Forecasting error

BIS Shrapnel are never afraid of making a bullish property forecast. In July last year, near the peak of the last housing cycle, BIS chief, Frank Gelber, made the following bold prediction on the future direction of house prices in Australia [my emphasis]:

Frank Gelber gave members at a Real Estate Institute of Victoria lunch a very optimistic forecast for house prices, as reported in the Sydney Morning Herald.

“At the end of the day, we haven’t got a bubble in our residential market. We’re undersupplied, not oversupplied … [House] prices will go up another 30 per cent over the next three years”…

We’re not over-geared, we’re not overvalued and we’re not oversupplied,” he said. ”I can’t remember in the last 30 years a time when I have been more comfortable and optimistic about investment in the market”.

Australia’s recovery would not be affected by global economic uncertainty, he added.

Well we all know what has happened since then (chart from RP Data):

Now BIS Shrapnel has released its latest forecasts for house prices. And while they have moderated their outlook significantly, BIS is still forecasting solid growth for WA, New South Wales, and North Queensland. From SmartCompany:

The Australian property market is not set to crash any time soon, a new report from BIS Shrapnel has found, with prices expected to remain steady in 2011 and grow moderately over the next two years…

Zigomanis also says while prices will remain flat for the rest of the year, growth will be moderately higher over the next two years due in part to the ongoing chronic undersupply of dwellings.

“There is an underlying deficiency in Melbourne, obviously not as pronounced as it was two or three years ago, and we’re building a lot more now. But there is still going to be upward pressure there.”

The BIS Residential Property Prospects to 2011-2014 report may relieve fears the current correction will lead to a crash, describing current downward pressure as temporary and tipping long-term growth…

Throughout the rest of the year, affordability is expected to remain strained, putting a dampener on price rises. But over the next three years, Perth, Sydney and Brisbane are expected to see the biggest rises through 2014 due to new dwelling construction remaining under demand levels.

Growth outlook by region

Sydney: Median price forecast of $640,000 in June 2011. Prices to increase at 5.7% per year to 2014 due to low construction and vacancy rates.

Newcastle and Wollongong: Will benefit from migration from major cities due to unaffordability. Prices to increase in Newcastle by 18% by 2014, and by 16% in Wollongong.

Melbourne: Upward pressure falling as construction ramps up, and economic growth to flow through into wages. Price growth to be 6% in the next three years.

Brisbane: Median house price of $440,000 in June 2011 representing 4% decline over the year. State economic weakness, flooding and underlying demand weakened by migration all lead to downward pressure. Price gains to be at 4.7% over the next three years.

Gold Coast and Sunshine Coast: Prices moving along with Brisbane, but wide range of property and low flow of migrants mean prices are set to grow at just 3.7% over three years.

Townsville and Cairns: Economies impacted by low resources investment and weak tourism, but resources market to pick up in 2012-13. Price growth for Townsville to be 16% over three years, and 14% for Cairns.

Adelaide: Median house price of $410,000 to be static in 2010-11. Construction exceeding demand, leading to price growth of just 8% over next three years – in real terms, this is a decline of 2%. After a moderate rebound of 14 per cent in 2009/10, Adelaide’s forecast median house price of $410,000 in June 2011 is estimated to remain static in 2010/11.

Perth: Housing prices in decline since 2007 due to rising economic conditions and strong construction. But stronger population growth will lead to deficiencies, with growth to be 19% to 2014.

Hobart: Growth to be supported by strong migration, although this will cease at some point in the next three years as mainland city price growth moderates. Growth to be just 5% over the next three years.

Canberra: High incomes to support house prices, with median to rise 7% over three years to 2014.

Darwin: Prices underpinned by resources sector, but affordability poor. Lack of resource investments in the future will reduce upward pressure. Prices to rise by just 7% in three years to June.

Interestingly, BIS’ forecast of solid house price growth in Perth – 19% over the next three years – has drawn strong criticism from WA housing ‘experts’, who have also questioned BIS’ previous forecasting track record:

WA property experts have rubbished a forecast that Perth house prices will increase 19 per cent over three years…

However, at least three other property experts criticised the report as being exaggerated and too optimistic.

