Will we be wrong again in 2010?

It seems our predictions for 2009 didn’t seem to come to pass.

Many thought prices would fall significantly due to the global economic crisis, and they didn’t.

Then we expected prices would ease when government grants to first-home buyers dropped, but that does not seem to be happening either. 

So where do we sit at the beginning for 2010?

With Australia’s population tipped to be heading towards 35 million, and a shortage of new accommodation being built, the pressure on residential property prices is likely to continue for quite a while.

Of course there will be dips in some markets from time to time but, if you try to time the very bottom of markets it’s likely you will never invest.

Conditions are ripe for a sustained recovery in residential property prices, economic forecaster BIS Shrapnel says in its Residential Property Prospects, 2009-2012 report.

“Low interest rates, solid growth in rents and housing shortages evident in most markets” are the factors that will drive prices, the report says.

And although interest rates are on the rise, they are still very low. Interest rate rises will widen opportunities for investors to get into prime residential markets.

First-home buyers have dominated the market but rising interest rates and falling grants will curtail their activity.

Rising interest rates are not nearly as big a problem for investors. This is because, for an investor, the interest on borrowings is a tax-deductible expense, which is not the case with a home buyer. Investors on the top marginal tax rate only have to wear about half the increase in mortgage payments arising from interest rate hikes.

Negatively geared real-estate investments are also expected to become more attractive to high-income earners who have had the amount they can tax-effectively contribute to superannuation drastically reduced. This will increase competition for suitable properties, which will also help to underpin prices.

So what’s your predication for 2010?

The start of a year brings about new resolutions, so how about making 2010 the year you took control of your financial future. The year you establish your property investing goals and went about making them happen.