Another bearish serve from RPData

RPData’s latest newsletter is out and, as expected, is once again fairly bearish. Canberra is bucking the trend on the back of the public sector, everywhere else is struggling in degrees from a little to a whole lot. It must also be noted , because I find most people struggle with the idea, that a % fall is more negative than a corresponding rise of the same % value is positive when the fall occurs after the rise.  i.e  (100 + 10%) – 10% = 99.

While the headline figures for each capital city are meaningful, drilling below the surface reveals a wide variance in how house values are performing from region to region.

Capital city house values fell by a total of -1.5% over the June 2011 quarter and by -2.8% over the preceding 12 months. The growth in house values has lagged that of units over the past year and over the past five years. While capital city unit values have grown at an average annual rate of 6.2% for the five years to June 2011, house values have grown by a lower 5.2% annually.

The relatively more subdued capital growth performance across the detached house market compared with units is reflective of changing lifestyle patterns as well as likely being reflective of home buyers seeking more affordable alternatives than houses (with units typically cheaper).

Of all the capital cities, house values in Brisbane recorded the largest declines over the 12 months to June, falling by -6.9%. As the accompanying table shows, not one region of Brisbane has recorded positive growth in house values over the past 12 months. The magnitude of value falls has varied from a -0.1% fall in Inner Brisbane to a -13.9% fall in values within Beaudesert Shire Part A which comprises the southern suburbs of the Logan council region.


Perth has also shown a weak housing market over the year with values falling by -6.2%. All Perth regions recorded value falls for houses however, it has been the most expensive areas of the city, Central Metropolitan and South West Metropolitan, which have recorded the largest declines in house values over the year.

Relative to all other capitals, the detached housing market in Sydney was the best performed over the past year with home values declining by just -0.3%. A number of regions across Sydney have recorded positive value growth over the past year, in fact, Inner Western Sydney has recorded the strongest growth in values of any capital city region up 10.0% over the year. On the other hand, the popular Eastern Suburbs with its million dollar price tags for houses has seen house values slump by -7.7% over the last year.

Melbourne has been the best performing capital city housing market since 2007 however, property value growth is quickly transitioning out of the market after values rose by almost 50% since the beginning of 2007. House values across Melbourne have fallen by -2.6% over the year to June 2011. Boroondarra City (-7.5%), Moreland City (-7.1%) and Inner Melbourne (-6.7%) all of which are centrally located have recorded the largest value falls. Meanwhile, outer more affordable regions such as: Melton-Wyndham (0.2%), Northern Outer Melbourne (1.0%) and Mornington Peninsula Shire (2.2%) are the only regions to record value growth for houses over the year.

Overall, of the 60 capital city regions detailed only 12 have recorded positive growth in house values over the past 12 months and all are located either in Sydney, Melbourne or Canberra. Despite the recent weakness, all regions have recorded positive average annual growth in house values over the past five years however, nine regions have grown at a rate below 3.0% annually. Most notable are Sydney’s Gosford-Wyong region (0.4%pa) and Perth’s South West Metropolitan region (0.9%pa) where values have failed to grow at a rate of at least 1%pa over the past five years.

Overall, the results highlight that house values are falling in most regions with the most susceptible to falls typically being the higher priced inner city locations. It is important to remember that in many instances these markets have outperformed when market conditions were much stronger than they are today.

RPData’s has also released its latest video which once again contains more bearish outlooks.

The first chart Tim Lawless presents ( shown above ) clearly shows that this downturn is gearing up to be far worse than the corresponding downturn during the GFC but as yet we have seen no sign of government intervention.In fact both NSW and Qld have recently adjusted their stamp duty programs to target new builds which will be putting downward pressure on existing housing as they take affect.

Tim does suggest that there maybe some hope for the market just around the corner in a recent blog post.  But given current global economic conditions I suspect we will be seeing a lot more of “wait and see” than “buy, buy ,buy ” this spring. It is possible that the lower prices in some capital cities could entice buyers back into the market. However there seems to be an acceleration of price declines in areas that have been performing poorly for longer periods of time. This suggests that these markets are capitulating, although it’s probably too early to make that call. It is therefore possible that spring will actually be far worse than the earlier parts this year as more stock comes onto the market in anticipation of sales that don’t eventuate.

