Shorting property markets and longing for accuracy – no chance

Shorting property markets and longing for accuracy – no chance

My curiosity was stirred last week by M Jackson, who said that, (subject to approval) the Australian Securities and Investment Commission (ASIC) may allow you to have a punt on our property markets. Described as a world first, ASX punters can take out a derivative contract based on Rismark/RP Data market indices which are in turn quoted daily to the share market. I did laugh when I read ‘daily’ – try months after the event if real estate agents decide to block data sales access.

Back to M Jackson’s comment on last week’s blog – “Contrary to popular myth, the water in Australian plugholes goes down the same way as everywhere else. So, too, the housing market. Figures from the Bureau of Statistics (ABS) on Monday showed that prices in eight capital cities were down by a record 2.2 per cent between December and March. The fourth quarterly fall in a row brought the year – on – year rate of decline to almost 7 per cent.”

Rismark/RP Data reported national dwelling values increased by 1.52 per cent for March 2009. Then the ABS reports a 2.2 per cent decline. Somebody got it wrong – but hey, take a punt?

Tim Mooney Photography

Back to M Jackson’s comment – “Gross rentals yields of about 3 per cent, meanwhile, are near all – time lows; if houses were stocks, they’d be trading on wobbly price/earnings multiples of more than 30 times. Unemployment data, to be released on Thursday, may show a rise to almost 6 per cent, the highest level in six years. Job ads fell again in April. Mortgage flows are sputtering. The props are falling away. Currently the SFE is constructing a tradeable index on Australian housing, which should be completed by and ready by August 2009. I can’t wait to go short. If there was one specific to the Lower North Shore in Sydney. I would have double the size positions.”

I thank M Jackson for his input and look forward to reading more responses to our blogs.

The Global Financial Crisis was brought about by global banking institutions investing in (probable and possible) markets based on high debt ratios – otherwise known as gambling. The process for aggregating property data has always been flawed – highlighted by the simple fact that the ABS and Rismark/RP Data constantly report conflicting property data positions. Definitely not an each – way bet!

Consider the property market reality, if ASIC approves the trade derivative contracts and the Australian real estate agencies automatically cease providing all sales data to all the aggregators? It would then be one, two, three, four, five and six months until such data became available. Just who would punt on such irregularities? The data aggregators don’t act in harmony with real estate agencies in Australia where there is not the slightest possibility of any change – anytime soon. I would predict (and support) a total real estate data black–out.

After all, we act for our vendors (first and foremost) and are under absolutely no obligation to report sales data that aggregator’s then on-sell to institutions. One only has to look at the banning of shorting banking stocks to observe that this is conducive to assisting economic growth in a recession. The real estate industry is the largest employer in Australia where our economy is only in a sound position because our banking system is world’s best practise and world’s best profits too.

Simply put: real estate agencies would cease reporting sales and rental data and agents would then lengthen the odds quite considerably. If such a market was created where (just say) you could bet on the Mosman market – I would hope that collectively, Mosman agencies would turn such a proposal into a blank canvas with data support.

From “bricks and mortar” to “punt and hunt” derivative markets! The only people that I can see making money from these proposed markets are actually the real estate agents. Is this Australia’s financial version of subprime – a buy position without actually owning a house? Short on being exact and very long on accuracy.

I thought Malcolm Turnbull’s Budget response to be lame (to say the least). However, with the possibility of a double dissolution around the corner, it makes sense to keep ones “powder dry”. As one subscriber said this week, “depending upon the government for your future financial security, is like hiring an accountant who is a compulsive gambler!”

Ruddy Fantastic and Wayne Swans’ missing word disorder’ may have been cured this week when it was revealed on “It’s been suggested that Kevin Rudd would not utter the phrase “$300 billion” for fears his words will be used in coalition advertisements during the next election campaign.” So much for “sticks and stones may break my bones but words will never hurt me.” Then “Mr Rudd said Australia’s debt would peak at “around 200, or gross debt at about 300” in 2013 – 14. Now journalists are on to this political spin game and will play this to their hearts’ content. Very petty, although Australia’s deficit needs much more than petty cash as we will continually be reminded for many years to come.

Australia’s housing prices are at their most affordable level in seven years and in the March quarter the Housing Industry Association – Commonwealth Bank First Home Buyer Affordability Index recorded a 14.6 per cent increase. The average home loan fell by 11 per cent from $2056 a month to $1831 last year.

Despite confidence levels still being down, car sales in April were up on the March figures. Just as interesting is that in Mosman on there are only 118 houses/semis (I removed double entries, apartments, and out of area listings from the listed 135) available for sale which is an all time low in available stock levels. This will only get tighter over winter given that purchasers are now engaging with vendors.

This week’s video is a brilliant story about the annual Balmoral Burn Race Day which happens next Sunday on May 31. The Balmoral Burn Sponsors’ Dinner takes place on Friday May 29, 2009 so watch the video for more details. Keeping in the theme, this week’s aerial photograph by Tim Mooney Photography, highlights the best beach on our planet and in the background Awaba Street – the Balmoral Burn tread mill. Congratulations to Phil and Julie Kearns who started this brilliant fundraising event back in 2001. Given that I have won the race three times now, I am no longer eligible to compete.

Cheers ^__^

For this week’s recorded Mosman real estate, Cremorne real estate, Neutral Bay real estate and Cammeray real estate sales

8 Responses to “Shorting property markets and longing for accuracy – no chance”

  • happy to compete with you on the balmoral burn !!! R&W against Napier !!!!

  • Pete,

    I wish that I had known earlier as I have unfortunately given my chauffeur the day off. I am more than happy for Steve or Richard to race you:)

  • Tim Mooney says:

    Robert if your readers would like to get an enlargement print of the aerial pics just get them to drop me an email:

  • Michael says:

    Great photography Tim.

  • Dave B says:

    Robert, good point you raise. Essentially, you’re saying that real estate agents may compromise the integrity of the index, putting investors off supporting such a derivative.

    Presumably Rismark derive sales data from sources other than real estate agents, such as the Office of State Revenue. I am no expert on Real Estate Agent’s disclosure requirements but I would imagine distorted reporting would attract Trade Practices Act attention.

    Regardless, if you think about this product, who will it appeal to? Developers would want to short sell it to hedge the value of their investments (provided they are not already broke). Banks would have to short sell it to protect against negative equity from falling property prices. This may be seen as a cheaper version of LMI.

    Those who have perhaps a broader macro perspective than the Mosman peninsular might see it as an appropriate sell, given the precendence of other, similar markets etc.

    The only ones who would really buy this index are those saving for a deposit and don’t want prices to creep away from them, the small end of town.

    So yes, this M Jackson is completely correct. This is a screaming sell, no matter how the data is manipulated. The big money is hedging against price decline and negative equity. The smart money is shorting anything to do with Australian property. And Real Estate agents are clutching at straws, claiming housing hes never been so affordable.

  • Dave, you are correct and the property aggregators would love nothing more than to get their hands on data when a property exchanges as against when it settles which can be many months later. The only people that have access to exchanged data are the agents – with absolutely no legal requirement to share this data.

    A vexing issue – indeed 🙂

  • Dave B says:

    Robert, looks like you’re in the box seat then!

  • Dave,

    What I find amazing is that until recently we had not heard a single thing about this proposal before ASIC. I think the hedge funds will stick to shorting the banks and other financial institutions following the announcement yesterday to lift the shorting ban.

    You are correct we are in the box seat where I believe the agents will confidentially archieve sales results – who wants to take a punt on property markets in May when you are working off March Data (and that is still incomplete). RP Data need a new strategy for their model to work.

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