Showing posts with label rismark. Show all posts
Showing posts with label rismark. Show all posts

Friday, March 8, 2013

Recovery?

"Australia’s housing recovery, which is seven months young, is solidifying. The question is how hard and long it will run. In January last year I wrote that if the Reserve Bank of Australia cut rates again, one could expect the rebound in this interest rate-sensitive sector to accelerate. ...

With banks dulling earlier policy easings, Australia’s housing market did not get any real relief until the RBA’s hefty 75 basis point cuts over May and June. The response was almost immediate: home values in most Australian cities began appreciating in June last year. Since then they have risen about 4 per cent across the five major capital cities, with better growth again in Sydney, Melbourne and Perth.  Additional cuts in October and December ensured that the cost of housing has accelerated more rapidly this year. Based on the latest data to March 7, Australian dwelling values have climbed more than 2 per cent already in 2013."

See Chris Joye in AFR:  Property Stuggles Back

Monday, February 25, 2013

Asset Price Inflation Coming?

"One important difference in 2001 was that Australia’s household debt-to-disposable income ratio was a substantially lower 95 per cent. By 2006 it had hit 150 per cent, which is about where it is today.

In the early 2000s families could assume more leverage to bolster their purchasing power. They may not be able to do this again.  However, the signs of housing momentum are building. Australia’s largest mortgage broker processed more home loans last month than in any January previously.
RP Data’s CEO, Graham Mirabito, says that his valuation subsidiary, ValEx, which covers 80 to 90 per cent of all loan transactions,, last week mediated more valuation requests than ever before.
The RBA with its policy settings is certainly doing everything possible to fire up the embers. It says rates are not at “emergency lows” but they sure look like it.
During the GFC, the RBA pushed the average discounted home loan rate down to 5.4 per cent. Discount home loan rates today are only 30 basis points higher at 5.7 per cent.
Fixed-rate home loans are cheaper than ever. The average three-year fixed-rate loan in 2009 was 6.6 per cent. Today it is just 5.5 per cent. On Friday, Westpac announced a two-year fixed-rate product for just 4.99 per cent.
It is hard to imagine how these circumstances will not stimulate hearty asset price inflation."

Tuesday, August 14, 2012

Housing Risk

An interesting article by Chris Joye:  Housing Risk: It's greater than you think.

"Using some complex statistical methods pioneered by US academics, we estimate that the annual volatility of an individual home with no debt is about 18 per cent. That is similar to the observed risk of the Aussie sharemarket.

But this assumes you have no debt. What happens when you leverage up? The most variable dotted line in the second chart displays the monthly returns yielded by an individual home with 80 per cent gearing. This has a spectacular impact on risk and return. The annual equity volatility of a single property jumps from 18 per cent to north of 38 per cent. On the other hand, returns are also higher.

The key to mitigating risk is diversification. This ideally means a portfolio comprising multiple assets situated in unrelated regions. Hard to achieve, I know. Without diversity, your best way to reduce risk is by using less debt."

See also: 10% lose money when they sell home -- circa 15% after costs

Monday, June 4, 2012

Brisbane Doing Better Than Melbourne

"As at the end of May, Melbourne dwelling prices are off about 5% this year. But most of this decline has materialised since the middle of April. Specifically, home values in Melbourne have declined by 4.2% since the 15th of April.



In contrast, the Sydney housing market, which is denoted by the black line, has rebounded nearly 1% since the second week of May. In seasonally-adjusted terms, this would be an even stronger outcome. Likewise, we can see some recent stabilisation in raw Brisbane dwelling values, which are illustrated by the orange line in the chart above."

See Property Observer article, by Chris Joye.

