Absolutely astounded

Absolutely astounded

I was absolutely astounded when this week, one weekend journalist used the ‘f’ word to describe the weekend property market, after the interest rate rise last week. We all like a play on words but please, to describe it as a ‘frenzy’ is way off the mark! This would also, in all probability explain why clearance rates fell from the eighties to 76% last week. Maybe more appropriate ‘f’ words would be fraudulent (agents over-quoting), foolish (buyer not doing homework), feeble-minded (procrastinators), flippant (agents under quoting), frivolous (not servicing buyers), and last but not least… fatal! In my opinion all these comments serve to do is scare the market and make purchasers withdraw, adopting a more ‘wait and see’ approach. Yes, I have been in a frenzy market and that was in 1987/1988. We were selling homes in the first few minutes of the open for inspection! In those days when you arrived at the home for the first open, there were usually about thirty couples waiting just so that they could get through first.

It is a tough job but somebody has to do it! The market is showing initial signs of easing and this is also evident with the numbers attending the inspections. We are now really heading into Winter. Make no mistake, the market is still ‘there’ and by all accounts it is still very healthy and wealthy. It is just that we are not photocopying as many copies of contracts for sale as we were a month ago. The real estate market had many adjustments throughout the year and the severe lack of property is certainly not assisting. One thing that can be said about the market is that it is still full of surprises and yes, times are changing rapidly. I remember when we would advertise “been in the one family for over 42 years”. Today we try to hide the period of ownership so that the capital gain will not scare away the wary purchasers. For the record, we much prefer the current status quo. As I said to one couple the other day who have been in their home for over 40 years, “you’re not very good for our business”!

One sector of the market that astounds me is the home unit market. Marize, our very own “Queen of Units” is run off her feet meeting the demands and that side of the business is literally soaring. I have been looking for the reasons as to why, and it was only when I received one of my usual weekly e-mail alerts (don’t you love them) that the penny dropped. It was from a stock market e-zine titled, “How good are the analysts??” What they did was go back to late-March and check hundreds of ‘buy’ recommendations. It was a wide-ranging list of companies. On the basis of these results, they said that if one had invested $1000 in each of the companies, today one would be minus 23% in just 60 days. It is obvious to all that the real estate industry has received a massive injection of funds from investors who are much more relaxed about property than shares. Property, especially the family home, is the best after-tax investment by a country mile, and many are using the home as an excellent borrowing facility to buy investment properties. Many are concerned that their children will be priced out of the market, so they are buying now for their children. CGT (Capital Gains Tax) on investment property is charged at only half the marginal income tax rates and borrowing costs are deductible. This in turn encourages investment in property which many see as less volatile.

I must admit that I am a self-confessed addict of news… I love reading all the newspapers and in the The Weekend Australian I read an interesting article titled “This boom is a blast… as long as it lasts”. What really grabbed my attention was a graph, courtesy of BIS Shrapnel, which took my attention for a considerable time. Here it is.

Have a look at the steep rise from 1988 to 1990 (the frenzy market) then “the recession we had to have” which Steve and I disagree with. We personally saw the drop in prices that was much more severe. During that recession period I was appointed by the National Bank to sell off the Mosman mortgagee account for the then defunct Custom Credit. It had a book value of just over $15 million, and we gave them back just over $6 million in sales. One house in which we had interest in 1988 at around $3,500,000 sold in 1992 for $1,950,000. Today it is worth $5,000,000. Yes ‘the recession we had to have’ which probably explains why this week I went out and purchased “Recollections of a Bleeding Heart” A portrait of Paul Keating.Today many are still bleeding from the events that transpired over that period, and I am not exactly sure what prompted me to buy it? I daresay I will not be the only one to say that!

Now back to the graph! Given the current economic climate, can you see the graph changing direction, note the little dip for September 11. I can’t see anything changing except for the times. We are all entering new and interesting times, as for a property crash, yep those were the days !!….^_^

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