What’s re­ally hap­pen­ing with prop­erty prices

Ig­nore two great hous­ing myths to get a more bal­anced pic­ture of what’s go­ing on

Money Magazine Australia - - CONTENTS -

Is the hous­ing mar­ket fac­ing a cri­sis of con­fi­dence, as some real es­tate com­men­ta­tors say? Or is it fac­ing deeper and more wide­spread prob­lems? Chan­nel Nine’s 60 Min­utes seg­ment Bricks and Slaugh­ter, which aired in Septem­ber, claimed that house prices could fall by 40% in the next 12 months. It was widely slammed as ir­re­spon­si­ble scare­mon­ger­ing by many notable an­a­lysts. Louis Christo­pher, manag­ing di­rec­tor of SQM, who said on the pro­gram that Mel­bourne and Syd­ney house prices were heav­ily over­val­ued, told the ABC’s Me­dia Watch that he “was dis­ap­pointed and un­happy … the seg­ment was sen­sa­tion­al­ist to say the least”.

In A Cri­sis of Con­fi­dence in our Prop­erty Mar­kets, a re­cent pod­cast by prop­erty com­men­ta­tor Michael Yard­ney, he started by say­ing: “Con­sumers are scared. Home­own­ers and prop­erty in­vestors are wor­ried. And our me­dia is killing our prop­erty mar­kets and our econ­omy.” Yard­ney in­ter­viewed An­drew Wil­son, chief economist of my­hous­ing­mar­ket.com.au, who said the mar­ket had lost its nerve de­spite our strong econ­omy, point­ing to high em­ploy­ment, high mi­gra­tion, a boom in first home buy­ers and the low­est in­ter­est rates on record.

So what’s re­ally go­ing on and how can you, as ei­ther a home buyer or in­vestor, take ad­van­tage of the cur­rent con­di­tions.

First, it’s a myth that there is an “Aus­tralian hous­ing mar­ket”. We have myr­iad house mar­kets in this big coun­try and it’s our two big­gest cities, Syd­ney and Mel­bourne, that are ex­pe­ri­enc­ing the big­gest falls. Prices are down 7.4% and 4.7% re­spec­tively in the year to Oc­to­ber 31, ac­cord­ing to CoreLogic, and are ex­pected to fall a bit more.

An­other myth is that hous­ing is un­af­ford­able. Again this is mainly a Syd­ney and Mel­bourne prob­lem, as can be seen from a ta­ble (be­low) com­piled by the re­spected com­men­ta­tor Michael Ma­tusik.

Syd­ney, Mel­bourne and to some de­gree Ho­bart are over­val­ued, says Ma­tusik, but me­dian house val­ues for the rest fall be­tween four and a half and five and a half times me­dian fam­ily house­hold in­come. His gen­eral af­ford­able price bench­mark is five times me­dian house­hold in­come but it’s higher for Syd­ney and Mel­bourne be­cause, he says, his­tory shows that these two cities com­mand a pre­mium.

“If it all goes to shite then maybe the dam­age is most likely to be con­tained to a few spots,” he says. “This, of course, as­sumes that things eco­nomic don’t im­plode or that we don’t panic. Greed of­ten turns to fear.”

Ma­tusik sees very lit­tle room for house prices to im­prove un­less ei­ther costs de­cline or in­comes rise. “My take on this is that we are likely to ex­pe­ri­ence ‘the big yawn’ for the next five years, but maybe 10 years or so, whereby dwelling val­ues don’t rise much across most places in Aus­tralia.

“House price growth over the past 25 years was largely man­u­fac­tured by the re­duc­tion of in­ter­est rates, while at the same time pun­ters were en­cour­aged to bor­row a lot more.

“Un­less you bought at the height of the boom and over­paid, plus overex­tended your­self, then the com­ing changes over the next five to 10 years might not have that much im­pact on you,” says Ma­tusik.

That prices are be­com­ing af­ford­able and the pace of growth is slow­ing should be good news for first home buy­ers.

In­vestors, es­pe­cially those who ex­pect a La­bor fed­eral gov­ern­ment to be elected next year, will also be watch­ing for op­por­tu­ni­ties to buy ahead of the elec­tion if prices ease. La­bor plans to limit neg­a­tive gear­ing to new properties and to halve the cap­i­tal gains dis­count to 25%.

The vi­tal thing, whether you’re an in­vestor or a home buyer, is to as­sess the fun­da­men­tals of the area you are buy­ing into and not over­bor­row, although that is less likely now banks have cur­tailed lend­ing for houses.

Pam Walk­ley, found­ing edi­tor of Money and for­mer prop­erty edi­tor with The Aus­tralian Fi­nan­cial Re­view, has hands-on ex­pe­ri­ence of buy­ing, build­ing, ren­o­vat­ing, sub­di­vid­ing and sell­ing prop­erty.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.