Property Cycle Clock - Where are we right now?

[eyespy]

I'm surprised that a few of you believe melbourne is a rising market and good place to invest. I thought sydney was near top and so was melbourne. I've read that people expect little growth in coming years for melbourne Bc it grown so much already.

 

[perthguy]

I think the point is, there is no clock. Why? Because if it shows IRs as a key point of time, yet different cities under the same IR regime are in completely different cycles, then clearly the clock is well and truly broken

Interest rates aside, the property cycle is very clear. From the bottom of the market (6), yields increase, demand increases, prices increase, construction increases and near the top of the market, we see rapidly rising prices. When the Belmont LGA area was 'hot', prices were increasing $100k or more per year for development sites. It got ridiculous.

After the market peaks, we see falling yields, oversupply, falling prices, and construction easing. This is all happening in Perth now, so it's hard to argue there is no 'clock'. Still, I think we are still some time from the bottom of the market and in Perth, recovery tends to be fairly slow.

Interest rates might be an anomoly this time around but it's hard to argue the other indicators are not going on.

 

[INVSTOR]

I agree Perthguy, I think Perth is at 2 o'clock.

However we don't get to 3 o'clock until interst rates start rising. If everyone's predictions are right this won't happen till mid next year or so

Going to be a long slow fall then..

.. It is hard though when I go to an auction in Carine and watch a 4x2 go under the hammer for 690,000. My arms starts twitching cause I think that is good buying. I keep telling myself wait till interest rates rise and then wait a little longer. It is hard to sit on the sidelines and watch.

Interesting times ahead.

Do you have a link to property please?
I'm guessing this? http://www.realestate.com.au/property-house-wa-carine-118576939

 

[Ausprop]

Interest rates aside, the property cycle is very clear. From the bottom of the market (6), yields increase, demand increases, prices increase, construction increases and near the top of the market, we see rapidly rising prices. When the Belmont LGA area was 'hot', prices were increasing $100k or more per year for development sites. It got ridiculous.

After the market peaks, we see falling yields, oversupply, falling prices, and construction easing. This is all happening in Perth now, so it's hard to argue there is no 'clock'. Still, I think we are still some time from the bottom of the market and in Perth, recovery tends to be fairly slow.

Interest rates might be an anomoly this time around but it's hard to argue the other indicators are not going on.

ignore interest rates? that would make a mockery of the clock.

Belmont development sites are not representative of the broader Perth market. Most Perth prices are still at GFC lows, despite stock plunging well down to an extreme Seller's market since then and in the face of a huge mining boom. The only reason you are seeing a lot of the symptoms listed is because of the collapse in iron ore prices. Goes to show, any broken clock is right twice a day

 

[MelbInvester]

Inbetween 1-2,but that only from the small inner city southside Brisbane Area,i don't care what other areas are doing,you only have to go 15 klmoutside the CBD to get a different opinion..the more important question is will you have a job in 12 months time..imho..

What is the currant situation in QLD?

 

[perthguy]

Belmont development sites are not representative of the broader Perth market. Most Perth prices are still at GFC lows, despite stock plunging well down to an extreme Seller's market since then and in the face of a huge mining boom.

Can you name some suburbs where prices are still at GFC lows? I don't know of any.

 

[Ausprop]

Can you name some suburbs where prices are still at GFC lows? I don't know of any.

greater Mandurah, Yanchep etc, western suburbs, midland (? haven't checked that lately). basically product other than the belt from sort of spearwood to bullcreeek to Belmont and around to Nollamara... let's call it The Eastern Middle Belt

 

[perthguy]

greater Mandurah, Yanchep etc, western suburbs, midland (? haven't checked that lately). basically product other than the belt from sort of spearwood to bullcreeek to Belmont and around to Nollamara... let's call it The Eastern Middle Belt

Thanks. I was just interested to compare an interested person's perception of the market to some hard data. It's important because perception is one of the biggest driver of any market. So use realestate.com.au median house price data to compare 2008 to 2014.
Mandurah: $347,500 -> $335,000 in 2014.
Yanchep: $386,250 -> $459,000 in 2014.
Western suburbs? like Scarborough? $642,500 -> $803,500 in 2014.
Midland: $330,000 -> $410,000 in 2014.
Is Thornlie outside of the belt? $365,000 -> $475,000 in 2014.
If not, Carine definitely should be: $750,000 -> $840,000 in 2014.

