Bear porn

My readers will know that I am bearish on housing and have been for over a year. In June 2010 while I was predicting the coming house price falls the media was busy providing real estate industry propaganda to the contrary. Now that there has been an obvious change in both sentiment and the market, the media has done a 180 degree turn. The problem is that their over exuberance works both ways and I am now finding stories where they are leaving out key pieces of information in order to “jazz up” the doom and gloom stories.

Back in January, Brisbane suffered significant flooding. This flooding has led to unseasonal falls in both price and sales volumes across certain suburbs of Brisbane, particularly inner city south-west suburbs that are close to the river.

Today I noticed that the Fairfax newspapers were running a story about highlighting falls in the Brisbane area, however for some reason I can find the word “flood” in the article anywhere:

Brisbane’s southside has recorded a larger slump in house prices than any other region in all state capital cities, new analysis shows.

Prices in the city’s inner southeast tumbled 8.1 per cent in the three months to June, according to figures released by RP Data yesterday.

The median house price across the region, which takes in suburbs from Tennyson and Moorooka, to Murarrie and Cannon Hill and then Holland Park and Carindale, fell from $587,500 in March to $561,250 by the end of June.

By comparison, property prices in the inner northwest dipped just 0.7 per cent over the quarter and 3.8 per cent over the financial year.

In the past financial year, sale prices in premium inner-city suburbs including Bulimba, Balmoral, Hawthorne, East Brisbane and West End fell 10 per cent overall, the research shows.

Not one Brisbane region recorded positive growth in house values over the 12 months to June, said RP Data research analyst Cameron Kusher.

The numbers for parts of Brisbane sound big, and under any normal circumstances I would be screaming “Minsky moment” from the roof tops, but the areas of Brisbane with the largest falls were directly affected by flooding. The fact that this point wasn’t mentioned in the article is quite misleading, especially when the article is reprinted across the country and read by people who have no local knowledge.

A quick check clearly shows that river front areas have taken large write-downs on previous values ( 3 examples below) and I suspect this will continue to be the case until after the next wet season independent of what happens to credit issuance.

I know that medians are not always that trustworthy especially in small markets but I think it is quite bullish that people are still willing to pay such large amounts of money for properties that are totally uninsurable against flooding while being perched on a river bank. Ok, maybe a I find it wrecklessly stupid as well, but that doesn’t make it less bullish.

Someone actually paid $550,000 for these blocks of land recently. A good deal for someone with a very short term memory. I wonder if they were from out of town?

That unit complex you can see in the background is actually the Mirvac apartments I mentioned in a previous post.

If you took the flooded suburbs out of the dataset I suspect you would see figures much more in line with the rest of Brisbane, and this story wouldn’t be such a big deal. That is not to say that the 3.4% fall in 3 months for Northern West Brisbane isn’t terrible, it is. But in my opinion it doesn’t represent some sort of catastrophic failure of the Brisbane market, at least not yet, to read it as such could lead to a wrongly informed decision.

Just as it annoyed me when they spruiked the market up with sloppy reporting, so it does when they talk it down with sloppy reporting. It would be hypocritical of me to report otherwise.

I must admit however that I have no excuses for either Beaudesert or Caboolture. They just look plain awful. In their defence, and it is a very weak defence, it is possible to find some worse numbers in the Gold Coast area in a recent RPData Gold Coast housing report.

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Comments

  1. Those who recently bought the waterfront property at much reduced prices and without a prospect of securing flood damage insurance are either folks who think that as it was a 1 in 100yr flood event, they have nothing to worry about for another 99yrs…..OR risk takers betting the market will turn, punters will have forgotten the floods, and they will turn a tidy profit within 2-5yrs.

    • it’s sad that majority of people think that 100yr flood happens every 100 years and not that chance of flood hapening in any year is 1%. Even life time experience od two 100yr floods in 35 years in Brisbane is not enought to change their thinking.

      I bet that if we called it 1% chance flood people will be much more precautious and less willing to risk

  2. There was minimal flooding in Caboolture but it would’ve been far worse if levels had risen as high as predicted.

    Still I think the Beaudesert and Caboolture drops are more due to the 2008/09 FHB going into meltdown as both were FHB hotspots during that period. No hard data to back up this assertion but my Sister’s in laws live at Caboolture and a friend works for the local newspaper at Beaudesert both said these areas were swamped with FHB during the boost period.

  3. DE always good analysis but watch those typos –

    “however for some reason I can find the word “flood” in the article anywhere.”

    “but the areas of Brisbane with the largest falls were directly effected by flooding.”

  4. 3rd option here is the buyer has inside knowledge that the flood was entirely due to dam mismangement.

    If that was the case, a change of govt would likely cause a review of the Dam operations manual resulting in a return to the underlying “1/100” flood insurance risk.

      • “No dam management could negate these floods”, It is on the public record that the dam was releasing water in the lead up to the flood event raising river levels when the opposite was required. Which in a car analogy is like saying “brakes are not effective when you apply them with your foot on the accelerator instead”

        Admitting and correcting poor dam management would benefit house values and insurance certainty. But this can’t be done without accepting some liability for the billions of dollars in damamges.

        Inside knowledge (or good faith) in this process is a defite speculative adavantage.

        • The line you have quoted of me was in reference to the previous, higher floods in the 1800s. No use of wivenhoe in the event of a greater flood event than the 2011 flood would be able to negate future impacts of floods in Brisbane. There is evidence of much greater floods, in my opinion rendering those properties flooded in 2011 an insurance liability.

          Whether future improved dam management is possible is doubious with unpredicable weather anyway, I’m just saying I wouldn’t purchase there.

  5. Mooloolaba 1.2 million sold last weekend – seems to have gone unreported in auction section of local- prior sale 2 million 2004

  6. I agree that the article should have mentioned the flood but not as the bulls have said that the flood dropped flood properties by only 10-20%.

    I believe that that price drop is the effect of the flood (plus the market drop), but not the effect on flood damaged properties, that is much greater. This drop is greater than the wider Brisbane decline as many of the most expensive properties (river-front) were affected and most have not sold or entered the market so the median is based on a subset of less prestigious properties with a naturally lower median price. Unfortunately I can’t confirm this with a complete set of data.

    The actual affect on flood affected properties (that will continue to plague results in these suburbs) is much greater, 30-50% depending on the condition of the property, such as: http://www.onthehouse.com.au/buy/property/49924536

    To my dismay, the front line still doesn’t seem to get it. I know one couple that saw the flood damage as an opportunity to get into the market buying a completely gutted house and I know another that has put an offer on a beach front sunshine coast IP who’s listed price has dropped 30% in 6 months and yet they fail to see that this might indicate it’s a bad investment.

    • innocent bystander

      “This drop is greater than the wider Brisbane decline as many of the most expensive properties (river-front) were affected and most have not sold or entered the market so the median is based on a subset of less prestigious properties with a naturally lower median price”

      +1