Sunday, June 3, 2012

RP Data Report


From a recent RP Data Report:

Brisbane values and volumes
  • Over the past 12 months, property values in Brisbane have fallen by -6.6 percent for houses and units declined by -5.4 percent, underperforming the ten year average annual growth rates of 8.0 percent for houses and 7.0 percent for units.
  • Although the combined capital cities began to record a strong rate of growth post GFC, Brisbane’s property market underperformed and has recorded limited growth in home values over the past five years.
  • Brisbane’s property market also experienced distinct cycles over the past decade, with annual property value growth recording an historic high in November 2003, then consolidating over 2004 to 2006, followed by a strong recovery prior to the GFC however, Brisbane has been underperforming since 2008.
  • Over the last five years, sales volumes have been recorded an average of 3,915 transactions per month.
  • The current sales volumes are estimated to be -24 percent lower than the five year average.
  • Brisbane’s median house price is recorded at $430,000 and the median unit price sits at $360,000 in April 2012. 
Key Statistics

  • Compared to the combined capital city average, Brisbane’s property values have been underperforming since the beginning of 2009.
  • Over the past five and ten years, Brisbane has experienced a much stronger housing market performance than it has over the past 12 months.
  • Vendor discounting rates are currently recorded at an average of -9.5 percent for houses and -7.5 percent for units. At the same time last year, discount rates were recorded at -8.9 percent for houses and -7.8 percent for units.
  • In March 2012, Brisbane houses were on the market for an average of 86 days and 58 days for units. In March 2011, houses took an average of 88 days to sell and units 66 days, highlighting a slight improvement in conditions for sellers.
  • Vendors who sold their dwellings over the past year had owned their houses for 8.7 years on average and units for 6.9 years. 
  • In June 2011, Brisbane’s estimated population was roughly 2.1 million persons, growing by 1.7 percent over the year.
  • Brisbane dwelling are each home to an average of 2.7 persons. 



Friday, June 1, 2012

Brisbane Apartment Values Up Slightly in May

Residential property values have continued to slide across the capital cities, with the RP Data-Rismark Home Value Index recording a -1.4 per cent fall in dwelling values over the month of May.

The latest drop brings the cumulative decline to -2.2 per cent over the first five months of 2012 and overall values are down -5.3 per cent over the past twelve months.

Much of the weakness is confined to the detached housing market rather than apartments. According to RP research director Tim Lawless, unit values have been much more resilient to value falls compared to houses.  It is clear that the market is becoming increasingly price point driven. Unit values across the combined capitals increased in May and they are up by 1.3 per cent over the first five months of the year. Based on median prices, unit prices are generally around 15 to 20 per cent lower than house prices.

Investment yields also tend to be higher and units are often located more strategically compared with their detached Mr Lawless said.

Another hurdle for the property market is the large number of properties currently being advertised for sale. Based on RP Data estimates, there were approximately 308,500 homes advertised for sale across Australia during May which is almost 9 per cent more than at this time last year.  While stock levels have reduced since the latter part of 2011, Mr Lawless said that this result still represents a larger than normal pool of homes available for sale at a time when transaction volumes are running well below their five year average.

Brisbane Apartment Capital Growth/Losses to 31 May 2012 (RR Data Rismark Index)
Month 0.3%
Quarter -2.1%
Year to Date -3.9%
Year on Year -4%

Sunday, February 5, 2012

RP Data December 2011 Index

"On the outlook for the year ahead, Rismark’s Ben Skilbeck commented, “We expect that the RBA’s interest rate cuts in the final two months of 2011 will lend further momentum to housing activity as transaction volumes pick up over February and March after the seasonally slow months of December and January. If financial market pricing for substantial additional RBA rate cuts proves accurate, we could see a stronger-than-expected bounce-back in housing conditions.”

“Housing affordability in Australia has experienced a striking improvement in recent times. While disposable household incomes on a per household basis rose by five per cent over the year to September 2011, Australian dwelling values have declined by 3.4 per cent since September 2010. As a result of the RBA’s rate cuts borrowers can now get fixed- and variable-rate home loans as low as 5.9 per cent and 6.14 per cent. Rismark’s research shows that disposable incomes per household have risen about 15 per cent further than Australian dwelling values since the end of 2003. This helps account for the decline in Rismark’s national dwelling price-to-income ratio, which is as low as its been since 2003” Mr Skilbeck said.
RP Data’s Tim Lawless added, “While global uncertainty and a stagnant local labour market could weigh on the consumer’s mindset, we are nevertheless observing improvements in monthly housing finance commitments. RP Data’s leading indicators on average selling times and vendor discounts are also starting to look healthier. There is no doubt that additional interest rate relief in 2012 would afford a very welcome cushion to the housing market.”"
See RP Data.  Chart above from RP Data, for Apartments only (not houses) for period ending December 2011.  It shows a decline in Brisbane apartment prices for all relevant periods.