Pretty much all you can tell from that is that comparing median house price from 2008 compared to 2014, prices are up, except in Mandurah. From this we can conclude that Mandurah is not part of the Perth property cycle

The property clock can be simplified into two sides. 6 (bottom) to 12 (peak) represents a rising market. 12 to 6 represents a falling market. Personally, I think Perth as a market is past it's peak and is now a declining market. Of course within the Perth market as a whole, there will be areas that are rising (like Mandurah perhaps and Forrestfield perhaps) while the overall market is in decline.

In the Western Australian capital, prices declined by 2.7% over the quarter, the largest price drop of any capital city for the period.

http://www.propertyobserver.com.au/...ney-gets-a-second-wind-corelogic-rp-data.html

 

[Ausprop]

the numbers I think use to be representative preGFC, ever since they have been nonsense. In the midst of the GFC there was never any official data to show the massive price drops, due to distortions that resulted from government meddling. The price drops were very real.

Thornlie has grown well, rezoning I believe.

It could well be just the areas I am in I admit. Certainly land value properties in Claremont have not moved, nor SubiCentro, any of Mandurah including the surrounding suburbs such as Singleton, Meadow Springs etc. There were some exceptional bargains in Cottesloe that are probably up in price since they sold.

Just did a review of Midland... dam. Villa prices do seem up on when I sold out my last lot there! Mind you that was some 7 years ago now, the neg gearing would have absorbed all those gains anyway

 

[Ausprop]

The property clock can be simplified into two sides. 6 (bottom) to 12 (peak) represents a rising market. 12 to 6 represents a falling market. Personally, I think Perth as a market is past it's peak and is now a declining market. Of course within the Perth market as a whole, there will be areas that are rising (like Mandurah perhaps and Forrestfield perhaps) while the overall market is in decline.

Agreed Perth is declining yes, due to sentiment and reality of falling iron ore and oil prices. Put another way, if there was a resources break out, which would win? The economics of a resources boom, or the force of the property clock?

 

[Jamie_]

Carine with a median over 800k is a joke.
much like Gwelup, both so over priced.

 

[INVSTOR]

Carine with a median over 800k is a joke.
much like Gwelup, both so over priced.

I don't know Gwelup well so can't comment on it. I do think Carine is way overpriced though for condition of houses but what's scarey is that Duncraig prices are now similar. I'm looking to buy PPOR near these areas that aren't feral or overpriced. My possible prospects are Sorrento side of Hillarys, Noranda, nicer estate parts of Dianella. Or wait for Carine/Duncraig to cool down. Duncraig is coming off it's peak and prices dropping around $40,000 or being withdrawn from sale. Carine appears to be holding at it's peak. More inland appears to be much better value than coastal. Any idea's??

 

[INVSTOR]

I was looking at the prices on those graphs, not sales volumes. The prices indicate the market is topping out (in terms of price), not bottoming out (in terms of price).

Anyway, That is an interesting article.



Which would put the Perth market at 2 O'Clock.

Although, in my area, construction is starting to ease. I think it is too early to say we have moved to the 'falling construction' phase, but early indicators are that we are heading that way.



https://bcitf.org/upload/documents/research_reports/SNAPSHOTWAMarch2015v20150318.pdf


I don't think I'm 'confused'. I have been arguing the Perth market is at 2 O'Clock. You are arguing 4. Is there such a difference?

With indicators of oversupply, falling sales volumes and prices and falling construction, it's definitely in the area of 2 to 5. It's a little early to pick exactly where. It's certainly not at 6 or 9 as has been argued.

I'm keen to time my investment decisions well and feel we are getting closer to five so will start preparing to get quotes and finance for my development sites. By the time media starts reporting stats it's old news.