 

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Comments

  1. is it better for housing prices that housing starts are down (less supply for sale) or if housing starts are up, meaning more employment in construction industry??

    • >is it better for housing prices that housing starts are down (less supply for sale) or if housing starts are up, meaning more employment in construction industry??

      I assume by “better” you mean “higher”, and it depends on which area you are referring to.

      We have different credit driven markets with an inelastic supply response cycle all across the country. What is good for prices depends on which phase of that cycle a particular market is in.

      For instance I would say that more building starts would be bad for prices in Melbourne because they have just seen a lagged massive supply response deliver an excess supply onto the market. The same is true for places like the Gold Coast.

      On the other hand a surge of new builds in Sydney I would see as a good sign for prices because it would reflect a broader positive view of housing and additional supply in that market would have limited impact on prices.

    • Right now it’s a symptom of falling demand (at current prices). Eventually if it continues it will mean supply falls relative to demand.

    • its better (if you consider falling house prices a good thing as i do) if housing starts are down. yes, higher housing starts would mean additional supply that in a normal market would cap prices or put downward pressure on prices but in places like australia now (and the US, ireland, spain, etc a few years ago) where there is this sick obsession with borrowing obscene amounts of money in order to live the property market “dream”, strong housing starts means a strong (ponzi) economy that perpetuates the housing bubble. Weak housing starts, (less supply) actually sends prices down as the thousands of housing related industries start to go quiet which weakens the (ponzi) economy. faced with falling revenues and potential job losses (what we are seeing now) is when people are forced to question their bubble mentality and start to price property on fundamentals rather than get rich quick slogans.

  2. NOT A ''TRUE BELIEVER"

    All those unsold and unrented houses piling up on top of each other… wait till you hear what this bloke will be blurting out this time next year!

  3. Finding it a little difficult to reconcile RP Data’s figures, cross referenced to SQMs, personal obs and basic economics for Melton/Wyndham west of Melbourne!

    These areas are quoted as having bucked the downward trend by RP Data, yet have had an unprecedented explosion in listings during the past 12 months. See
    http://www.sqmresearch.com.au/graph_stock_on_market.php?postcode=3337&t=1
    and
    http://www.sqmresearch.com.au/graph_stock_on_market.php?postcode=3030&t=1

    I can conclude one of four things;

    1. The RP Data stats are crap (like most medians i suppose)

    2. There are massive levels of new and so far inelastic supply coming onto the market

    3. The economy isn’t as bad as we think, therefore many vendors are fishing without massive pressure to reduce and;

    4. The socio economic make up of these suburbs is providing some protection. Pound for pound, Melton-Wyndham and other suburbs still in positive territory (northern outer Melbourne, Mornington etc) are home to more than their fair share of tradies who are still benefiting from the $40B+ stimulus package that continues to slosh through the system. It’s more than ironic that these blue collar areas are thriving with an incumbent Labor Government.

    I’m leaning towards number 4, coupled with the basic affordability argument. The economics of supply/demand and pricing sure isn’t obvious if RP Data are correct.

  4. Melton/Wyndham shows down 2.5 % in the quarter, I wouldn’t call that a trend buck, just a little slower to respond.

  5. Fairfax is still trying to push some more FHB lemmings off the cliff
    .
    Free money!
    .
    First home-buyers should move quickly if they want to save $18 000 in stamp duty costs. Property Editor Stephen Nicholls reports.

    • Fairfax (or rather, their Domain section) are being their bullish selves. The disturbing thing would be if people believe what they write. Read some of Chris Tolhurst’s “investor” colunm – every other column he still says that houses “double every seven to ten years”.

      Fairfax (Domain) to me seem more interested in pushing buyers of all types so more of them may buy APM’s (owned by Fairfax) data services.

  6. NOT A ''TRUE BELIEVER"

    Renting is much cheaper because you’re facing falling prices and flexibility to up or downgrade etc. and no other expenses of ownership. Buying only makes sense if there is a prospect of capital gains after interest and costs. This is totally fooling yourself, cosidering the current and future supply/demand equation as in all other glutted markets in the western world.

