The Facts - a snapshot
While financial markets are in a mess, much of the media reporting is exaggeration. So too are the call of substantial drops in residential prices due to the “global financial meltdown”. While the events in recent weeks have unsettled some property buyers, the fundamentals supporting residential property remain robust.
Given the recent hype, it’s interesting to take a step back and look at how residential property actually performs. The following observations can be made;
•Residential property has out-performed most other assets over the short, medium, and long term (see chart below)
•Residential returns are cyclical with price growth on average peaking every 7th year or so. Whilst there are low periods of growth, it is rare that nominal prices actually decline on an annual basis
•Detached houses and attached dwelling now show similar total returns
•Most locations show similar returns. For example, buying in Adelaide shows the same returns as Brisbane over mid to long term.
View attachment Property Market table.doc
Analysis of interest rate falls since the early 1990’s (Westpac) has found that a .25% drop in rates causes;
•New housing starts rise by around 5% over a three month period immediately after the drop in interest rates
•House prices also rise by between 2% and 3%, again over a three month period after the rate drop
•Sales volumes lift on average by 5% within the first quarter after a drop in interest rates
•Buyer confidence lifts about 8% within a month or two straight after the decline in interest rates
There is absolutely no evidence to show that prices will fall. On the contrary, you could expect marginal increases in the coming months. Buyers who are expecting a downturn in prices will be disappointed and possibly be paying more. Likewise, waiting for interest rates to drop before buying may be offset by marginal increases in property prices.
Similar research shows that on average, prices double every nine years, equating to capital price growth of just over 8% per annum. Whilst there are low periods, it is rare that nominal prices actually go backwards on an annual basis. And while it is true that residential property does, on occasion, enter negative territory, when taking a longer-term view, the average total return for a house was 11.4% across our capitals during 2007/08 (11.3% for attached product). Over the last five years, houses returned 11% and units 9.9% per annum. The ten year average was 13.4% and 12.8% respectively.
What are the positive market indicators?
•Australia’s population growth (337,000 pa) is the fastest on record – Qld and Vic fastest growing states
•Total residential returns (capital gains and net rent) rose by 11.4% over the last 12 months – house prices
•rose by 8% and rents by 14%
•Rental property vacancy rate is 1.4% (and falling) and new homes to market are under supplied (shortfall of 58,000 +/- in Qld)
•Unemployment is just 4.1% and 237,000 new jobs created in last 12 months
•Only 0.41% of mortgages are in arrears by 3 months – this equates to just 17,000 borrowers, not the
•800,000 reported by the media
•Interest rates are expected to keep falling – at present best average variable 7.8% and 3 year fixed at 6.99%
•Both end sale prices and weekly rents are up around 30% since mid 2005
Estimates based on population growth show that between 2,500 and 3,000 new apartments are needed across inner Brisbane each year. This demand could be as high as 4,000 in a few years. At present there are around 500 apartments for sale, the tightest supply in the last decade. Going forward there are only 2,000 new apartments with development approval currently planned across 13 projects.
Despite recent commentary to the contrary, residential sales volumes also remain buoyant across Brisbane suburbs. It is estimated that just under 12,000 residential properties sold during 2007/2008, of which 8,000 were apartments and a further 3,850 transactions were for detached houses.
The rental vacancy rate is under 2% with weekly rental on the rise. At present, weekly rents for one bedroom recently finished apartments (inner suburbs) attract between $350-$400 per week. Two bedroom product goes between $500-$600 per week, and 3 bedroom stock $700-$800 per week.
Suburban detached dwellings are also experiencing a similar trend with new 4 bedroom stock ranging anywhere from high $300’s up to $600 per week.
In the short term expect rents to rise as demand exceeds supply. New start properties average 4-5 months before they can be occupied which places greater demand on apartments or town house availability. The federal government has taken a lateral view toward under supply by offering first home owners $21,000 for purchase of a new home or construction of same. This, combined with the offer of $14,000 for purchase of established dwellings is going to see a lot more activity in the first home market.
In conclusion - turn off the 6pm news. The very nature of our media is to report in the ‘negative’ rather than see what good things are happening around us. Media contributes to and often motivates lack of confidence through articles and stories without empirical proof but bags of ‘sensationalism’. If you want to know what is happening in the real estate market ask a professional who works it every day, not a journalist looking for some headlines.