Real Estate Institute of WA president Alan Bourke said the 19 per cent prediction was “way too high” and based on incorrect interpretations of population data.

“They’re underpinning [their prediction] with net migration into WA, whereas … we’re seeing 20,000-25,000 less [people] coming to the west than there was a couple of years ago,” he said.

Australian Bureau of Statistics data released last week showed there was a net gain of 47,400 people into WA last year. That compares to about 72,000 in 2008-09.

Mr Bourke said BIS Shrapnel had been incorrect in the past.

“They had exactly the same prediction two years ago … and we saw really no movement at all in the past two years,” he said.

“They certainly haven’t been accurate, far from it.”

Property Council WA executive director Joe Lenzo said he did not expect Perth house prices to rise within the next nine to 12 months and then only gradually.

“There’s sufficient evidence that prices will increase [but] I wouldn’t be putting 19-20 per cent on it,” he said.

“BIS Shrapnel has a habit of pushing the envelope on either the upside or downside, depending on what they’re talking about.”

For mine, Real Estate WA’s criticism is most interesting. Generally, I would expect the real estate lobby to hail such a forecast as a reason for buyers to enter the market in the hope that it will encourage sales and boost commissions. However, it could be the case that with the Perth market having been in the doldrums for years now, Real Estate WA has shifted its focus to conditioning reluctant vendors to accept lower prices. And BIS’ bullish forecasts might be counter productive in that they could encourage vendors to hold out for higher prices, hence the animosity.

Further down the article, Australian Property Monitor’s (APM) also questions BIS’ Perth forecast:

Australian Property Monitors senior economist Andrew Wilson… believe[s] there is potential for the market to climb out of the stalemate from mid-next year but were cautious to predict bullish growth by 2014.

“Given the fact that the Perth property market has really been in decline for the last three to four years we predict an upside but our figures show that the Perth property market is still very flat and there’s no definitive signs of recovery or stabilisation,” Dr Wilson said.

“I think it would take all the boxes to be ticked for the recovery to strengthen over the next two to three years.”

Like BIS, APM were also caught-out in March last year predicting a doubling of house prices in Sydney over the next decade, with even stronger gains expected in Perth and Brisbane. From the Sunday Telegraph [my emphasis]:

UP TO half of Sydney homeowners are set to become property millionaires, with house prices predicted to double in the next decade.

Figures prepared exclusively for The Sunday Telegraph by Australian Property Monitors (APM) show Sydney’s median property price is on target to reach $1.2 million, averaging 7.6 per cent growth per annum…

APM economist Matthew Bell said Sydney house prices have grown on average seven to eight per cent per annum over the past 20 years and this was set to continue.

“We are a relatively affluent country with very good long-term prospects in terms of resources boom and population growth – I just can’t see us underperforming,” Mr Bell said. “When I was young, a million dollars was a lot of money – now it’s less money and that is just the power of inflation.”

While Sydney prices are strong, it may not make the same gains as other cities with stronger projected population numbers…

“If I had to invest somewhere in Australia it would be Perth followed by Brisbane because you have strong incomes, a resources boom and strong population growth,” Mr Bell said.
While it is fair enough to change one’s forecasts as circumstances change, surely revisions of the magnitude of BIS and APM are worthy of investigation and scrutiny by the mainstream media?

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Comments

  1. If you’re going to forecast, forecast often.

    It does not change the fact that Australia is in a deflation.

  2. “APM economist Matthew Bell said Sydney house prices have grown on average….this was set to continue….that is just the power of inflation.”

    Hey, an economist who knows what he’s talking about. I never thought I would see the day.

  3. I’d put predictions of BIS Shrapnel in the category of contrarian indicators. I remember when towards the end of the nineties they were forecasting a deep and prolonged recession in Australia due to our declining manufacturing. It was supposed to begin some after the year 2000. I don’t recall any mention of the resource boom in their forecast.

  4. BIS are a bunch of fools. AFAIK they have never had a correct prediction. They would be the ones standing on the deck of the sinking Titanic promising that the ship would begin to levitate shortly.

