We have good reasons to be confident about the direction of the real estate market this month. When the Reserve Bank reduced the cash rate in November, it gave notice that conditions for real estate could improve in the first half of 2012.
If we see additional interest rate cuts, the banks pass those cuts onto their customers and Europe's leadership deals with the issues affecting that region's financial system, the market could decisively turn for the better.
Luckily, it does seem likely that the Reserve Bank will give us further rate cuts. The Bank does not normally make one-off moves, so the November cut suggests that more interest rate reductions are to come. Most forecasters expect another one as soon as February 2012.
Paradoxically, if a rate cut comes earlier, it might not be good news at all. A decision by the Reserve Bank to reduce rates in at its 6 December meeting, as some believe could happen, would indicate the Reserve Bank believes the economic situation has gotten dramatically worse. That would not be a good outcome for the real estate market.
The best outcome would be a rate cut that comes together with effective leadership in Europe, both of which could boost consumer confidence. November's rate cut has already pushed confidence up to its highest level since May 2011, according to the Westpac Melbourne Institute Index of Consumer Sentiment. Confidence amongst those with a mortgage soared more than twice as much as the average for all Australians.
Anecdotally, numerous franchise owners have told me their positive activity (visits to OFIs, email enquiries, etc.) has jumped up by 10% since the Reserve Bank's move.
Because most consumers were expecting interest rates to go on increasing in 2012, the fact that rates have now fallen -and may fall further- means Australian families will have more disposable income than they expected.
We also have soft property prices, stable wages across the country and higher savings rates. All of these factors are pulling upgraders into the market.
When the market recovers, LJ Hooker will take an increasingly bigger share of the growth. We have been steadily gaining market share over the past year, and all indicators suggest this will continue.