THE MARKET – STARTLING FACTS – 01 FEBRUARY 2013

The market and how it’s reported sometimes makes me laugh – then cry…

Take an article on the web today from news.com.au under the banner of “Sydney’s housing recovery on a firm footing according to the RP Data-Rismark Home Value Index” where they spruike that the median price of EVERY capital city has risen in the month of January 2013 (except for poor old Darwin).  They say, and I quote; “National values rose 1.2 per cent for the month, according to an aggregate of the eight capital cities.”  Are you kidding me?  Follow that reasoning and we’re looking at an annualised growth rate for 2013 of over 14%!  WOW – gotta buy me several houses and FAST!

Here we go again!  Median price – means what?  Nothing!  …and how about the ultra short sample time? 30 days.  Please!  …and where did they get real time data from?  Government Agencies just don’t release that sort of data until well after settlement has occurred.

The sales volumes are all over the place in most markets and a median price can rise, as we know, if there is even a slight numerical tilt toward more expensive properties selling.  The TRUE DATA lies in examining exactly what has sold, and whether the sellers have “taken a bath” if they bought anytime after, say 2004.  One can also examine like-for-like properties in a street or say 1 km radius and compare their selling prices in each year from 2001 to the present.

I put this to you.  Many sellers under a certain price in each market have decided to “soldier on” with their mortgage payments as they’ve had either NO OFFERS or ridiculously low offers on their property. Faced with losing their house AND ending up with a $50,000.00 to $200,000.00 liability to the Bank they’ve decided to stay put.

People selling in the higher priced brackets in many cases have been forced to sell or have come to their own conclusion that they’d better take LOSS ‘A’ now or face LOSS ‘A+’ down the track.  In other words, cut ‘n’ run.  That is what we are seeing and if you were to properly drill down into the actual sales this conclusion would become crystal clear to even the most optimistic amongst you.

I will now quote from the PRDnationwide Southport Area Property Watch Q4 2012. Thank you Mr. R. Matta for your kind permissions)

“The Southport Area house market continues to endure a suppressed level of activity, recording a total of 101 transactions in the six months to 30 June 2012”.  The whole area of Southport had 101 sales in 6 months – when the market was running hot 8-10 years ago I used to sell and settle 25 or more all by myself in a fraction of the area of Southport. That’s how sick the market is today.

(Please ignore MEDIAN but at least it’s over a 7 year period!)  “The current median price of $375,000 recorded for the June 2012 period reflects the median price recorded seven years ago, with uncertainty in the local market forcing many buyers to adopt a vulture like mentality to ensure their potential purchase is less exposed to the risks of further price corrections.” That’s a pretty strong and telling statement don’t you think, especially the bit where it says the prices today are about the same as they were in 2005?

And this – which sums up nicely what’s happening in most markets across Australia as this “correction” takes hold…”However, with the extent of price corrections experienced in the market over the past five years, particularly from the mid-high end of the market, some vendors cannot afford to reduce their pricing due to equity shortfalls, often withdrawing their properties from the market until such time market conditions improve. Increased mortgage affordability resulting from successive interest rate cuts since November 2011 has perhaps alleviated some of the pain for distressed mortgagors, further encouraging them to weather the storm. There is also evidence to suggest that unencumbered vendors have become increasingly reluctant to negotiate on the fire sale cash offers floating around in the market, which is contributing to restricting housing stock in the market. Unfortunately, the stalemate between counterparties on what is a reasonable price to pay is prolonging any real progress towards a certain turning point in the market.”

WOW!  Tell me something I don’t know and haven’t already concluded from talking to dozens of real buyers and sellers…but it’s always nice to see someone agrees with you! (Insert smiley face with wry grin).

But then this from the same report…”Despite the data painting a dire picture of the current market situation, prospects for the immediate are among the best in the Gold Coast region.  The Southport area is one of the Gold Coast’s infrastructure hot spots with spending sitting at $4.26 billion. Upgrades to existing recreational facilities and roads, and the development of key public and private infrastructure such as the Gold Coast Private Hospital, Gold Coast University Hospital and the Light Rail Network soon to link Southport with Broadbeach, all contribute to the multi-billion dollar investment into the area over the forthcoming years. Several commercial and residential projects are earmarked for the area amounting to a further $3.38 billion, though most are not likely to come to fruition anytime in the near future.

Few things get me going as much as seeing the word “Infrastructure” used, especially with a BILLION DOLLARS beside it to denote a guarantee of future success.  Infrastructure spending is only ever any good if the infrastructure built is actually used by those for whom it was built to produce profitable and sustainable economic activity that is not supported by an interfering government subsidy of one market-altering kind or another.

The Gold Coast Light Rail is an example of very expensive infrastructure that will fail.  Cost overruns are guaranteed to force the already pricey fares upward to the point where no-one will use it.  I predict it will take a couple of changes of Government but eventually it will be ripped up and replaced by (as it should have been all along) double decked bend-in-the-middle buses running on some form of natural gas.

This market, as have all others since we knew what a “market” was, is run on fear and greed.  At the moment the fear is of loss and the greed is bargain hunting at an extraordinary level, combined with the vulture-like greed referred to in the PRD Report.

Fancy predicting a complete turnaround on 30 days figures…

STOP PRESS – a little more from PRD, this time from the corresponding Report on the Palm Beach Elanora area of the Gold Coast…

“…evidence indicates an improvement in buyer enquiry for houses though buyers remain reticent in their purchasing decisions and sensitive to vendor pricing. Whilst many vendors acknowledge diminished capital values especially over recent years, and have priced their property accordingly, a large proportion of vendors remain under the illusion that their properties are undoubtedly worth more now than three to five years ago.”

Mmmmmm – more next time…

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