      • Disagree. Lets use $490 a week as a benchmark and assume 6% house price correction annually.

        300K loan on a 500K house with house falling in value by 6%pa. Repayments 490 a week, split into 400 Int and 90 principal. At the end of 12 months you have paid out $4,700 in pricipal but your house value has fallen by $20,000, a nett loss of $15,300 in equity PLUS the $20,800 in interest. TOTAL LOSS $36,100 for 12 months.

        Now throw your $200K deposit in a TD earning 4% after tax (nett +$8K) and pay $490 in rent a week for the same house. TOTAL LOSS $17,500 for 12 months.

        Who is ahead?

        • Your calc may be accurate – but your I think you’d struggle to find a $500k house renting for $490 / week…

          I rent a nice two bedroom terrace in clifton hill (Inner Metro VIC) for $450 / week.

          Similar houses in the neighbourhood have recently sold for $850k+

          Re-do the calc on that basis – and I think it tells a different story.

  7. Looking at the list of price changes, the two that stand out are Inner Western Sydney, and South Canberra. Both seem remarkedly high when compared with their surrounding areas.

    Anyone have any idea why? Could it be compositional bias, or real, or perhaps to be downwardly revised in future?

    As someone who lives in the Inner West in Sydney and does infrequent property searches using Domain, etc, the 7% QoQ and 10% YoY seems very extreme.

    • Can’t speak for Western Sydney, but in the inner south of Canberra there have been quite a few high-end apartments coming reaching completion recently, while it looks like no one is building entry-level (ie less than $450K for a 1 bedder) apartments in that area. A swag of $1M apartments coming up for sale could skew the price.

      • FYI

        The ACT is now turning, WRT sales.

        See BurbWatch for more info, particularly the ACT charts, and charts 10,11,15 and 16 of the Australian Charts (focus on the recent ACT trends)

    • After I posted this I remembered that theorectically hedonic indexes should be (more) free from compositional bias.

      Marcia; Inner West Sydney is similar in that every new apartment development here is “luxury”, which seem to mean that (in the inner most suburbs, at least) 2 bedroom apartments have asking prices of $800k – $1m.

      You wonder who would pay $1m for a 2 bedder, when $600k can buy you a 3 bedder in Alexandria or Ashfield.

  8. DE writes:
    “This suggests that these markets are capitulating, although it’s probably too early to make that call.”

    Call away, it’s the first of many capitulations.

  9. People tell me its temporary thing, stevens will drop rates to zero and the party will begin. Im not looking forward to $3 petrol and $30 steaks that i have to cook.

    • The only thing temporary are current conditions. People just can’t sustain this cost of living.

      I’ve tried to calculate it many many times, thinking I was missing something. Outcome is always the same… for an average family, living in an average home, doing average things life is unaffordable.

      Happy to be enlightened.

      • endrortsonhousing

        No you are spot on Anon.

        Baby boomers would have us believe that they paid 60% of their after tax income to ‘get on the housing ladder’, but of course that is absolute garbage.

      • Simple mistake AnonNL, you’re calculating based on spending less than you earn not the way we’ve lived for the last 20 years where you can maintain your standard of living plus get the house with credit cards and a mortgage until you retire.

        Household debt (to GDP?) ratio has gone from 40% to 160% in 20 years, only part (maybe half the increase?) of the can be explained by housing costs increasing, the remainder must be explained by maintaining your standard of living (holidays, private schools and TVs) with credit when your mortgage repayments would dictate in a balanced budget you must cut back something else. Look at the number of 45-55 and 55-65 households that still have a mortgage, the numbers have exploded in the last 15-20yrs. I can’t remember the ABS reference, but the proportion of Australians that own their home (with or without a mortgage) has been relatively stable but of those the number with a mortgage has gone up around 10 percentage points, particularly with older Australians. This clearly isn’t sustainable as you reach retirement.

        I’ve looked at the numbers for myself as a double (somewhat above average) income, no kids (and no intention there of) household I can’t get to a point where I see it’s worth buying yet and that’s even in Brisbane, one of the more affordable markets, and yet almost everyone I know has, it blows my mind, have these people failed to watch anything about the global economy in the last 5 years?