    • Accuracy doesn’t matter. BIS Shrapnel are paid by third parties to do “research” that produces a specific result.

      There are a lot of companies that do this sort of thing. Econometric modelling can produce any desired result, provided you pick the right assumptions. Such details as who paid for the “research”, how they worded their brief, and what assumptions were made to produce that result are seldom, if ever, made public. What’s more, since it’s just PR that costs news outlets nothing, they aren’t interested in what was said last month or last year.

    • BIS are not just BULLish they are also BULLshitters (either that or just really really bad forecasters)
      They’ve come up with some poor calls on the NZ market too

  5. often BIS Scrap has some relevant comments … in this or that area look at areas attached to transport corridors, but really the dribble they come out with! I went to a presentation seminar about 3 or 4 years ago where they presented stuff for central coast NSW, they were saying 10%pa for next 3 years … now I’m looking back those 3 years, can I sue them for any loss I made cause i relied on an “expert” … no … therefore they should lose their “expert” tag and the MSM should not give them any airtime.

  6. What surprises me is that none of the forecasters seem to have done any analysis of theoretically how high prices could go acknowledging the real constraints to house prices. I also haven’t been able to find much from anyone on this.

    While tables showing that house prices doubling every seven to ten years clearly show the stupidity of that notion long-term, it doesn’t really help determine how high prices could go and be sustained.

    I have started to have a closer look at this and there are a number of scenarios to consider, but under currently lending conditions using wages and house prices in 2011 dollars my calculations (which were pretty generous for the bulls’ side of the argument) couldn’t get a sustainable median house price higher than $660K nationally. Given that the last RPData had the national median at $410K it would be hard to get more than a 50% increase in real house prices no matter what the time period, let alone the impossibility of ever seeing house prices double from where we are and certainly not in seven to ten years.

    I am sure that people will disagree with my price limit and disagree with my assumptions, but I would challenge anyone to find a set of assumptions under which they could get median house prices to double in seven to ten years (without hyper-inflation) with a loan that was serviceable. The only way I can see to get house prices to increase beyond that would be through a change to lending conditions in Australia through multi-generational loans and so on, but even changes to the lending structure have finite limits.

    • BIS will never go out of business as they serve the largest financial interest group in the country – the property industry.

      There will always be a market for BIS reports though I would prefer a bit more rigour in their analysis.

  7. And BIS’s housing “shortage” figures are underwritten into the NBN business plan. Without the projected house build that BIS has forecast is necessary NBN Co’s finances will be under challenge.

      • The SMH ran a piece on it with quotes from HIA saying the shortfall in building using HIA forecasts is real over the next 2-3 years.

        NBN Co needs 177K new premises, on average, to 2020 to make tehir finances work. Under that number, courteesy of BIS Shrapnel forecasts and its probably back to the Gvt for more cash as the markets are not going to be too thrilled with the project.

      • That’s certainly something to explore though…

        I’m not a fan of the NBN, but I am a fan of government spending (directly, or indirectly through incentivisation) of infrastructure and R&D.

        Its a very complicated issue because TLS shouldn’t exist in its current form (a quasi/quango/hybrid basket case of public/private needs/wants) and its debateable if private corporations can do any better than government with regard to a rollout of this magnitude.

        I have my suspicions that the main use of the NBN will be online gaming, illegal downloads and pron, not business productivity.

        But i am a natural pessimist…..

        • I to think there is a role for government spend on infrastructure and R&D (via the likes of CSIRO). I seriously doubt the NBN is in either of the above categories.

          Infrastructure ideally should have longterm lifespan and of generational benefit (dams, hydro schemes, bridges, hospitals etc). An internet scheme based on fixed line technology in a world where to switch to mobile technologies is readily apparent and a sector where technological innovation is almost exponential – I just see a very expensive, taxpayer funded, white elephant – in ten years times the kids of today are not going to be stuck at home hunched over a desktop!

          Some time ago I read a Google exec saying in the medium term they expected internet access to be available – everywhere in the world – and what’s more, it would be free. Something their ideas gurus were working on.