Monday, January 16, 2012

Busting Bubble?


According to contrarian economist Professor Steve Keen, it was accelerating debt that drove house prices up and it is decelerating debt that is causing the fall.
Keen has argued the significance of private debt in the economy - something which mainstream economists largely ignore. In a recent post on his blog, debtdeflation.com, Keen reveals the debt to disposable income ratio for Australian households has been rising until recently. Now Australians are saving and paying off debt rather than spending and this has a negative impact on house prices.
The end result, Keen argues, is that house prices will fall 40 per cent over the next 10 or so years, or 5 per cent to 10 per cent for 2012.
But see a contrary story here and story by Matusik.  Chris Joye from Rismark takes the opposite view.

Monday, October 31, 2011

RP Data - market correction slows in September 2011

Consistent with RP Data and Rismark's forecasts, Australia's housing correction appears to be slowing. In September, capital city home values had their best result in 7 months (down just -0.2 per cent seasonally-adjusted and raw) while regional house values rose +0.1 per cent (s.a.).

Including rents, total returns are +0.7 per cent over the first nine months of 2011 and +0.9 per cent over the 12 months to end September. 

According to the market-leading RP Data-Rismark Home Value Index, which captured nearly 251,000 sales in the first nine months of 2011 alone, Australia's soft housing market may be starting to turn the corner. The RBA's decision tomorrow will determine whether the commencement of any recovery occurs quickly, or is more elongated into 2012. Since 90 per cent of all home loans are variable rate, housing is one of the most interest rate sensitive sectors of the economy.

 In the month of September, capital city dwelling values declined by just -0.2 per cent (both seasonally-adjusted and in actual raw terms). This was the smallest decline since February 2011 and was crucial in reversing a trend of accelerating capital losses since end March 2011.

Over the first 9 months of 2011, capital city home values have now declined by -3.6 per cent. In the 12 months to 30 September, capital city home values were off by -3.4 per cent.

RP Data's research director, Tim Lawless, said, "In the month of September there were wide divergences in the performance of the individual cities. In contrast to recent index results, seasonally-adjusted dwelling values actually rose in Brisbane (+0.4 per cent) and Adelaide (+0.5 per cent). They were flat in Darwin (0.0 per cent) and down just slightly in Perth (-0.1 per cent)."

Rismark executive director, Christopher Joye, added, "With home buyers budgeting on 2-3 rate hikes in 2011 that never eventuated, the housing market has been weighed down by concerns about families' future finances. The RBA's apparent switch to an "easing bias" has taken hikes off the table with the financial markets pricing a high probability of a rate cut on Tuesday.

Rismark forecasts imply that a reduction in interest rates on Tuesday, which could see discounted variable home loan rates fall to as low as 6.6%, would kick-off a recovery in housing activity. Based on our assumption that there were more hikes to come in this cycle, we had been projecting the recovery would commence in around mid 2012. This timing would be brought forward a quarter or two by any decision by the RBA to normalise its cash rate tomorrow."

  Rismark's Christopher Joye commented, "Notwithstanding the extraordinary hysteria whipped about house price bubbles and so forth, the fact is that the gross total return of 0.7 per cent generated by Australian housing in 2011 is very reasonable in the scheme of things. Indeed, it looks positively attractive compared to the extreme volatility, and stunning losses, sharemarket investors have had to endure." 


The number of homes advertised for sale remains high, which RP Data's Tim Lawless suggests is one of the key explanations for the secular softness. "We are counting almost 300,000 homes advertised for sale across Australia, which is more than 30 per cent higher than the same time last year. Melbourne supply is especially plentiful, with listing volumes more than 60 per cent higher than a year ago. The large number of properties available for sale implies buyers will continue to hold the balance-of-power at the negotiation table," he said. 


Source: RP Data Press Release
Brisbane Apartments (for period ending September 2011) - Capital Growth:
  • Month = 3.2%
  • Quarter = 3.2%
  • Year to date =  negative 0.8%
  • Year on year = negative 0.9%
  • Median Price for settled sales of apartments in Brisbane over quarter = $365,000

Wednesday, September 21, 2011

Up or Down or Flat?