        I think the situation of baby-boomers still holding mortgages is a catastrophe waiting to happen.

        • Same here, double income, no kids, comfortable income. Loving the great things in life but that would end as soon as we would take a mortgage… let alone if we had kids, a second car, etc…

          Mortgage is so not happening. 😛

        • Well, same with my current situation, DINKS (Double Incomes No Kids)… refrain from buying in the last 3 years since price level does not make any sense, let alone financial logic.

          have these people failed to watch anything about the global economy in the last 5 years?

          I have same question myself and my observation to my environment has given me anecdotal samples of real people living in big Australian city like Sydney and not having read any news outlets (both paper and electronic) in the last 3-5 years. They just don’t know anything, they only know…yes there was GFC in 2008 which came from US sub-prime crisis and Kevin Rudd saved the day with stimulus …hooray nothing to worry about. The scary part is I think these people are many, many more in quantity that you ever guess actually live in Australia.

    • Jumping Jack Flash

      Capacity to take on new debt is virtually non existent even at 0 rates. Everyone that was going to take on massive debt and repay it on a stagnant and falling wage for the next 30 years has done so.

      The ones that are left are the cautious. The banks are going to have a hard time selling them their money to achieve growth.

      We are slowly assuming the same position that most of the US was in about 12 – 18 months ago:

      bent over, palms on the table and pants around our ankles.

      The US are slowly assuming the same position as much of Japan is currently in, and for for the past 10 years:

      The insertion of a large cucumber or small watermelon…

  10. I thought this was real for a split second when my news server found it. Reading it made me cry more than laugh because there is some real truth in this attempt at humour. Chris Joye gets dishonourable mention and I like his new middle name.

    I would not put it past the government to be so stupid as to stimulate the building industry with more FHB grants.

    http://www.thespoof.com/news/spoof.cfm?headline=s3i99971

    BTW – Thanks Macro Business. You are the fifth estate for sure. The forth estate has sunk so low while you raised the debate so high that there is almost no comparison. I doubt they could ever catch up now. I feel nausea every time I read a Business Speculum article. Just how did it get this bad in mainstream press? Australia has become so stacked with self-interest and opportunism that I can hardly recognise it at times.

    I’m not a conspiracy buff, but when self interest takes over public institutions and governments seem to think that self-serving analysis is part of a free market we have a major problem.

    Please keep up the fight for quality information. It must be a grind at times, but it really is documenting the fall of the Australian Rome. When the dust has settled some of the articles will make good historical reading!

    Cheers!

    • “Australia has become so stacked with self-interest and opportunism that I can hardly recognise it at times.”

      I certainly don’t want to offend anyone but having read quite a bit about the history of my new home country… hasn’t this always been the case?

      convicts vs. free settlers
      shearers vs. squatters
      ..
      real estate industry vs. ordinary people
      mining vs. the people

  11. “I find most people struggle with the idea, that a % fall is more negative than a corresponding rise of the same % value is positive when the fall occurs after the rise. i.e (100 + 10%) – 10% = 99.”

    To boraden this, the % fall will also be more negative than a corresponding rise of the same % value is positive when the fall occurs BEFORE the rise. ie, (100-10%) + 10% = 99.

    The best recent example of this is the almost 54% fall in the ASX 200 from Nov 2007 (6828) to March 2009 (3154), followed by a 58% rise between then and April 2010 (5001), which still left it 26% lower than its Nov 2007 peak.

    Following from what you correctly state, the 54% fall from Nov 2007 to March 2009 followed a 153% rise from March 2003 (2700) to Nov 2007, so that the trough in March 2009 was only 17% higher than the March 2003 trough.

    When there is a percentage rise and a percentage fall, the percentage fall will always be more significant relative to the apparent size of the number. The greater the number is, the geometrically greater this effect will be. For example, 100-10%+10%=99, 100-20%+20%=96 (=100-2 squared), 100-30%+30%=91 (=100-3 squared), and so on.

