Huffing and puffing but not blowing houses down!

Huffing and puffing but not blowing houses down!

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Australian property markets make compelling viewing for letterbox voyeurs given we’ve never been better despite the crisis. According to the Australian Bureau of Statistics (ABS) we are healthier, wealthier and wiser and Australia, during the first half of the global financial crisis, was one of only three developed countries with finances and economies remaining positive. On the flip side, housing affordability and conditions continue to deteriorate based on the Measures of Progress report released by the ABS which plots social and economic changes every ten years across Australia. In the ten years to 2009, the homes that were affordable to low income earners, fell from 15 per cent to 7 per cent.

The Reserve Bank of Australia (RBA) again defied market expectations this week when it left the cash rate at 4.5 per cent for the fifth straight month. The letterbox voyeurs of doom and gloom were quick to regroup following the RBA rates surprise when they trumpeted focus shifts to November for rate rise. The RP Data – Rismark August home value indices revealed that Sydney has been one of only two capital cities to avoid any falls in value, recording a 0.2 per cent rise in house and unit values over the quarter (the other city was Canberra). Price trends put Sydney buyers in the driving seat “The improved value proposition in Sydney’s housing market is also helping to keep more residents from departing for other states. Based on the latest data from the ABS (to March 2010), the outflow of residents from NSW has not been this low for 15 years.” No doubting that this would have something to do with the forthcoming removal of its incompetent government – Fort Crumble.

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BUY PRINT

I love a debate. I read rates could pop house price bubble: economist Dean Baker who tipped the US housing market collapse says Australia’s high house prices are at risk of slumping if interest rates rise further. US banks still remain on a government-induced life support and Australian banks are posting healthy profits with net interest margins back at pre GFC levels. RBA officially given a role as stabiliser for financial system where its mandate has been broadened for the first time to take into account the stability of the nation’s financial system. From the end of October, the majority of the big banks will start reporting full year profits which, for the big four banks, are expected to report a combined record profit of more than $21 billion. US property markets were decimated when subprime hit. This was brought about by the banks going into liquidation and I fail to see any such similarities – no cigar for Dean Baker. The Sydney property market can’t and won’t collapse, given the first third of households rent, the second own with a mortgage and the final third, own with no mortgage.

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Housing estimates from the ABS identify that at the last count (2007 – 2008) Australia had 7,914,300 homes, compared to US figures over the same period at 112,362,848. Hardly an intelligent summation given the stark differences – have I loved this housing debate!

As we have discussed previously in Virtual Realty News Mosman has approximately 4,900 houses where (for arguments sake) approximately 1,666 rent, 1,666 own with a mortgage and the other 1,666 own without a mortgage. Interest rate increases affect the 1,666 that have a mortgage and not the 3,222 who rent or own without a mortgage. After looking at 2007, 2008, 2009 and 2010 house sales in Mosman, I can confidently say that it would take a financial tsunami to see our property prices drop to the levels predicted by Dean Baker.

  • Mosman house sales in 2007 – 414
  • Mosman house sales in 2008 – 269
  • Mosman house sales in 2009 – 322
  • Mosman house sales in 2010 – 255

IMF sees risk in ‘mild overvaluation’ of Aussie house prices given it will stress–test Australia’s mortgage market. House prices in eight major cities rose by 18.4 per cent in the year to June, prompting some analysts to warn of a bubble. House building activity hits 18 – month low a direct result of builders on Fort Fumble/Princess Gillard’s playgrounds of gold. Why build with their money when they can build using Gillard’s ‘cash for tuckshop’ building contracts.

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I noted whilst reading Macquarie Economics Research The Australian Insider – Outlook for the December quarter 2010, their observations pertaining to the above graphs.

  • Stepping back from the state–based detail, it is also obvious that the housing market is in a vastly different position to that prevailing in 2006 – 07. Not only has housing finance fallen by 26% since September 2009, it is also 26 % below its average level over 2006 – 07 (a period when finance was fairly stable). This means that dwelling commencements could easily fall by over 20% over 2011.

Only the uninformed would suggest that Australia has a housing bubble, because it is very clear that we are suffering from an undersupply, not an oversupply. Our non – existent house bubble presents another excellent explanation which takes one back to very basic economics – supply V demand.

When you have a government funded Builders Revolution it’s no wonder the tools are down!

No doubt when they complete their government guaranteed building works (when they return from their respective overseas holiday jaunts) may we again see the cement being poured on construction sites.

As they say “when you’re on a good thing – stick to it” hence, the Builders Education Revolution.

For connoisseurs of outstanding Mosman waterfronts look no further than this sensational Sydney Harbour residence – click here.

Cheers ^__^

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2 Responses to “Huffing and puffing but not blowing houses down!”

  • We certainly are suffering from an undersupply, not an oversupply Robert.

    Rental properties are leasing in a number of days at record prices and the weekly rent for one bedroom units has skyrocketed in recent months.

  • Ann says:

    People are still nervous and when they read global reports that Sydney house prices are over valued they remain very nervous.

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