Information provided by Loan Market
While financial markets are in a mess, much of the media reporting is exaggeration. So too are the call of substantial drops in residential prices due to the “global financial meltdown”. While the events in recent weeks have unsettled some property buyers, the fundamentals supporting residential property remain robust.
Given the recent hype, it’s interesting to take a step back and look at how residential property actually performs. The following observations can be made;
•Residential property has out-performed most other assets over the short, medium, and long term (see chart below)
•Residential returns are cyclical with price growth on average peaking every 7th year or so. Whilst there are low periods of growth, it is rare that nominal prices actually decline on an annual basis
•Detached houses and attached dwelling now show similar total returns
•Most locations show similar returns. For example, buying in Adelaide shows the same returns as Brisbane over mid to long term.
View attachment Property Market table.doc
Extracts from Matusik property insight - October 2008 - ABS, REIA, REIQ
•New housing starts rise by around 5% over a three month period immediately after the drop in interest rates
•House prices also rise by between 2% and 3%, again over a three month period after the rate drop
•Sales volumes lift on average by 5% within the first quarter after a drop in interest rates
•Buyer confidence lifts about 8% within a month or two straight after the decline in interest rates
There is absolutely no evidence to show that prices will fall. On the contrary, you could expect marginal increases in the coming months. Buyers who are expecting a downturn in prices will be disappointed and possibly be paying more. Likewise, waiting for interest rates to drop before buying may be offset by marginal increases in property prices.
Similar research shows that on average, prices double every nine years, equating to capital price growth of just over 8% per annum. Whilst there are low periods, it is rare that nominal prices actually go backwards on an annual basis. And while it is true that residential property does, on occasion, enter negative territory, when taking a longer-term view, the average total return for a house was 11.4% across our capitals during 2007/08 (11.3% for attached product). Over the last five years, houses returned 11% and units 9.9% per annum. The ten year average was 13.4% and 12.8% respectively.
What are the positive market indicators?
•Australia’s population growth (337,000 pa) is the fastest on record – Qld and Vic fastest growing states
•Total residential returns (capital gains and net rent) rose by 11.4% over the last 12 months – house prices
•rose by 8% and rents by 14%
•Rental property vacancy rate is 1.4% (and falling) and new homes to market are under supplied (shortfall of 58,000 +/- in Qld)
•Unemployment is just 4.1% and 237,000 new jobs created in last 12 months
•Only 0.41% of mortgages are in arrears by 3 months – this equates to just 17,000 borrowers, not the
•800,000 reported by the media
•Interest rates are expected to keep falling – at present best average variable 7.8% and 3 year fixed at 6.99%
•Both end sale prices and weekly rents are up around 30% since mid 2005
Estimates based on population growth show that between 2,500 and 3,000 new apartments are needed across inner Brisbane each year. This demand could be as high as 4,000 in a few years. At present there are around 500 apartments for sale, the tightest supply in the last decade. Going forward there are only 2,000 new apartments with development approval currently planned across 13 projects.
Despite recent commentary to the contrary, residential sales volumes also remain buoyant across Brisbane suburbs. It is estimated that just under 12,000 residential properties sold during 2007/2008, of which 8,000 were apartments and a further 3,850 transactions were for detached houses.
The rental vacancy rate is under 2% with weekly rental on the rise. At present, weekly rents for one bedroom recently finished apartments (inner suburbs) attract between $350-$400 per week. Two bedroom product goes between $500-$600 per week, and 3 bedroom stock $700-$800 per week.
Suburban detached dwellings are also experiencing a similar trend with new 4 bedroom stock ranging anywhere from high $300’s up to $600 per week.
In the short term expect rents to rise as demand exceeds supply. New start properties average 4-5 months before they can be occupied which places greater demand on apartments or town house availability. The federal government has taken a lateral view toward under supply by offering first home owners $21,000 for purchase of a new home or construction of same. This, combined with the offer of $14,000 for purchase of established dwellings is going to see a lot more activity in the first home market.
In conclusion - turn off the 6pm news. The very nature of our media is to report in the ‘negative’ rather than see what good things are happening around us. Media contributes to and often motivates lack of confidence through articles and stories without empirical proof but bags of ‘sensationalism’. If you want to know what is happening in the real estate market ask a professional who works it every day, not a journalist looking for some headlines.
Information provided by Loan Market