According to Chris Joye, Australian housing prices are unlikely to crash, but will more likely tread water.

"While the Aussie share market is still nearly 40% below its 2007 peaks, Australian house prices are about 10.3% above their pre-GFC highs. Notwithstanding this, we have had effectively no house price growth in nearly one and a half years while household disposable incomes have, according to the ABS, raced ahead at an 7% to 8% per annum rate.

The next major marker will be the August house price index data. This will be a crucial guide to whether Australia's housing market is experiencing an accelerating decline, as folks like the perennial doomsayer Steve Keen would have us believe."

See note by Chris Joye

Michael Yardney reckons property prices are likely to increase, in the next decade!

Wednesday, August 31, 2011

RP Data Home Value Index Released Today

Based on approximately 178,000 home sales over the year to July, the market-leading RP Data-Rismark Hedonic Home Value Index recorded a seasonally-adjusted fall of -0.6 per cent in capital city home values over the month of July (-0.9 per cent in raw terms).

Over the first seven months of 2011, Australian capital city home values were down -3.4 per cent. According to RP Data research director Tim Lawless, this national result conceals wide divergences across the individual cities.

Over the 12 months to July 2011, Australian capital city home values are off -2.9 per cent. Mr Lawless said that it looks like a multi-speed housing market: Brisbane (-6.6 per cent), Perth (-6.3 per cent), and Melbourne (-4.3 per cent) have all experienced significant declines over the last year, whereas the 35 per cent of Australia's capital city population that lives in Canberra (+1.9 per cent) and Sydney (+0.5 per cent) had realised capital gains.

"If rates do remain on hold, or begin to fall, we would expect to see Australia's housing market find a base and begin to generate capital gains again. If the RBA has really come to the end of its tightening cycle - which we would find surprising given the high core inflation revealed over the last six months - 2011-12 will likely be judged one of the best buying windows seen in quite some time. The turning point will arrive when otherwise hawkish Australian consumers accept the notion that rates are not going to inexorably increase," Mr Joye said.

Mr Lawless said that the current weakness in housing market conditions is related to the ongoing anxiety consumers have about their future finances as reflected in the latest consumer confidence data.

Despite some improvements in selling times in previous months, the average number of days it takes to sell a home has increased in June and July. Other key leading indicators also imply that market conditions remain soft.

Extracted from Press Release


Looking at the table above (capital growth, apartments not houses), which is extracted from the RP Data tables released today, it seems that Brisbane apartment prices may be on the rebound? Or are there so few sales in Brisbane that these numbers are not particularly reliable?

Friday, August 19, 2011

Housing Market Outperforms Shares

From Chris Joye:
"The chart suggests that a national portfolio of housing has comprehensively outperformed all other investment categories over this tumultuous period. What is also fascinating is that AAA-rated Australian government bonds have delivered almost the same returns as Australian shares (plus dividends) with vastly lower risk.

On the question of risk, the table below shows us that there have been five months over the last 11 years where Aussie shares have fallen in value by more than 5% (the worst being a stunning 14% loss). None of the other asset classes have had a single monthly loss of five per cent plus.

This just hammers home the point that if you get your market-timing wrong with shares, you could be underwater on your investment for many years. Think, for example, of all the poor folks who piled into Aussie shares around the market apogee in 2007 (see the peak of the red line in the chart above)."

Saturday, July 30, 2011

Capital Gains and Losses

According to Rismark, the median capital return to property owners since 1990 has been 7.8% per year.

Over the last 20 years, 9.3% of all home owners traded their property for a loss (note that these are pure capital returns, and ignore the rental income that you would have got along the way). This is also gross of all transaction costs, so you can be sure that the net number is higher. Ipso facto, about 90% of owners realise positive gross capital returns on their homes before accounting for rents and costs.

These returns reflect the change in the capital value of a home over time. What they do not tell us is what the home owner’s actual equity, or geared return, would have been. We can comfortably assume that the equity returns are far higher (likewise the losses for the one in 10 folks who get unlucky).