 

[INVSTOR]

Years ago 14,000 was considered balanced, now days it's probably more like 18,000, so on any scale we are at best balanced.

Let's bear in mind the relevance of this number... when listings plummeted to around 8,000 nothing happened to prices. You would have expected a massive price break out.

I'm seeing at the moment in Perth the 'best- most sought after' properties and suburbs are selling quickly. The less desirable properties and suburbs are being discounted.

 

[perthguy]

I'm keen to time my investment decisions well and feel we are getting closer to five so will start preparing to get quotes and finance for my development sites. By the time media starts reporting stats it's old news.

Construction data would be useful for you then. Approvals have dropped, so construction should decline as well, if it hasn't already. I'm in the same boat as you. I want to be building when construction declines. I don't have a source for those kinds of stats, but this is interesting:

The trend estimate for total number of dwelling units approved in Western Australia fell 2.5% in February and has fallen for five months. The trend estimate for the number of private sector houses fell 1.4% in February and has fallen for 11 months.

http://www.abs.gov.au/ausstats/[email protected]&prodno=8731.0&issue=Feb 2015&num=&view=

 

[INVSTOR]

Construction data would be useful for you then. Approvals have dropped, so construction should decline as well, if it hasn't already. I'm in the same boat as you. I want to be building when construction declines. I don't have a source for those kinds of stats, but this is interesting:


http://www.abs.gov.au/ausstats/[email protected]&prodno=8731.0&issue=Feb 2015&num=&view=

I was chatting to a business owner a couple of weeks ago in the Perth residential building industry, provides work for 6 major builders who confirmed industry is slowing. I'm watching out for advertising of extra incentives.

 

[perthguy]

It could well be just the areas I am in I admit. Certainly land value properties in Claremont have not moved, nor SubiCentro, any of Mandurah including the surrounding suburbs such as Singleton, Meadow Springs etc. There were some exceptional bargains in Cottesloe that are probably up in price since they sold.

Claremont and surrounds probably haven't fared so well since the GFC. The median is the top of the market compared to the Perth median.

The Perth median house price is $549,000. Double that is close to $1.1 million. I don't follow the markets above that price, but at a guess, I think it is unlikely they would follow the trend of the broader market. The median house price in Claremont is $1.436 million, so more than double the median house price in Perth.

I think the median house price in Perth in 2008 was $480,000. So 2008 to now, the median house price increased by 14.37%. My theory is that if I looked at Claremont and surrounds (Nedlands, Dalkeith and Peppy Grove), I would not see a 14.37% increase in the median house price because these markets are too many standard deviations away from the median to follow the trends of the broader market. Not sure about Cott but I will throw that in too. Numbers that follows are median house price 2008 -> median house price 2014 (% increase)
Claremont: $1,300,000 -> $1,436,000 (10.46%)
Nedlands: $1,585,000 -> $1,600,000 (0.95%)
Dalkeith: $2,725,000 -> $2,450,000 (-10.09%)
Peppermint Grove: $3,590,000 -> $4,185,000 (16.57%)
Cottesloe: $1,950,000 -> $1,987,500 (1.92%)

So if we look at that group of suburbs, you are spot on. With the exception of Peppy Grove, they have not followed the trend of the broader Perth market. This includes Subiaco, which has a lower 2014 median that the 2008 median.

It just goes to show that picking one group of suburbs gives you one picture and picking another group can give an entirely different picture of the market, where neither align with the broader Perth market overall. Here are mine for comparison (the suburbs I follow):
Belmont: $412,000 -> $582,500 (41.38%)
Rivervale: $466,000 -> $629,000 (34.98%)
Cloverdale: $410,000 -> $555,000 (35.37%)
Kewdale: $423,000 -> $600,000 (41.84%)

So you can see why I think the market is past the peak. As you pointed out correctly before, this group of suburbs is not representative of the broader Perth market.