          Additionally, the NBN is interesting because of the political connection – didn’t some of the independent come out in support of this current (incompetent) government essentially because of the NBN and its great benefit to the future of Australia? Minds of gnats.

          • We can’t build dams because it is never going to rain again and you might destroy the habitat of a rare kind of moth. Better to build desalination plants (and destroy marine habitats).

            Money for hospitals etc, needs to be prioritized — highest priority goes to increasing the numbers of government spin doctors etc. Additionally it is more important to to higher administrators than doctors, paramedic and police.

            …or so the logic of the victorian labor party goes.

            …so far not a lot of evidence that liberals are much better.

            democratic government is deteriorated to the point where we need to seriously consider public guillotining for abuse of office.

        • Well said 3d1K.

          I speculate that internet access is more likely to be mobile and cross border and free, funded by private advertisements, not by contracts, which seems to be the opposite of the NBN “business” model (mainly fixed dwelling use and contract based).

          • Prince,

            A number of points you’ve made here I’d like to respond to:

            1) If by mobile you mean ‘wireless’, this will never take over. All wireless technology is shared technology where performance deteriorates the more people are using the service and speeds drop via the inverse square law with distance. It’s simply not and will not be of the standard required by business at any point in the forseeable future. Even without these issues contemporary wireless performance is several orders of magnitude below that of wired performance. We will, for the life of the NBN at least, still need cable in the ground. As such wired internet access will remain contract based. The mobile space may open up but it will remain in the retail space.

            2) There is no way any business would take on the NBN. Many points about this were raised in the Four Corners documentary which I hope Q has watched before writing his article! The counter-arguments from Telsta and AAPT were laughable. They have relatively tiny inter-city and metropolitan investments in cable infrastructure, a fraction of that required for an NBN. Sorry, the market will not provide a solution here.

            3) The huge capex and likely financial challenges of the NBN are relatively short-term. Cable infrastructure is one of the most future-proof technologies we have. The same cable has handled a 32000-fold increase in speeds in the last 15 years alone. In the long-run there WILL be a return from the investment. It just won’t look great on the balance sheet for many years to come.

            4) Since part of our social economic woes are caused by excessive urbanization, surely you would in principal support improving essential infrastructure in regional areas? Our major towns will never to viable living alternatives to the cities without comparable services.

          • Hi 3d1k,

            I’m aware of this research, in fact my organization donated some old equipment to the CSIRO researcher working on this!
            All the points I’ve mentioned still apply. Just for an illustration, let’s put some numbers on the bandwidth side of the argument. CSIRO are experimenting (key word) with 12Mbs – 6 channels but only 12Mbs per end-user. Fibre is typically driven at 10,000Mbs (40,000 and 100,000 not yet widely used) at up to 128 channels on a single run.

            12/10000 = 0.12% for a single user
            72/1280000 = 0.005% aggregate

            But, here’s the clincher. Your 10,000 is dedicated. The 12 is shared, because funnily enough space is shared. Your performance degrades with every additional user.

            Secondly no-one is making more bandwidth in the electro-magnetic spectrum. That seems to have been fixed when the universe popped into existence. But every few year optics get better and we can drive light a little faster over the same string of glass.

            The point of all this is simply to say wireless is not and will not make the NBN investment redundant. It’s one of those falacious arguments that will not go away. Not unlike ‘house prices always go up’!

        • On the productivity side and – read the Gvt’s Digital econmomy strategy.

          The doc may be avilable here –
          http://www.minister.dbcde.gov.au/media/speeches/2009/034

          From this doc it is clear that the dept has no idea what productivity is and one of their aims with NBN is to make Australia a top 5 broadband nation. Not sure if we get a trophy but perhaps bragging rights are the aim.

          Lamentable and very bad logic.

    • Oh I suspect NBNs finances will be under challenge regardless.

      Curiously this scheme rarely gets at mention at MB – despite cost implications to taxpayers, creation of another quasi-government monopoly, flawed technology (particularly given rollout timelag) and eventual consumer coercion.

      • I agree – the MB silence about the NBN is strange. No opinions fellas?

        My gut tells me its one of those Government policies you know is wrong, but like because its a subsidy for your business.