This analysis excluded gross rents, which are currently around 4% to 5% per annum. It also ignores all transaction costs, which sum to around 1% to 2% per annum for the average home owner who stays in a property for seven to eight years.

Source: Chris Joye in Property Observer

Friday, July 29, 2011

RP Data Rismark June 2011 Index


The modest overall decline in national dwelling values conceals considerable variation across the capital cities. For example, whereas Brisbane and Perth home values are down 6.3 per cent and 4.7 per cent, respectively, over the last twelve months, property values in Sydney are up 0.5 per cent.

Rismark’s economist, Christopher Joye, added, “We think the RBA is likely to raise rates at least once or twice more to address Australia’s burgeoning inflation problem, which means dwelling values will probably soften a bit further. This should open up attractive investment opportunities.”

“Higher rates means the rental market will tighten beyond its already firm levels, with vacancy rates near all-time lows. In turn, this will drive rents and yields even higher. Over the next year we expect to see wages and disposable incomes continue to rise solidly while house prices flat-line or taper modestly,” Mr Joye said.

Unit markets have continued to outperform detached houses, with unit values recording no change in value over the June quarter compared with a 1.2 per cent fall in (more expensive) house values. A similar result applied over the twelve months to June: unit values were unchanged whereas house values were down by 2.6 per cent.

Mr Lawless said the variation in performance between the two housing types comes back to affordability.

“Across the combined capital cities, median unit prices are $67,000, or 14 per cent, lower than the median house price. In Canberra and Sydney the gap between median house and unit prices is more than 20 per cent. With more Australians seeking to live closer to the city and transport nodes, as well as seeking out more affordable housing options, the superior performance of the unit market makes sense.”

Rismark’s Mr Joye added, “As a conservative guide, dwelling prices tend to track disposable incomes through-the-cycle, or the typical owner’s average 7-8 year holding period. Historically, disposable incomes have expanded at a six per cent per annum pace. Going forward, a more realistic guide is probably around 4-5 per cent per annum. Over the next 10 years, it would not be unreasonable to expect to generate this kind of capital growth in concert with rental yields net of costs of 3-4 per cent annum. Patient folks opportunistically investing in housing are probably going to find the best prices, and valuation fundamentals, that they will have had access to in a long time. Otherwise, we favour variable-rate cash as an asset-class given our long-held forecast that the RBA will raise rates to deal with Australia’s growing inflation problem.”

“The Australian housing market’s demand- and supply-side fundamentals remain healthy. And they will improve further in the year ahead. The one fly in the ointment is interest rates. When the RBA comes to cut them, affordability in this country is likely to be the best we’ve seen in over a decade, which will help fuel a robust recovery and encourage investors to allocate scarce capital to boosting housing supply” Mr Joye said.

See RP Data Press Release

RP Data Report

Values

  • Fell by -0.2% during the month of June 2011, the rate of decline is easing – after values fell by -0.5% in March, they fell by -0.4% in April, -0.3% in May and by -0.2% in June. Darwin recorded the greatest fall (-2.8%) and Hobart the greatest increase (+0.9%).
  • Over the last quarter, values have fallen by -0.9% across the combined capital cities, with Melbourne the weakest performing market (-1.6%) and Canberra the best performed (+0.5%).
  • On an annual basis, values are down by -2.0% with Sydney the only market in positive territory (+0.5%) and Brisbane the weakest (-6.3%).
  • The Premium market has been the weakest performer with values down by -5.6% over the year, compared to the most affordable market recording value falls of -1.2% and the broad ‘middle market’ down -1.5%.

Sales Volumes

  • Estimated sales volumes are estimated to be -16% below the five year average.
  • · Estimated volumes in Sydney, Hobart and Canberra are at above average levels with all other capitals recording volumes below average.

Rents and yields

  • Capital city unit rents have increased by 3.6% over the 12 months to June 2011, compared to average annual growth over the past five years of 7.1%.

Time on market and vendor discounting

  • The average number of days on market is starting to level however, houses are taking 55 days to sell currently compared to 42 days last year and units were taking 38 days to sell last year and currently take 54 days.
  • Vendors are having to discount houses by 6.0% from the initial listing price to achieve a sale currently compared to 5.9% last year and unit vendors are discounting by 6.0% also compared to 5.1% last year.