Mandurah is a whole other market. I invested there in the past and found the Mandurah property clock was out of synch with the Perth property clock. It's interesting that the Perth Median House price (according to Landgate) does not include the Mandurah LGA.

http://www0.landgate.wa.gov.au/docvault.nsf/web/PS_FPS/$file/WAMetro.pdf

Looking at Mandurah and surrounds, I would expect a whole other story to Perth.

Mandurah: $347,500 -> $335,000 (-3.60%)
Silver Sands: $490,000 -> $451,000 (-7.96%)
Halls Head: $430,000 -> $465,000 (8.14%)
Greenfields: $315,000 -> $330,000 (4.76%)

Halls Head performed ok. The others are definitely out of step with the Perth market overall for the same time. It's interesting that I noticed when running these numbers that prices seemed to have bottomed out around 2012, so it wouldn't surprise me if Mandurah is a recovering market while Perth is in decline. I seem to recall last time around that the prices in Mandurah lagged behind Perth.

 

[Toby xu]

Carine with a median over 800k is a joke.
much like Gwelup, both so over priced.

Jamie, what do you think of karrinyup? We are thinking of buying one for family house. Thanks

 

[Ausprop]

Claremont and surrounds probably haven't fared so well since the GFC. The median is the top of the market compared to the Perth median.

The Perth median house price is $549,000. Double that is close to $1.1 million. I don't follow the markets above that price, but at a guess, I think it is unlikely they would follow the trend of the broader market. The median house price in Claremont is $1.436 million, so more than double the median house price in Perth.

I think the median house price in Perth in 2008 was $480,000. So 2008 to now, the median house price increased by 14.37%. My theory is that if I looked at Claremont and surrounds (Nedlands, Dalkeith and Peppy Grove), I would not see a 14.37% increase in the median house price because these markets are too many standard deviations away from the median to follow the trends of the broader market. Not sure about Cott but I will throw that in too. Numbers that follows are median house price 2008 -> median house price 2014 (% increase)
Claremont: $1,300,000 -> $1,436,000 (10.46%)
Nedlands: $1,585,000 -> $1,600,000 (0.95%)
Dalkeith: $2,725,000 -> $2,450,000 (-10.09%)
Peppermint Grove: $3,590,000 -> $4,185,000 (16.57%)
Cottesloe: $1,950,000 -> $1,987,500 (1.92%)

So if we look at that group of suburbs, you are spot on. With the exception of Peppy Grove, they have not followed the trend of the broader Perth market. This includes Subiaco, which has a lower 2014 median that the 2008 median.

It just goes to show that picking one group of suburbs gives you one picture and picking another group can give an entirely different picture of the market, where neither align with the broader Perth market overall. Here are mine for comparison (the suburbs I follow):
Belmont: $412,000 -> $582,500 (41.38%)
Rivervale: $466,000 -> $629,000 (34.98%)
Cloverdale: $410,000 -> $555,000 (35.37%)
Kewdale: $423,000 -> $600,000 (41.84%)

So you can see why I think the market is past the peak. As you pointed out correctly before, this group of suburbs is not representative of the broader Perth market.

Mandurah is a whole other market. I invested there in the past and found the Mandurah property clock was out of synch with the Perth property clock. It's interesting that the Perth Median House price (according to Landgate) does not include the Mandurah LGA.

http://www0.landgate.wa.gov.au/docvault.nsf/web/PS_FPS/$file/WAMetro.pdf

Looking at Mandurah and surrounds, I would expect a whole other story to Perth.

Mandurah: $347,500 -> $335,000 (-3.60%)
Silver Sands: $490,000 -> $451,000 (-7.96%)
Halls Head: $430,000 -> $465,000 (8.14%)
Greenfields: $315,000 -> $330,000 (4.76%)

Halls Head performed ok. The others are definitely out of step with the Perth market overall for the same time. It's interesting that I noticed when running these numbers that prices seemed to have bottomed out around 2012, so it wouldn't surprise me if Mandurah is a recovering market while Perth is in decline. I seem to recall last time around that the prices in Mandurah lagged behind Perth.

thank you for this research, very insightful

 

[INVSTOR]

thank you for this research, very insightful

I agree! Very interesting.