        Fair call – I am in a similar boat

        • I’m ambivalent about the NBN. Of course I’d like to see faster broadband everywhere, but like Prince (above) I wonder what Australians will do with it apart from downloading pirated movies.

          Its not like we’re going to have a flourishing hi-tech industry here anytime soon!

        • That’s the major issue Lorax – will it be used well by the service industry (e.g healthcare, etc), because the IT/high tech industry is very small.

          It seems a very big risk for an unknown payoff – a classic “Type 2” investment.

          Its just that, I would never expose my portfolio or wealth to more than 20% into Type 2 asymmetric “investments” – can we trust that the total cost will be $42 bn?

          And I also am sceptical of a government run business – a contradiction in terms if ever there was one.

          Funnily enough, Q Continuum is doing a special piece on Telstra and the NBN as our “thematic” post for next week. I’ll see if I can get other MB bloggers to stick their oar in as well…

          • There is no question that high speed broadband is going to be used by many for questionable means, but I see this as short sighted reasoning for being against improving Australia’s broadband infrastructure.

            If there is one thing that holds back the products/services the company I work for offers it is the incredibly poor state of Australian broadband.
            And nothing gives us more headaches. We are lucky to make it a couple of weeks without 1 of the carriers having a service disruption in at least 1 of the states that impacts multiple customers. I am not implying there would be no problems/outages with the NBN, but the costs involved and the nightmarish experience in resolving customer tail faults with the current copper network are incredible.

            Is the government’s NBN plan the best option? Doubtful – when does this government get anything right? All I know is the existing network is archaic and needs an overhaul, it is a sad state of affairs still being so largely dependent on a 40 year old copper network that was never designed for the purpose it is now being used for.

            You can’t expect high-tech innovation dependant on a high-speed broadband network prior to the network being available.

            Full disclosure: Network engineer working for an ISP/Managed Services provider. (Perhaps I am biased!).

      • I didn’t expect to see NBN and wireless mentioned here, but I have some relevant experience and a few comments.

        I’m a software engineer by profession, and from 1995 to 2010 I worked developing the 3GPP spec for mobile phones, and that is GSM, GPRS, WCDMA, and finally LTE. I worked in the US and UK for Qualcomm who develop the reference design handset for most of the major handset companies. I only got into economics as there are few development jobs in Australia when I returned last year.

        But, some of the comments on wireless never progressing are outright false, and the new modulation schemes/access systems are continuing to expand the bandwidth and you can see that from GMSK (GSM -TDMA scheme) through to 64QAM (LTE – OFDMA D/L [Depending on the category you can have up to 300Mbps on the D/L in Release 8 – depends on the physical layer performance – but 50Mbps should be common eventually]). Even for vanilla GSM we can now fit two calls on the same timeslot – not relevant for this discussion, but no one expected a TSC change to the spec to achieve this, and I worked with the system engineer that designed the scheme. Also, in mobile comms we increase the cells in an area to increase the users(there are limits, but as spectrum is released more can be done).

        I’ve also worked on fixed telecoms so there are two side to this debate, but for me the cost for NBN is not justified as to every home. I sick of this debate, but in time when people have a cool head I think we’ll view it differently.

        For me I’ll be using LTE as I can take it with me, and having see the performance it’s pretty neat. I’m not sure with NBN, but I’ll have it cabled to the house, but if I can I won’t sign up, as LTE is all I need.

        You never get a balanced discussion with the NBN, but I hope some of this info helps.

  8. They must know the outcome of the next federal election if they can confidently predict Canberra’s house prices. A Liberal government would cut the public service by 10,000-12,000 jobs. Thats a lot of houses on the market.

  9. The banks have 60% LVRS for developers, so they are certainly in favour of limited supply coming through to the marktet. Local govt also has a vested interest in keeping restrictions on development, certainly in terms of their costs in regards to development.

    Saw an interesting quote
    “the fall of Rome was fundamentally due to economic deterioration resulting from excessive taxation, inflation, and over-regulation. Higher and higher taxes failed to raise additional revenues because wealthier taxpayers could evade such taxes while the middle class–and its taxpaying capacity–were exterminated”.