Property listings

  • New and total listings have begun to ease during recent weeks from record highs.
  • Whether this is the result of sales or vendors removing their properties from the market remains to be seen. The majority of listings are actually recorded outside of the capital cities.

Consumer sentiment

  • Fell to its lowest level since the GFC with optimists now outnumbered by pessimists.
  • Poor consumer sentiment is likely to result in ongoing low transaction volumes for properties.


Housing finance

  • First home buyers remain relatively inactive.
  • Investor activity has improved but remains at low levels.
  • The volume of refinances for owner occupiers is up 25% over the year while non-refinances are down -4.2%.

Dwelling Approvals

  • Approvals continue to fall. The decline in approvals is much more substantial for houses than it is for units.

Tuesday, July 5, 2011

RP Data May 2011 Index

RP Data – Rismark Home Value Index Release

Capital city dwelling values declined by 0.3 per cent (seasonally adjusted - s.a.) in May, and are down 1.2 per cent (s.a.) over last 3 months. Rest of State house values were also weak in May (-0.1 per cent s.a.) and are off -0.9 per cent (s.a.) over last 3 months. Gross rental yields for Aussie apartments are now 5.0 per cent.

Based on more than 110,000 home sales nationally in 2011, the market-leading RP Data-Rismark Home Value Index for Australia’s capital cities declined by -0.3 per cent (s.a.) in the month of May (or by -0.5 per cent in raw terms). Capital city home values have now fallen for the last five consecutive months with by far the worst seasonally-adjusted result coming in the month of January (-1.2 per cent), which accounts for 45 per cent of the 2011 decline.

The softening in Australian home values is delivering a valuation dividend with Australia’s dwelling price-to-disposable income ratio falling to 4.2 times, which is its lowest level since June 2003 according to Rismark’s analysis.

RP Data’s research director, Tim Lawless, added “For property investors, rental yields are also improving with RP Data-Rismark’s Index showing that gross Australian apartment yields have now risen to 5.0% (see chart). The best rental yields can be found in Darwin (5.7 per cent), Canberra (5.4 per cent), Brisbane (5.2 per cent) and Sydney (5.2 per cent). The worst yields are in Melbourne (4.2 per cent), Adelaide (4.6 per cent) and Perth (4.9 per cent).”

Over the three months to May 2011 dwelling values in Australia’s capital cities have retraced by -1.2 per cent on a seasonally-adjusted basis. In raw terms, dwelling values have fallen by -1.3 per cent. The quarterly rate of decline has, however, moderated since the end of March when home values were off by -2.0 per cent care of a flood-affected January.

Over the 12 months to end May, Australian capital city dwelling values are now down -2.3 per cent (seasonally-adjusted). If we just look at the first five months of 2011, Australian home values have stepped back by -2.7 per cent.

Across the capital cities performance has been varied and counter-intuitive to the purported resources boom. Sydney is the only market to have recorded a modest capital gain over the last year (up 1.0 per cent). Homes in Canberra have also held ground (-0.1 per cent over the year). All other capitals have slipped into the red, with some down by significant margins.

According to Tim Lawless, the two weakest results have been Perth, where dwelling values are down -7.5 per cent year-on-year, and Brisbane, which is off by -5.9 per cent over the year. ...

According to Tim Lawless the weakness across equities markets is likely to be an important factor affecting the premium housing market: “The S&P/ASX 200 Index remains almost 35 per cent below its November 2007 peak and the index is down 8 per cent since the start of April. The top end of the market clearly benefitted from the circa 40 per cent rise in share prices following the trough in March 2009. However, the recent share market weakness is affecting premium demand.”

Ben Skilbeck, Rismark’s Joint Managing Director, added, “Demand for Australia’s luxury homes has also been sapped by the surging currency, which has made local housing much more expensive for expats located in Europe, North America and Asian countries with US dollar currency pegs to buy. Financial markets are currently pricing in a decent chance of an interest rate cut over the next 6-9 months. If the RBA does indeed reduce rates, this would provide substantial support to the market. However, our central case remains that rates are heading up, not down, and thus we are not looking for any capital gains in 2011. That said, total returns will be boosted by very solid growth in rents, with gross yields in May now at 5.0% for Aussie apartments. Rental vacancy rates remain very tight, so we expect to see further improvements in rental returns.”

