RPData on August

The latest RPData video came out last week with an overview of the market using their August data. If you don’t want to watch the entire 17 minutes but are interested in a particular market Sydney is @3:50, Melbourne @5:35, Brisbane @7:42, Adelaide @9:40, Perth @10:55 , Darwin @12:25, Canberra @13:20 and Hobart @14:30.

The are couple of things worth mentioning from the video. Obviously the stock on market graph @3:28 is pretty scary, although that was covered yesterday. Tim’s discussion of Melbourne isn’t much better and we will be hearing much more about that from the Unconventional Economist next week. Perth is also looking awful.

The other thing that I noted was the discussion @8:58 of the large pickup in sales volumes for Brisbane in July.  As I stated back then:

I am actually expecting to see a bit of an uptick in median values in July as people bring forward their property transactions to beat the rise in stamp duty from August 1st. However there is not much movement in the latest auction rates data to support that theory, even so I am fairly sure that is what we will end up seeing.

However, after July 31 I would expect to see another slump after the mini-boom of July and I certainly cannot see anything in either the sales volumes or credit issuance trends in Queensland to support rising prices.

And then early last month I stated:

The most interesting thing that I take away is that Queensland managed to re-stimulated the market with the incentive of a small time limited tax break. This is a clear demonstration that it is still very easy to stimulated demand in the housing market no matter how crazy you think the participants are in accepting such a deal. This small market intervention by the Queensland government may require a re-assessment by anyone who thought that stimulus would not be as effective a second time around.

I note the exact same sentiment in a blog post by Tim on Friday:

We estimate that Queensland sales volumes jumped by 33% over the month of July as owner occupier buyers surged into the market to avoid the additional stamp duty expense.

The surge in buyer numbers suggests that buyer confidence may not be as low as many thought.  A saving of around $6,500 is a substantial incentive particularly when coupled with the First Home Owners Grant of $7,000.  However the surge came at a time when the threat of higher interest rates was still quite real; it was only mid July when Bill Evans broke ranks and predicted rates were set for a fall (and at the time his comments weren’t widely accepted!).

I obviously agree with Tim as I said nearly the exact same thing 4 weeks early, however it is my understanding that the stamp duty changes do not apply to first home buyers and there is also the effects of the building boost to take into account. With that in mind, I think we have seen is an uptick in sales driven by non-first home buyers of existing properties. That being that case the incentive was in fact as small as $6500. Again, possibly time to re-assess your thoughts on the ability of the government to re-stimulate the housing market. Not that I am saying it will.

There does, however, seem to be a bit of a misstep in Tim’s logic later in the same blog post when he states:

The magnitude of declines across the Brisbane housing market has eased.  In fact, the latest RP Data-Rismark Home Value Indices for Brisbane showed the quarterly change over the three months to August was the second highest of any capital city.  The result was still negative, at -1.3%, however it was a substantial improvement from the falls being recorded earlier in the year, the worst of which was seen over the March quarter when values were down 3.0%.

Umm…..  As discussed, the one-off effect of legislative changes caused a surge in sales in July, I suspect this probably pulled some sentiment forward into August as well. I think it would probably be prudent to wait until September to get a better feel of how the market is actually travelling before making statements about “substantial improvements” in the market. At the least some trend adjustment to the data would seem appropriate.

Comments

  1. “That being that case the incentive was in fact as small as $6500. Again, possibly time to re-assess your thoughts on the ability of the government to re-stimulate the housing market. ”

    fair point, but should we differentiate between bringing new buyers in and merely bringing forward purchases that would have already happened (which is what i think the incentive did)?

    NSW is eliminating stamp duty concessions at the end of the year for FHB’s of existing property under 600k, which is up to 20k or so as an incentive. I expect that will also bring-forward FHB’s to this year from 2012, but it may also delay non-FHB’s (like myself) who expect a negative price/volume impact in 2012.

  2. “my understanding that the stamp duty changes do not apply to first home buyers”

    They did in fact, there was a change in the scale of the stamp duty concessions received by 1st home buyers… roughly, under a purchase price of around $560000 a 1st home buyer had a greater concession post-August 1st, above $560000 they would have been better off purchasing before August 1st.

  3. It’s an amazing indicator of human nature, that people would rush in to initially “save” $6,500, and possibly lose 20-30% of their capital over the next few years. It’s called a bargain……

  4. I think we’ll see in Brisbane that the July 11 transaction bump will be temporary – just some transactions brought forward from Spring. How keen would those vendors be to reinvest in the Brisbane market now? My guess is that most will just be happy to have found a greater fool for now.

    Without diminishing housing equity it’s harder now for OOs to upgrade and PIs to draw down to buy again, so new money from FHBs is still the missing essential ingredient for property price growth. At current prices I don’t think FHBs will reenter the market in any great numbers until next year at the earliest. Even a November rate cut should come too late for this year.

    Don’t forget that August was a horrible month for global economic news, consumer sentiment and stock markets.

