Blame human behaviour – not property markets

Blame human behaviour – not property markets

With so much focus on declining property markets today, many market spectators keep accusing real estate agents of talking the market up. Alan Greenspan famously referred to red – hot property markets as “irrational exuberance” and human behaviour is exactly what determines property prices. Some Sydney markets are well noted as being in decline and vendors are paying the price. It takes money to purchase a property and the cost of money is going up internationally. When property market sentiment changes so does property value perceptions. This can be further convoluted by real estate agents who over value a property in order to list the home. This then results in the property not selling, which in turn delivers yet another market perception for all the wrong reasons … it is very hard to sell an avocado for $8.00 each before it goes off.

It’s interesting to look at our 2008 sales . Our clearance rate is currently at 95 per cent (the highest of any agency in the area) & is definitely not a case of “irrational exuberance” when it comes to valuing property. If properties are not selling it’s most likely a case of an incorrect valuation … human behaviour to blame, not the property market. Of course when one closely examines the psychology of homeowners , they for obvious reasons hate losses much more than capital gains. A loss in the public property domain becomes exactly that, as capital gains are often perceived as a fact of life and taken for granted in strong markets.

So how do you correct some agency “over exuberance” with property valuations? Very easily – vendors apply penalty rates with agency commissions. In recent times, agents and vendors have factored in performance based commission structures, the more the vendor attains , more the agent earns. So it is realistic to suggest that the same equation be applied in the reverse, determined by natural market conditions. Once applied, it would be very easy for vendor(s) to identify if their valuation was “pie in the sky.” It’s easy for competing agents to print off ( colour has a greater effect) real estate website listings to identify what value was originally quoted and what the asking price is today. In many cases the asking price has been significantly lowered … we love technology.

One can’t blame agents with the inflation component of our economy. Whilst they can inflate prices with exuberant valuations more often than not, a recorded sale does not follow suit. Next week the Rudd government will deliver its first budget with a mandate that it will attack and even cure inflation. Brendan Nelson and Malcolm Turnbull share an opinion that inflation is being over exaggerated by the government … a case of lost the plot when you look at this graph.

Reserve Bank Consumer Price Measures, 2003-08

*(Weighted median, percentage change from corresponding previous year seasonally adjusted)

One only has to look at September – 2007 to see the spike. Obviously the use of a Commonwealth car must be the reason for the parliamentarians not noticing that oil has risen from $US62 a barrel to more than $US 120. Now that is inflation and it is now being suggested that we will be paying $2.30 per litre next year. Petrol prices climbed 12.6 per cent in the year to April 2008.

Throw in a record low vacancy rate in the Sydney CBD of 0.9 per cent (and getting lower). Prime Minister Kevin Rudd announced this week that Australia needs one million new homes over the next six years to keep up with estimated population growth. Developers have been simply taxed out of the markets by overzealous Federal and State government taxes which explains exactly why new construction remains on the decline. Then you have the cost of steel increasing thus far in 2008 by 60 per cent! The Rudd paper , “National Rental Affordability Scheme” which only applies to newly constructed properties (for obvious reasons) is an absolute no brainer.

Just because “Ker-Fudd” offers potential landlords a $6,000 federal grant (or tax offset) plus a $2,000 State government contribution for 10 years, makes from a property perspective , absolutely no sense.

The truth of the matter is that property developers are barking at GST, Stamp Duty, Land Tax and Capital Gains Tax which provides a very clear example why inflation keeps rising.

The Howard Government told voters, that by introducing GST into our economy , taxes would decrease. The reality that they have actually increased identifies clearly how wrong they were and now they claim that inflation is not a concern.

The “Ker-Fudd” budget next week will identify just who is running the country. Although constituents are fast learning that “Kev-07” is reluctant to be the bearer of bad news. Compelling times! Cheers ^__^

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