See RP Data Press Release.

See also Brisbane Times

"Consumers are well and truly focused on saving, not spending," Mr Lawless said. "Despite the low rate of unemployment and the strength of the resources sector, it is clear that the average Australian is content to pay-down debt and wait for some economic certainty to return. As a consequence, transaction volumes in the real estate market are about 20 per cent below the five year average and listing volumes are about 25 per cent higher than what they were last year."

Vendor discounting in Brisbane has fallen back to 7.8 per cent after peaking at 8.3 per cent last December.

Tuesday, June 7, 2011

Joye's Myths

An extract from an article by Chris Joye:

"A third myth is the popular claim that luxury, or more expensive, properties outperform cheaper ones. This is just not supported by the empirical data. Analysis produced by Rismark proves that mid-priced homes have actually delivered stronger capital growth than their dearer counterparts. And this also comes with considerably lower risk.

The luxury end of the market is “illiquid” – that is to say, it only attracts, by definition, a small number of buyers and sellers – and is afflicted by far greater risk or volatility. This is highlighted by RP Data-Rismark’s luxury property index, which is denoted by the red line in the chart below. Observe how during 2009 and 2010 the most expensive homes outperformed the broader market. Yet during the recent soft-landing, it has been this same cohort that has tanked, relatively speaking. ...

My sixth myth is that Australian house prices are massively overvalued and set to fall by 20 to 40%. You may recall that my regular sparring partner, associate professor Steve Keen, famously predicted in 2008 that Aussie house prices were “going to fall by 40% or so in the next few years.” Well, he could not have been more wrong. Dwelling prices in Australia’s capital cities are currently 30% higher than their March 2008 peak, just prior to the GFC hitting our shores.

Put differently, dwelling prices are nearly 70% higher than where Dr Keen expected them to be. My other mate, the economist Rory Robertson, challenged Dr Keen to a bet on this note, which the latter lost. As a result, Dr Keen ended up walking from Canberra to Mount Kosciuszko wearing a T-shirt exclaiming “I was hopelessly wrong on house prices” (or something to that effect). ...

Property Observer

Tuesday, May 31, 2011

Rp Data - Rismark April Report


The near-double interest rate hike in November last year has bitten, with seasonally-adjusted Australian capital city dwelling values down 1.2% in the three months to end April, although in raw terms home values are mostly unchanged (-0.2%). Expensive suburbs have been the poorest performers in line with the share market.

According to Tim Lawless, RP Data’s research director, expensive suburbs have helped drag the overall market down. RP Data and Rismark divide their capital city index into three sub-indices: the bottom 20 per cent of suburbs ranked by price, the middle 60 per cent, and the top 20 per cent.

Over the year to end April, dwellings in the most expensive capital city suburbs recorded a -5.4 per cent loss (see second chart). In contrast, home values in the middle 60 per cent of suburbs were down by only -0.9 per cent. Dwellings located in the cheapest 20 per cent of suburbs were the best performers, hardly moving (-0.5 per cent).

RP Data’s Tim Lawless commented, “The solid performance of cheap suburbs runs against the grain of popular claims that default rates are rocketing up amongst first time buyers, which the RBA recently rejected.”

“The luxury end of the housing market is also showing its volatility. During the growth phase of the cycle the most expensive homes realised the highest capital gains. Yet as the market cools premium home values seem to be losing steam the fastest,” he said.

According to Mr Lawless, the weak conditions seen in the Perth and Brisbane markets combined with the comparatively high capital gains recorded in Melbourne and Sydney has driven a widening housing cost gap.

“Brisbane’s median house price is now 24 per cent lower than Sydney’s and 14 per cent lower than Melbourne’s. Pre-GFC the gap between Brisbane and Sydney dwelling prices was as narrow as 6.4 per cent. Perth dwelling prices are now 18 per cent lower than Sydney’s and 8 per cent lower than Melbourne’s. At its narrowest, the gap between Perth and Sydney prices was just 2.3 per cent. The improved buying proposition in these cities should help support buyer sentiment, which has been very weak since the financial crisis,” Mr Lawless said.