    But at what point to these reports of across the board falling property prices stop becoming a blip? On RP Data numbers there’s a likelihood that prices will fall nationally for the whole of 2011. I can see that with room to cut mortgage rates that there’s still the option for further market stimulus – but a significant cut could only happen in conjunction with other seriously bad economic conditions.

    Without first home buyers coming out of their slumber supply will continue to outgrow demand.

    • Actually the general vibe up here is that we’re near the bottom of the correction and the market will cycle upwards again soon, therefore now is the best time to buy. The recent uptick in sales volumes seems to have solidified that view.

      I agree the Brisbane uptick is temporary, it’s a mirage faked with the Stamp Duty increase and buyers who were waiting on the sidelines starting to jump in because they think the market is about to cycle upwards again soon.

      • Who’s waiting on the sidelines in Brisbane who’s actually in a position to pounce?

        Highly leveraged OOs and PIs are out, having taken an equity hit.

        Long term OOs – they have to sell first to move, but will boomers risk the short term risk here? Some Gen Xers may be ready to gamble though

        FHBs – Are numbers are still down due to the pull forward of demand in 2008/9, and I don’t think that bubble has subsided sufficiently yet. Plus those newbies needing a parental hand in raising a deposit will run into be affected by the fall in home equity too. Have prices fallen sufficiently far yet? Not without a decent mortgage rate cut and/or solid jump in consumer sentiment they haven’t.

        Interstate PIs – Are cap growth or rental yield prospects good enough yet? Maybe Sydney investors will pony up, but I doubt many PIs with property in other states are willing to push all in without the help of spruikers.

        Overseas PIs – Who knows what demand is for this group. But I’d have to think the recent weakness in the AUD would provoke some pause for concern.

        Without sufficient new money entering the market prices can’t rise. There may well be increased optimism in the Brisbane property market prospects, but how many FHBs are actually prepared to outbid each other in the current market?

  5. One should not forget that other taxpayers, in the future, have to pay for any stimulus or concessions now as gov’ts are not cutting their expenditure to allow for this.

    It’s the same everywhere and has been since the 70’s. Borrow now to satisfy some want and pay for it later.

    I can’ actually get my mind around a long term prosperous economy based on credit, as interest is an eventual killer.

  6. The REIV data for last weekend 8-9/10 was ~654 dwelling sales across the whole of Victoria = ~34,000 p.a. (generous because spring sales are higher than January). Victoria has ~2,130,000 dwellings, so Victorian sales turnover is ~1.5% or roughly 67 years. That’s extrodinarily LOW and must be close to the ownership mortality/divorce/illness rate (i.e. Buyer at 20 die at 87 estate seller)

  7. According to the website http://www.reiv.com.au/… The Real Estate Institute of Victoria has been the peak professional association for the Victorian real estate industry since 1936. Over 7,000 real estate professionals and agencies are Members of the REIV. Members specialise in all facets of real estate and are located in all parts of Victoria.

    That seems alot of employees to support on a 3% gross commission ~ $561 million p.a. from present sales volume + 5% of a $12 billion total rent roll ~ $600 million p.a.

    It would be interesting to see the ABS data on the industry updated

    http://www.abs.gov.au/ausstats/[email protected]/mf/8663.0/

    ~17,000 employees in Victoria with staff costs 54.5%

  8. Pointe Gourde Principle

    Loved the video BotRot! Any more out there?
    .
    Here is some more Fairfax coverage on the Tax Summit (yes, I know – Michael Pascoe – but he talks about the sacred elephant of negative gearing) and another piece on negative gearing.
    .
    http://www.theage.com.au/business/housing-affordability-the-summit-we-really-need-20111011-1licm.html
    .
    http://www.theage.com.au/opinion/society-and-culture/gearing-down-for-more-affordable-housing-20111010-1lgvv.html
    .
    Plus, the Herald Sun and Channel 7 (Melbourne) on the weekend had features on people “losing money” on property re-sales.
    .
    As ever, read the comments after the articles for a bit of a laugh.
    .
    http://www.heraldsun.com.au/news/more-news/home-owners-300-blow/comments-fn7x8me2-1226162101573
    .
    Seems to be a bit of MSM interest in the topic…

    • First Australian one I’ve seen, could be more.

      Seen tonnes on California and Detroit, many on YouTube from various people driving around videoing all the for sale streets and suburbs. Some do Commercial property as well.

  9. The bank arrears rates on mortgages is 0.8%

    Dwellings with a mortgage are roughly 1/2 the dwelling stock.

    Roughly 0.8% X 1/2 = 0.4% of all dwellings ‘FOR SALE’ are in arrears.

    In Victoria exisitng dwelling sales are 1.5% of the total existing dwelling stock, roughly 34,000 p.a.

    In Victoria total dwelling sales also includes 1.5% NEW dwellings built, roughly 34,000 p.a.

    In Victoria arrears sales as a percentage of total dwelling sales is 0.4%/(1.5% + 1.5%) = 13.33%

    In Victoria roughly 1 in 7.5 dwellings with a ‘FOR SALE’ sign are also 90 days in arrears at a bank.