What is the Best Performing Commodity for the Next Five Years?

Australia is such a blessed country. We have amazing beaches and breathtaking rain forests. Our cities are ranked among the most liveable in the world. And we have some of the friendliest citizens too. It’s no wonder that 8.2 million people came to visit our shores last year. This figure was up 11.3% year-on-year, with most visitors coming to Australia for holidays.

There is one Aussie commodity that gets non-stop attention. And since 2012, I would argue it’s been Australia’s best-performing commodity. It’s not iron ore, or coal. It’s property.

Since 2012, Australian home values have had an impressive run. Below is a graph of CoreLogic’s Home Value index.

CoreLogic’s Home Value index - Rolling annual change in combined capital city home values

Source: Corelogic, RP Data

As you can see, the market, on average, has been growing since 2012. But will it continue for the next five years, or even this year?

No one has a crystal ball, but, so far, Aussie property hasn’t disappointed. The Australian Financial Review (AFR) reports:

Unseasonably festive season sales and auctions against record low stock levels gave house prices another price boost in January with Sydney and Melbourne recording the highest growth…Sydney posted a 1 per cent rise in dwelling values while Melbourne rose 0.8 per cent. Every other capital city, except for Darwin, recorded rises resulting in an overall combined capital states 0.7 per cent growth.

Many are predicting property prices will continue to rise. ‘…A survey of property analysts shows most are predicting solid growth in the price of houses in 2017,’ according to the AFR.

But surely prices can’t rise forever, can they?

Is there an end in sight?

As you can see from the graph above, property values don’t rise forever. In 2009 and 2012, property prices actually declined in Australia. The market right now is a long way from dropping into negative growth. And I don’t believe we are in for a property crash anytime soon.

But what might happen soon in high-priced markets like Sydney and Melbourne is that affordability issues could crop up. The deposit for the average home in Sydney is around $169,000. This is likely unaffordable to many young couples, and even investors. But it might not be the case in the near future.

While mortgage serviceability remains reasonably healthy, mortgage rates are already edging higher on the back of higher funding costs, which could progressively take some heat out of investment demand,’ the AFR wrote.

Taking investor ‘heat’ out of the market could likely slow down property price growth. So instead of showing similar growth in the next five years, the market, on average, might stagnate. This doesn’t mean there won’t be opportunities in the market.

Just like on the ASX, the property market is full of opportunities. If the market declines, it doesn’t mean there are no good stocks in the market. Some rallied and some declined. It’s your job to get into the stocks and property which could experience huge growth in the near future.

In the next five years, buying high-returning properties will become harder. You’ll need to do your research and be creative. If you can stick to a strategy that works, the property market could still be your best-performing asset over the next five years.


Härje Ronngard,              

Junior Analyst, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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