Published on August 21, 2014
Source 2- this graph shows the established house price growth in some of Australia’s major cities since 2002 perform well with the Brisbane market impacted severely by the floods of January 2011. Overall the domestic market calmed from 2007 with our domestic economy being driven by a slowdown in mining activities. The property cycle bottomed in the middle of 2012 and since then housing markets saw strong growth, with home values rising last year in every capital city, with Sydney (14.5 per cent) Perth (9.9 per cent) and Melbourne (8.5 per cent) being the stand out markets. These markets have been influenced by strong population growth, increasing consumer confidence and low interest rates. As demand eases and we move into the equilibrium phase of the cycle, investors should expect a fall in the growth rate. Share cycle The domestic share market has not been protected from the risk-on risk-off volatility affecting share markets since the global financial crisis. However, Australia has experienced less extreme share market fluctuations in the lead up to and recovery from the crisis, compared to other nations, particularly those in the Northern Hemisphere as Australia’s stron resource area actiity o ffset our weaker domestic growth. Australian shares have produced an average annual return of 9.1 per cent over the past 10 years to December 31, 2013. Overall the share market did suffer from the high volatility experienced during the GFC (as seen in source 3), yet it has since shown greater stability in recent times supported by Australia’s resources sector. Currently the share market is showing steady growth and looks reasonably priced based on past trends. There is potential the market will flatten however for longer term investment this looks like a reasonable time to enter the market. Trends in interest rates- cash investments Investing cash to earn interest is perhaps the most conservative approach to investing however in Australia cash rates have averaged between 3 – 5% over the past few years, reflecting a healthy economy - in contrast to the decline of rates to near zero in other more developed markets (e.g the U.S. market). Recent data shows an Source 3- S&P/ASX 200 Australian share price history chart since 1992 Source 4- this graph makes evident the volatility of the market and the rapid fluctuation of the dollar through inflation.