Just arrived in Inbox from the pen of Craig Turnbull...
July Market Insights
Thursday 19th July, 2012
Greetings,
Greetings investors, since my Investor Update in June, I have had so many requests to share my market insights. I am excited to tell you that I will be writing to you with my thoughts about once a month and we are planning a quarterly live update - the next one likely to be in Perth in September. I will forward more details as we confirm arrangements.
Market Facts - Perth (week ended 11 July 2012, figures from REIWA)
837 sales were recorded, which was up from 710 four weeks ago, and in the same week last year only 626 sales were made. That represents a significant increase in sales volume at a time when the market normally is a bit quiet due to the colder weather. Also significant - the number of properties for sale dipped below 12,000 to 11,784. Simply, supply is decreasing and demand is increasing. Rental vacancy is down around 1.5% and rents appear to be increasing. Over time, this must push into increasing values. With interest rates stable or moving down, buyer confidence looks to be moving up. I see a perfect storm forming - not huge price movements, rather a nice balance - but I do see a steady increase in values over the next few years.
The Mining Boom Economy of WA
The rest of Australia and even much of the world continues to look at Western Australia with envious eyes. The mining resources boom continues to blast the state's economy forward, with the economy growing at an annual rate of 7.8%, which is about the same rate as that of China. In the same time period Australia overall grew at 4.3%. Both China and WA have very complimentary economies and both should continue to benefit in the coming decades. I don't see the boom conditions ending any time soon either. Rio Tinto announced late June that they (with their partners) would invest over $5 billion expanding their iron ore operations in the Pilbara.
This kind of economy attracts people from all over the world looking for high paying jobs. According to the latest census data, five of the top ten highest income earning towns in Australia are in the Pilbara, with 22% of workers in the top town Dampier, earning over $4,000 per week. The shortage of housing in the towns of Karratha, Newman, Port & South Hedland is acute and many more workers having to fly in an fly out. Qantas have recently added direct flights from Sydney & Melbourne to Newman, just to accommodate staff roster movements.
What this means for the Perth market, is increased demand from higher income earners, looking to buy homes or begin an investment portfolio. Many of these people are also arriving in Perth looking to buy homes or begin an investment portfolio. Many of these people are also arriving in Perth looking to rent a home initially, adding to an already tight rental market.
Investors are also looking to profit from the cash-flow positive opportunities presented by the conditions in the North-West. I will share more on this with you at our next live Market Update.
National Property Market
Vacancy rates for rentals around the country continue to be tight, with all cities but Melbourne under 1.8%. Melbourne is suffering from some over-supply issues which are the overhang of a big run up in values in 2009-2010 and prices look to be moving sideways or down in the next period.
Brisbane and Sydney are starting to look attractive in terms of yield and will bring investors back in to the market looking to take advantage of higher rents and lower interest rates.
The Global Economy
I continue to read and hear mostly negative news on Europe, particularly sovereign and bank debt. It looks like Greece continues to struggle and the only way I can see out for them is to leave the Euro and devalue their currency - this could cause some waves in banking in the short term. Spain and Italy are also looking for 100 Billion plus bailouts for their banks. You have wondered more than once how this affects us here in Australia? Well simply, it is and will affect the amount of money our banks can borrow from Europe and loan out to us (for a nice profit) here in Australia. Australian banks source about 40% of their capital from Europe and if this supply of money tightens up it means that our banks will have less to lend to us, which could slow our economy. So while it pays to understand what is happening there, it won't help to worry about it. Our banks and Government are moving towards other types of funding and should be able to move decisively should the need arise. Then again, you can never rely on a Government acting decisively!
In the US, the housing market continues to be weak with the S&P Case Shiller Index showing the market is 35% off it's pre-bubble highs of 2006. Prices in 20 major cities fell 2.6% in March compared with the same month a year earlier.
I would be very wary of investing into the US market right now, even if some of the numbers look too good to be true. Foreign exchange issues also need to be considered, with many commentators suggesting the US dollar could weaken further as their Federal Reserve continues to print money.
China has announced their economic growth at 7.6%, still very strong. The Government has reduced interest rates and ordered banks to loan out more, which will keep the economy moving. Some parts of the property sector are weak due to limited supply of lending and restrictive ownership laws, specifically to cool an overheated property market.
