday and it is clear that the rate easing focus still has momentum.
Record low interest rates have fuelled a sharp increase in property values in most capital cities. A common question that I am being asked is are we facing a property market bubble? Should I buy a property now or wait a few years? Is now a good time to sell and downsize? The charts below show the historical change housing prices for all capital cities and the RBA Target Cash Rate.
The sharp rise in house prices (in particular for Sydney), corresponds with RBA board cutting the Target Cash Rate. While I am of the view that the RBA Board may continue to cut the Target Cash Rate throughout 2015 (and continue to keep rates low for an extended period, perhaps even several years), any prospective homebuyer needs to be aware that when/if interest rates begin to rise the price momentum for property markets will come under pressure.
Property buyers also need to be aware that new higher density housing building approvals are at record highs, as is household debt, at a time when wage growth is very slow (as shown in the charts below).
All of the above points to an argument that property markets will come under pressure at some stage. When/if this occurs is really guesswork. However, provided the RBA Board maintains low interest rates, it is not expected that a major price correction is forthcoming. Rather, my view is that there may be an extended period of flat (or no) price growth for property markets as wage growth needs to compensate for highger cost of borrowing (assuming that interest rates do eventually rise).
The month of February saw the Australian Dollar stabilise following recent falls, with 1 Australian Dollar is currently buying US78.12 cents.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.