Christopher Joye added, “Notwithstanding that low vacancy rates will help rental growth outperform core inflation, the capital growth environment is as we forecast last year: missing in action. If the RBA raises rates another 1-2 times this year, we project that house prices will remain soft and likely register some modest losses. While home values in Australia have not risen for a year, wages and disposable household incomes are growing rapidly. This is improving the valuation dynamics every day. When the RBA eventually cuts interest rates, the housing market will benefit from a tremendous affordability dividend.”

See RP Data Release

Saturday, April 30, 2011

RP Data - Rismark March Report

Table 3: Apartment Prices


While Australia’s capital city home values were flat in March (-0.2% seasonally adjusted and 0.0% raw), they softened by -2.1% (seasonally adjusted) over the March quarter (-0.4% in raw terms). In contrast to these results, weekly rental rates are up 4.6 per cent over the last six months.

The latest RP Data-Rismark Home Value Index results show capital city dwelling values were flat in the month of March (-0.2 per cent s.a. and 0.0 per cent raw). However, over the March quarter capital city home values softened noticeably (-2.1 per cent s.a. and -0.4 per cent raw).

Over the twelve months ending March 2011, Australian capital city dwelling values were broadly unchanged (-0.6 per cent).

According to RP Data research director Tim Lawless, while residential property owners may not have seen any capital growth over the past 12 months, many are realising robust increases in rental yields.

“In contrast to the fall in home values, gross rental yields have been improving with apartments and houses now delivering a gross return of 4.9 per cent and 4.2 per cent, respectively, in March 2011 according to RP Data-Rismark’s estimates,” Mr Lawless said.

Ben Skilbeck, joint managing director with Rismark International, said this is consistent with the sprightly rental appreciation documented by the ABS in its inflation measure, with the dollar value (as opposed to the price yield) of the rental component of the ABS’s inflation benchmark rising by a striking 1.3 per cent over the March quarter alone.

According to Tim Lawless, Brisbane has recorded the weakest results over the quarter and the year.

“Unsurprisingly, the flooding that has occurred within South East Queensland has likely compounded Brisbane’s weak market conditions. Brisbane homes were the worst performers during the March quarter, with values tapering sharply by -4.6 per cent s.a. (-3.3 per cent raw). Brisbane values are down 6.8 per cent over the year to March 2011,” he said.

At the end of the March quarter, in the capital cities the national median dwelling price was $455,000. For all regions across Australia, the national median dwelling price substantially lower at $410,000.

The moderation in Australian housing valuations are likely to be warmly welcomed by prospective home buyers, particularly first timers who have been confronted with affordability barriers. RP Data’s research director, Tim Lawless said, “With household incomes growing at 6 per cent per annum, interest rates potentially approaching the peak of the tightening cycle, rents increasing, and house values going nowhere, buyers are seeing an improvement in their position. With first time buyers now representing a bit less than 15 per cent of all owner occupier housing finance commitments, it is likely that market activity in the first-time buyer market will increase in the medium term,” Mr Lawless said.

Rismark’s Ben Skilbeck, added, “Rismark forecast a soft-landing in the Aussie housing market in the second half of 2010, and projected that this would persist through 2011. These forecasts are coming to fruition. If the RBA does raise interest rates one or two more times this year, we expect to see further valuation improvements.”

RP Data’s Mr Lawless said the tightness in the rental market combined with flat to negative change in home values is providing a boost to rental yields.

“Based on the RP Data-Rismark Total Return Index, we estimate that weekly asking rents are up 4.6 per cent over the last six months. While the highest yields are found in the Darwin apartment market (5.7 per cent), apartments in Hobart (5.4 per cent), Canberra (5.4 per cent), Brisbane (5.2 per cent) and Sydney (5.1 per cent) also offer attractive yields,” Mr Lawless said.

He added that key leading indicators point towards a sedate capital growth environment for the remainder of the year.

“Clearance rates are bouncing around the low fifty percent mark each week, the number of homes being advertised for sale is almost 30 per cent higher than at the same time last year, and sellers are being forced to adjust down their price expectations. Before there is any real upwards pressure on home values there will need to be some absorption of effective supply and a return of sustained buyer confidence to the market,” he said.