Cold facts needed for red – hot property

Cold facts needed for red – hot property

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For some very strange reason property commentators are struggling to differentiate between the investor property market and the household property market. Treasurer Joe Hockey was so right when he commented this week “It is just an easy mantra for international commentators and for analysts based overseas to say ‘well there’s a housing bubble emerging in Australia’; it is a rather lazy analysis because fundamentally we don’t have enough supply to meet demand.” On a personal note I have been saying this for the best part of twelve months now given the figures provided are a bundle of property sales where the demographic markets are not broken down – simply because they are lazy and you get a meatier headline by using the bundle method.

During the Global Financial Crisis (GFC) we kept hearing the ongoing reference to “green shoots” emerging where today some are attempting to decimate the Australian real estate industry. Many forget that the Australian real estate industry is directly one of the largest employers in Australia where there is a very strong argument that it is playing a major role in keeping our economy buoyant.

I don’t really buy the argument about the low interest rates although in five years’ time we in all probability will see distress sales as the cash rate moves up and home buyers come out of their fixed periods – that is inevitable and should not be used as some sort of shock therapy. Many are forgetting that the Australian banks borrow a substantial amount from overseas so when the cost of lending increases it won’t be the Reserve Bank of Australia (RBA) dictating the rates rather the banks will be increasing regardless of the cash rate setting. With the ‘Big Four’ banks holding eighty per cent of Australia’s mortgage book they won’t be waiting for guidance from the RBA – they’ve done it before and they will do it again. Although mysteriously the commentators have the RBA  front and centre whilst constantly missing the big picture. The cash rate might well remain at 2.50 per cent but we miss the point that the lenders are hedged to their funding costs which are not determined by the RBA.

BigPicture

SYDNEY AERIAL PHOTOGRAPHY

To put Joe Hockey’s ‘lazy analysis’ theory to the test this week I went back through Mosman House sales from 2000 to 2014 which shows a very interesting story given Mosman has approximately 4,800 houses and semis.

Year                      Number of Sales               Total Volume Sold          Average House Price
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2000              325                  $471,065,300                  $1,449,429

2001              381                 $650,971,860                  $1,708,588

2002              408                   Could not use these figures as they are 3 times the average

2003              371                  $842,768,432                  $2,271,613

2004              307                  $653,170,490                  $2,127,591

2005              304                 $714,776,000                $2,351,237

2006              394                 $965,744,130                $2,451,127

2007              408                 $1,170,279,387             $2,868,333

GFC

2008              217                 $731,805,612                $2,700,390

2009              306                 $778,113,751                $2,542,855

2010              340                 $932,342,149                $2,742,183

End of GFC

2011              285               $814,681,792                  $2,868,598

2012              384               $1,064,397,721               $2,771,869

2013              373               $1,033,783,221               $2,771,537

2014*             196               $616,615,916                  $3,146,000

*Denotes we are two thirds of the way through the selling year and stock levels are well down on previous years – so try explaining that “bubble”?

Sources:Australian Property Monitors and RWM Research

16-09-2014 11-41-51 AM

Another reason as to why we have a strong property market is that rental vacancy rates in the Sydney 0 – 10 kilometre range can’t get above two per cent yet we forget that twenty years ago they sat between 3.50 per cent and 4.00 per cent. Back in those days landlords were offering one month’s free rent to entice tenants. It needs to be pointed out that the problem we have is on the supply side which is why I don’t see the slightest problem with this niche market.

The problem is misinformation and yes some markets have reached unprecedented record prices, which in time as interest rates correct property values adjust accordingly based wholly on demand. The interesting part in this is when the property markets are in decline the purchasers decline too despite the fact that the markets are what we call a buyers’ market. We are currently in a vendors’ market where the buyers are happy to pay over and above the market value.

Real estate has always been a long term hold so for the vast majority what prices do is not really a major concern. There are clear patterns evolving where the majority now are not trading up given from a cost basis analysis it makes more sense to renovate – which is exactly what we are seeing today. In the case of Mosman if you take the present fourteen year average of yearly house sales in Mosman we get 321 so the average number of owners selling each year equates to 6.7 per cent. Based on that data an enormous number of house owners would have to find themselves in very serious financial trouble to see the “Mosman Bubble” burst.

Those are the cold facts.

MOSMAN – 2088

• Number of houses on the market this time 2013 – 81

• Number of houses on the market last week – 65

• Number of houses on the market this week – 64

• Number of apartments on the market this time 2013 – 55

• Number of apartments on the market last week – 47

• Number of apartments on the market this week – 44

CREMORNE – 2090

• Number of houses on the market this time 2013 – 4

• Number of houses on the market last week – 10

• Number of houses on the market this week – 10

• Number of apartments on the market this time 2013 – 14

• Number of apartments on the market last week – 15

• Number of apartments on the market this week – 16

NEUTRAL BAY – 2089

• Number of houses on the market this time 2013 – 7

• Number of houses on the market last week – 7

•Number of houses on the market this week – 7

• Number of apartments on the market this time 2013 – 28

• Number of apartments on the market last week – 30

• Number of apartments on the market this week – 33

For this week’s sales in Cremorne real estate, Cremorne Point real estate, Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Neutral Bay real estate, Cammeray real estate

Click Here

For this week’s open for inspections

Click Here

Source: Australian Property Monitors

Cheers ^__^

2 Responses to “Cold facts needed for red – hot property”

  • Gordon says:

    “Housing bubble” might make great tabloid-type headlines, but as usual from those sources, it’s not necessarily correct.

    The 15 year price listing is very interesting (what happened in 2002?), but when we take account of inflation, plus the considerable value of successive renovations, the figures seem to be pretty much line ball.

    The REINSW rental chart looks odd, though; it appears to run backwards, and the months look a bit confused!

  • Ann says:

    Can’t see a burst with demand is so high, regardless of what happens in wider economy

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