MARKET REALITY – 20 NOVEMBER 2012

Sometimes you just have to laugh at so called “Expert Reports” made up by self serving organisations.

I refer to one by the Real Estate Institute of Australia (REIA) entitled “Australian House prices: Bursting the Bubble Myth” published in November 2010.

The REIA Secretariat came to this “amazing” conclusion….

“An analysis of the factors influencing Australia’s house price movements and the lending practices of Australia’s financial institutions suggests that a US style housing bubble in Australia is unlikely. Four house price growth rate phases have been identified and associated to changes in mortgage rates, stock returns and family income. The financial system regulation in Australia leads financial institutions to behave more prudently and to avoid excessive risks, contrary to their US counterparts.”

 

Here it comes….BOLLOCKS!

 

I know I’ve referred to a lot of statistics as meaningless but these are from THE SOURCE!  If you examine these statistics over time they really do point to the truth and there’s no denying that a fall, correction, call-it-what-you-may, is here to stay.

I refer to the following figures, courtesy of the Australia Bureau of Statistics (ABS) House Price Indexes: Eight Capital Cities. 12 months to end March Quarter 2012

Weighted average of eight capital cities                      MINUS 4.5%

 

Sydney                                                                                MINUS 4.6%

Melbourne                                                                         MINUS 6.6%

Brisbane                                                                             MINUS 3.7%

Adelaide                                                                              MINUS 3.8%

Perth (Mining boom town!)                                            MINUS 1.7%

Hobart                                                                                 MINUS 6.7%

Darwin (the odd one out!)                                              PLUS 3.5%

Canberra                                                                             MINUS 0.5%

Only Darwin is bucking the trend.  Darwin is a small, very expensive market.  Everything has to be built to very high Cyclone ratings and the cost of shipping building materials all that way is ridiculous.  The cost of labour is (pardon the pun) literally through the roof and always has been, irrespective of market conditions, so we can really choose to ignore Darwin for the purpose of this illustration.

Darwin is, however, a fabulous place to visit.  If you haven’t been, I’d suggest you add it to your list.  Amazing!

Please have a look at this chart, again courtesy ABS.  If that doesn’t show a distinct and ongoing trend reversal I don’t know what does! The reversal didn’t start when the figures were in the red mid to late 2010, but in late March 2009.

Established house prices.

Weighted average of eight capital citiesQuarterly % change

Please click on the link to open a simple PDF that shows the graphic.

Weighted average of eight capital cities – Quarterly % change

I know that single sales don’t show much but they are important to note.  There’s been a focus on the big end of town where $10 million houses have been discounted to $5 million, or less.  The other end has been somewhat immune according to many commentators but that isn’t true as this malaise sinks it’s fangs into the entire market.

Studio Unit, a little over 50 square metres, sold for $239,000.00 at the peak, just changed hands for $139,000.00.  I bedroom unit, beach side of the Highway, sold for $309,000.00 at the peak, changed hands for $149,000.00 in a distressed sale.

I bought a one bedroom unit in 1998 for $91,500.00.  The units in the small complex sell for fairly much the same price as some have views, others breezes and yet others overlook a nice wee pool.  The prices went nuts during the boom jumping to $130,000.00 in 2003, $155,000.00 in 2004, $170,000.00 in 2006, $200,000.00 beginning and $215,000.000 end of 2007, and they’ve been falling steadily since. The latest reported sale was just $167,500.00 in June 2012.

One has recently been listed for sale and an agent who knows the building and the area well told me they will be lucky to achieve $140,000.00.  The owners paid $200,000.00.  Great investment?  They face a loss of some $80,000.00 after 5 years.

Some nasty people have written to me saying I’m just a Chicken Little running around saying the sky is falling but the facts are there folks and they just keep on coming. If this one sells for $140,000.00 we are back to mid to late 2003 prices.  This is the correction we had to have that I’ve been banging on about since 2008.

Not too far away a one bedroom unit that was sold for $100,000.00 in 2002, again for $160,000.00 in October 2005 and was appraised for sale by me in late 2007 as being able to achieve $200,000.00, is on the market today, asking a mere $127,500.00.  The sharks are circling.  We may just see a sale under $100,000.00 for a one bedroom apartment in an older building just an 800 metre walk from one of the most famous beaches in the World.

More later…

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