  10. I DONT SEE ANY ECONOMICS QUALIFICATIONS FOR ANGIE…

    Angie Zigomanis Senior Manager – Residential Property
    B Business (Property)

    Angie has been employed at BIS Shrapnel since 1996, having worked previously in other research roles and CB Richard Ellis and VicUrban.

    Angie is based in BIS Shrapnel’s Melbourne office, and is part of the residential property unit. Angie is responsible for the majority of BIS Shrapnel’s residential market studies including Residential Property Prospects, Australian Capital Cities, the Inner City Apartment Market reports and the Medium and High Density Dwellings series. Angie is also responsible for various other multi-client studies researching specific market segments, as well as private consulting work.

    Contact:
    Email or Ph: +61 3 8679 7304

      • The B Business (Property) is pretty much a Property Economics degree (see UTS, Sydney) or Land Economics degree (other unis around the place). Fair bit of economics, plus other real estate, accounting, law, investment, valuation, etc subjects.

        • Seriously….undergrad economics is like hobbyist gynaecologist…a keen interest but vague understanding of the area is about all you can claim.

        • “Angie has been employed at BIS Shrapnel since 1996, having worked previously in other research roles…”

          But what research has he carried out and it what ‘other roles’? He has an undergrad degree in some Property/Business course that has elements of economics

          And his predictions get as much coverage as Keen, this guy has no credibility, but these predictions carry a lot of sway with the public. Its a scandal!

          His past work experience (property industry) suggests he is not the best person to be carrying out the so called independant analysis claimed by BIAS Shr.

  11. But in fairness you guys have got it wrong for the last 3 years. We haven’t had a huge correction and we haven’t had the 30%-40% losses as proclaimed.
    Quite ironic to be ripping into someones elses forecast when you’ve been wrong yourself.

    • Certain areas in the country have seen those losses. Off the top of my head ‘Noosa’

      It hasn’t finished yet. I believe it’s just getting started. Wait for Greece. And buy silver!

        • Yeah when you can manipulate the market and change margin costs in the blink of an eye. Not good.

          Besides that I see a long term buy for silver. It’s being used more and more every year for electronics and it is a finite resource. That’s only my opinion though. Each to their own.

    • Fabian Aldersey

      I could probably find it myself by searching, but could you please post a link to one of these predictions?

    • I think he’s referring to Steve Keens “40% over 10 years” prediction, based on his debt deflation modelling.

      Its happened so far in clearly bubble areas (even to property bulls) such as Noosa, Sunshine Coast, Hervey Bay, Gold Coast.

      No one else on this blog has “predicted” similar falls in other urban areas, just that, as a class, urban/suburban property in Australia is over-valued, and has done so because of the rise in debt (demand) and the inflexible response of supply.

    • What What. That’s a curious comment you make given I only started blogging individully in May 2010 and MacroBusiness has only been in existence since late January this year. Please provide a link to our so-called prediction of 30% to 40% house price falls.

      Oh that’s right, we never made such a prediction.

      • No but you are happy to spruik such articles. And whilst I agree housing prices might be slightly overvalued you never seem to think of the possibility that the rest of the market (wages, rental yields) will simply catch up to prices rather than prices crashing.

        Its happened in the past or is it different this time?

        • “No but you are happy to spruik such articles.”

          How about you put up or shut up. Reveal where MB has ‘spruiked’ the 40% house price fall meme.

          “…you never seem to think of the possibility that the rest of the market (wages, rental yields) will simply catch up to prices rather than prices crashing”

          Rubbish. I have often entertained the possibility of prices stagnating NZ-style. Check out this post, for instance.

    • Ouch – fair comment, however I believe a lot of vendors are in denial – and hiding from the truth

  12. “While it is fair enough to change one’s forecasts as circumstances change, surely revisions of the magnitude of BIS and APM are worthy of investigation and scrutiny by the mainstream media?”

    The owners of media outlets are well aware that much of their revenue comes from real estate advertising, and that real estate PR promotes their business, whether the PR comes from APM, BIS Shrapnel, REIs, SQM or anybody else in the industry. As long as it encourages real estate turnover, there’s a commercial imperative to run the press releases and ignore any inconsistencies, inaccuracies or outright lies.