Until we meet.
Craig Turnbull
July Market Insights
Thursday 19th July, 2012
Greetings,
Greetings investors, since my Investor Update in June, I have had so many requests to share my market insights. I am excited to tell you that I will be writing to you with my thoughts about once a month and we are planning a quarterly live update - the next one likely to be in Perth in September. I will forward more details as we confirm arrangements.
Market Facts - Perth (week ended 11 July 2012, figures from REIWA)
837 sales were recorded, which was up from 710 four weeks ago, and in the same week last year only 626 sales were made. That represents a significant increase in sales volume at a time when the market normally is a bit quiet due to the colder weather. Also significant - the number of properties for sale dipped below 12,000 to 11,784. Simply, supply is decreasing and demand is increasing. Rental vacancy is down around 1.5% and rents appear to be increasing. Over time, this must push into increasing values. With interest rates stable or moving down, buyer confidence looks to be moving up. I see a perfect storm forming - not huge price movements, rather a nice balance - but I do see a steady increase in values over the next few years.
The Mining Boom Economy of WA
The rest of Australia and even much of the world continues to look at Western Australia with envious eyes. The mining resources boom continues to blast the state's economy forward, with the economy growing at an annual rate of 7.8%, which is about the same rate as that of China. In the same time period Australia overall grew at 4.3%. Both China and WA have very complimentary economies and both should continue to benefit in the coming decades. I don't see the boom conditions ending any time soon either. Rio Tinto announced late June that they (with their partners) would invest over $5 billion expanding their iron ore operations in the Pilbara.
This kind of economy attracts people from all over the world looking for high paying jobs. According to the latest census data, five of the top ten highest income earning towns in Australia are in the Pilbara, with 22% of workers in the top town Dampier, earning over $4,000 per week. The shortage of housing in the towns of Karratha, Newman, Port & South Hedland is acute and many more workers having to fly in an fly out. Qantas have recently added direct flights from Sydney & Melbourne to Newman, just to accommodate staff roster movements.
What this means for the Perth market, is increased demand from higher income earners, looking to buy homes or begin an investment portfolio. Many of these people are also arriving in Perth looking to buy homes or begin an investment portfolio. Many of these people are also arriving in Perth looking to rent a home initially, adding to an already tight rental market.
Investors are also looking to profit from the cash-flow positive opportunities presented by the conditions in the North-West. I will share more on this with you at our next live Market Update.
National Property Market
Vacancy rates for rentals around the country continue to be tight, with all cities but Melbourne under 1.8%. Melbourne is suffering from some over-supply issues which are the overhang of a big run up in values in 2009-2010 and prices look to be moving sideways or down in the next period.
Brisbane and Sydney are starting to look attractive in terms of yield and will bring investors back in to the market looking to take advantage of higher rents and lower interest rates.
The Global Economy
I continue to read and hear mostly negative news on Europe, particularly sovereign and bank debt. It looks like Greece continues to struggle and the only way I can see out for them is to leave the Euro and devalue their currency - this could cause some waves in banking in the short term. Spain and Italy are also looking for 100 Billion plus bailouts for their banks. You have wondered more than once how this affects us here in Australia? Well simply, it is and will affect the amount of money our banks can borrow from Europe and loan out to us (for a nice profit) here in Australia. Australian banks source about 40% of their capital from Europe and if this supply of money tightens up it means that our banks will have less to lend to us, which could slow our economy. So while it pays to understand what is happening there, it won't help to worry about it. Our banks and Government are moving towards other types of funding and should be able to move decisively should the need arise. Then again, you can never rely on a Government acting decisively!
In the US, the housing market continues to be weak with the S&P Case Shiller Index showing the market is 35% off it's pre-bubble highs of 2006. Prices in 20 major cities fell 2.6% in March compared with the same month a year earlier.
I would be very wary of investing into the US market right now, even if some of the numbers look too good to be true. Foreign exchange issues also need to be considered, with many commentators suggesting the US dollar could weaken further as their Federal Reserve continues to print money.
China has announced their economic growth at 7.6%, still very strong. The Government has reduced interest rates and ordered banks to loan out more, which will keep the economy moving. Some parts of the property sector are weak due to limited supply of lending and restrictive ownership laws, specifically to cool an overheated property market.
Until we meet.
Craig Turnbull
