The share market finished the month of October strongly with the All Ordinaries index gaining over 4% to close the month at 5,505 points. As I noted in last month's newsletter, the September market decline did not look like the commencement of a systematic decline – and it is welcome news for investors to see the share market recover strongly.
Global share markets were also generally higher in the month of October (with the exception of the UK), with the US Dow Jones Index gaining 2.0%, the London FTSE falling 1.2%, the Hong Kong Hang Seng Index gaining 4.6% and the Japan Nikkei 225 Index gaining 1.5% for the month.
Despite concerns emerging surrounding the prospects of global economic growth, the domestic residential property market continues to boom. The graphic below shows the annual growth rate in combined median house and unit values.
Source: RP Data
As noted above, the Sydney housing market has led the way with an annual increase in median values of 14.3%. However, all markets have performed strongly and there is no telling when the boom will end (noting that the auction clearance rates for last weekend were strong for all capital cities at 77% on a national basis).
As I have written previously, a strong property market is good for the Australian economy as it supports consumer confidence and encourages the spending within the construction sector (both through home renovations and new unit developments). However, homeowners must realise that the mixture of low interest rates and lack of housing supply may not last forever (and that all markets 'operate in cycles').
The chart below shows the historical 'cycle of property market values' on a combined Australian capital city basis.
Source: RP Data
As noted above, property values (while historically strong) are not immune to dips in value from time-to-time. Like any growth investment, a property purchases should be considered as a long-term investment (to allow time for the full market cycle to play-out).
Nevertheless, the current 'hold' bias of the RBA should continue to see property values well supported throughout the summer and into early 2015. I note that the RBA board meets tomorrow, with an expectation that the cash rate will once again remain on hold at 2.50% per annum.
In currency news, the Australian Dollar firmed marginally during the month of October and is currently buying 87.95 US 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.