    Using algebra, it is the old trick (a+b)(a-b)=a squared – b squared.

    Cheers

  12. Well, vendors in NW Inner Brisbane haven’t capitulated, at least in the example of a place I’ve been looking at… 3 bed (well, 2 bed plus downstairs study/utility room) restored Queenslander (well, worker’s cottage really). Last sold for $435k in 2007 (although onthehouse.com.au shows a sale in 2007 for $480k, not according to RP Data though?).

    I put in an offer around $540k which I think represents fair value (or maybe a slight discount to FV), the vendor is adamant they have a bank valuation over $600k and want high $500’s. Think I’ll be keeping my powder dry for the moment…

    • I too live in that area and am keeping my powder dry.

      Having lived all over Brisbane the last 25 years I know how the different suburbs lead and lag in rises and falls (bourne out by the graphs above).

      Bris inner West is popular and leads rises, lags falls, but fall it will eventually – inevitably.

      It is not just micro issues impacting now for Bris, Qld or Aust – it is global driven by all those things so well canvassed here, not the least of which is demographics.

      So – sit back – enjoy the little extras you get at the moment from not having a mortgage – and wait.

      For me it is heartening (for patience) to read MB (including the comments) each day and know there are others out there still with the capacity for independent thought and analysis.

      For a long time I though it was just me….

      • I dont know why anyone who reads MB would be buying a house now unless they had to (family on the way, wife threatening to leave etc…)

        You think 540 is fair value…I havent even seen it, but I reckon it will be 20-30% cheaper in 2 years time.

  13. NOT A ''TRUE BELIEVER"

    Hey guys, if half a million bucks is burning a hole in your pocket, take you gambling chips to Los Angelos, Vegas, Spain, Japan, Dubai or Ireland. You’ll be a proud owner of a whole street or suburb and keep plenty of change.
    You think I’m kidding, right? Check out; http://www.foreclosedhomes.com

  14. We’re popping over ( from Auckland) to Brisbane next week so we thought we’d do a bit of last minute property shopping comparison work, having been renters since Feb.08. Of the 5 properties we bothered to go to have a peek at in the flesh, ALL of them were up for sale by people looking over 55, trying to cash up. 3 were investment properties, and I guess the best was bought in ’81, so it would have worked on that basis. But 2 were bought in the last 2 years and the vendors were gettin nervous about the market.It will be interesting to see what Brissy holds…..

  15. AnonNL September 11, 2011 at 8:07 pm

    It’s true and no different in many cultures. Let me explain then.

    What I find interesting is that Australia is that self-interest has become more universal. There is now a government policy to promote real estate speculation and risk taking for instance. This has been willingly embraced (by many in the community) as a strange Darwinian struggle between renters and owners; losers and winners. This makes me sick given the vast participation. It is social engineering that has pitted people against each other. The media? It has joined forces to sell barbed wire canoes to people who will end up stuck up the creek.

    It’s one thing to point to a self interested group – quite another when that group is such a big proportion of people.

    Cheers

    • Yes, and when 70% of the population are paddling the same way in those canoes the tide just takes a bit longer to change. But it always changes…

    • Self-interest is the cornerstone of democracy, capitalism… of progress really. However, too much of it and it becomes toxic with corruption being a prime example.

      What strikes me about debates in Oz is just how much people cling to their self-interest and how far people are willing to go to defend it. No attempt to look at the issue from another perspective, no empathy, no compromise…

      • It is not so much individual self interest that worries me. Sure it’s the driver of much progress – agreed. But when public institutions (government, media etc) sing from the same prayer sheet to whip it up as policy, it’s a worry.

        Most mainstream analysis puts prejudice before reason. If you work on the basis of ideology and cherry pick information to produce an argument to support it, it is not objective. For instance, science can’t work by selecting data only to fit a hypothesis. In this case, in the pursuit of Property El Dorado where everyone is a winner.

        70% of the population in barbed wire canoes paddling after Chris Joye up a very murky creek is the stuff of horror movies Dan!

  16. There was a double page spread in the Sunday Mail (brisbane) about how now is the time to buy because low prices won’t last, and we have hit bottom of the slump they haven’t been talking about.