    The other thing is that these press releases are cheap filler for newspapers. They’re deliberately written to resemble news stories as closely as possible, so the editors don’t even have to run them by the subs. Consequently they often end up in print verbatim.

    Side note: when I was studying journalism several years ago, we were told that most of us would end up writing press releases for PR companies. There are more jobs in that sector, and they often pay better than actual reporting or editing work.

    • >Side note: when I was studying journalism several years ago, we were told that most of us would end up writing press releases for PR companies. There are more jobs in that sector, and they often pay better than actual reporting or editing work.

      Might explain the proliferation of blogs where real journalism occurs…

      • Exactly, I’m hard pressed to find much that passes as genuine analysis in the mainstream media.

        …although having said that it is probably 2 years since I read MSM.

  13. FrankieFourFingers

    “Interestingly, BIS’ forecast of solid house price growth in Perth – 19% over the next three years – has drawn strong criticism from WA housing ‘experts'”

    I have a simple theory that the Real Estate Industry is not actually interested in forever increasing house prices. Their primary interest is increased profits via higher liquidity. They are gradually accepting that prices have peaked and liquidity has dried up.

    Liquidity will only return when house prices drop to levels perceived to be reasonable value by potential buyers. When liquidity does return, the real estate industry will collectively be back to their old tricks to cash in.

    • A similar attitude prevails in the stock broking industry: money is not made on rising prices, but the transaction of prices.

      The property industry relies on a 2% plus commission on these transactions, whilst the stock industry relies on brokerage, but also the buy/sell spread.

      Only the financial planning industry relies on ever increasing prices, because on the whole they use asset based fees (or commissions). The bigger your portfolio, the more they get. Hence the move towards leverage as a “suitable” strategy…..

      • FrankieFourFingers

        Yes, I was thinking of the stock market when writing that. As you know though, the stock market is much more sinister with manipulation and corruption. And of course being “regulated” by an organisation that profits out of the illegal practices they are supposed to be regulating.

  14. Anybody who purchases a house on BIS advice should contact a litigation funder with a view to sue them for misleading and deceptive conduct and claim compensation for any losses incurred. Hope they have a fat professional indemnity cover.

  15. “Townsville and Cairns: Economies impacted by low resources investment and weak tourism, but resources market to pick up in 2012-13. Price growth for Townsville to be 16% over three years, and 14% for Cairns.”

    Possibly valid for the mining services Townville, but complete fantasy for whooly tourist dependant Cairns.
    Cairns is the standout confirmation of a Dutch disease prognosis.

      • FIFO from Townsville dominates western Qld mining areas. You are right about FIFO between Cairns and PNG but this is much smaller as a % for Cairns than the FIFO traffic is in Townsville — by at least an order of magnitude.

        • True about the stats as it stands. I believe the dig up New Guinea concept is in its relative infancy (according to a mining engineer I was having an amber slurpy with recently). With Somare now gone it will be interesting area to watch. Its definitely mineral rich and untapped (include gas etc in that).

          Doesn’t detract from the fact that local RE is 70-90% over priced*.

          See my “boomers bailing” post from Sunday on local discounting:
          http://jesse-rotafortunae.blogspot.com/

          *Port Douglas Units could be 120%+ over valued.

  16. Predicting the future has got to be the most futile preoccupation known to man or woman. The predictors of course face the prospect that their predictions will come back to haunt them in the age of the blog – eg BIS Shrapnel.

  17. Now that is a contrarian indicator if ever I saw one! Get Gelber to pick stocks then short sell!
    Seriously he has no idea! Just another spruiker in suit.

  18. Why do so many allegedly authoritative people associate a “bubble” with oversupply?

    Undersupply causes a bubble in the price of all existing property. Oversupply pure and simple (absent capture by government and vested interests) will PREVENT this. A few too many homes is not a bubble at all. Do the maths: 10000 too many homes at $200,000 each; versus 5,000,000 homes inflated in price by $200,000 each.

    BIS=BS indeed.

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