Property Market Update - RESIDEX Report

RESIDEX MARKET REPORT: John Edwards (CEO)

 

“Worlds Apart”

I am currently travelling in Europe and in every respect Australia is so very different to here.

The beauty of Europe and its graphic history that is present in every town and village you visit remains unchanged. The attitude of the people however is what has changed. Unemployment is evident and if you ask the locals what they think about the government they hold little optimism and seem to be expecting recession.

In Italy, there came joy at the announcement of the resignation of Prime Minister Silvio Berlusconi and appointment of Mario Monti, a highly regarded academic.

In Greece, Prime Minister George Papandreou stepped down and former European Central Bank vice president Lucas Papademos has been appointed the position.

In Germany, it is not clear that the rescue package being proposed for struggling European economies will be allowed to come into force. People are generally not supporting this and German backbench MP Frank Schäffler, a member of the Free Democratic Party (FDP), could be the catalyst to stop the EU’s plans to save the euro. The German government is a collation of parties and the FDP is one of Chancellor Angela Merkel’s centre-right coalition members. Without the FDP Merkel would not be in a position to govern.

Hidden deep in the statutes of the FDP, Schäffler has found a way to have the entire party membership decide on policies towards future euro rescue plans. With the widespread public unease about extending Germany’s commitment to the European Financial Stability Facility and later the European Stability Mechanism, it is not difficult to imagine Schäffler might just be able to scuttle the plans for the rescue.

Coalition party officials are said to be taking Schäffler seriously, now having to explain why he is wrong to liberal party supporters. Just before Christmas, Schäffler will cause a referendum among the party members. There is debate about his capacity to win and if he does, the implications would be enormous. Not only would it threaten the government of Germany, it may plunge the country into political chaos potentially paralysing policy-making, which needs to be avoided to prevent the euro crisis spiralling out of control.

So yes, my title is fitting. We, as Australians, are ‘worlds apart’ from the crisis here in Europe and if it was not for this situation, considering the improving position of the United States (albeit slow), we would be rejoicing at our new found growth that has been driven by the demand for resources. The press that flows from the European crisis causes uncertainty in all areas of our economy; in particular our housing markets. What we need is positive news to provide confidence in the community. In general, Australians are failing to recognise the position we find ourselves in. Yes, Europe is going to cause global problems but Australia is not dependant on Europe; our economy will be balanced against our growing export resource market driven by developing Asia.

As expected, the Reserve Bank cut interest rates on 2 November, 2011 by 0.25 basis points, placing the cash rate at 4.5 per cent. Our latest figures on housing data (see Australia as a Whole) do not point to a “bounce” in housing demand and activity leading into the well publicised rate cute decision. Furthermore, auction clearance rates for Sydney (see graph ‘Monthly Clearance Numbers’ in Australia as a Whole) seem to indicate that, even following the rate cut, there was little to no impact which is a little unusual.

The interest rate adjustment potentially was not enough to restore confidence in the community. The RBA will need to adjust rates a little further to stabilise, and I expect another rate cut will come in the near term, which could potentially be in the order of 0.5 per cent.

The volatility in our stock markets is going to continue but our housing markets, because of our high level of ownership and funding structure, will not present the same level of risk as other asset sectors.

In the below table we present the outcome to 30 October 2011 for capital cities across Australia.

Houses

AreaMedian ValueGrowthRentSalesPredictions
10 Years % p.a. Year Ending Oct 2011 Last Quarter Last Month Rate Month Ending Oct 2011 Month Ending Oct 2011 Year Change Year Ending Oct 2011 Year Change 5 Year % p.a.
ACT $530,500 8.93% -0.68% -0.66% -1.15% 4.57% $450 3.33% 5,994 -2.54% 3.45%
Adelaide $394,000 8.55% -3.61% -1.20% -0.83% 4.37% $325 1.54% 18,468 0.15% -0.21%
SA Country $252,500 8.40% -2.12% -3.57% -1.36% 5.17% $230 8.70% 6,267 -1.86% -0.30%
Brisbane $432,000 9.16% -5.51% -1.04% -1.46% 4.59% $380 0.00% 28,795 -18.37% 2.95%
QLD Country $366,500 8.85% -2.99% -0.74% -0.03% 5.41% $360 5.56% 30,399 -8.93% 2.46%
Darwin $496,500 10.34% -4.03% -0.51% 1.19% 5.57% $520 1.92% 1,427 -5.43% 3.36%
Northern Territory $472,000 10.38% -2.89% 0.46% 1.14% 5.86% $510 3.92% 2,059 -5.77% 2.35%
Hobart $375,500 10.96% -2.53% -0.89% -2.30% 4.65% $335 0.00% 1,765 -15.02% 3.89%
TAS Country $269,500 10.51% -2.64% 0.74% -0.18% 5.03% $250 4.00% 3,502 -9.53% 3.32%
Melbourne $574,500 8.18% -4.36% -2.04% -0.93% 3.45% $370 2.70% 49,357 2.36% 1.60%
VIC Country $332,500 8.39% 2.78% 1.36% 1.81% 5.02% $290 10.34% 43,673 -4.94% 0.47%
Perth $465,500 9.76% -4.93% -1.20% -0.36% 4.48% $370 8.11% 22,343 -11.72% 2.50%
WA Country $350,500 9.80% 0.44% -2.03% 1.95% 4.91% $320 3.13% 5,443 -10.64% 2.13%
Sydney $657,000 5.25% -1.63% -2.60% -1.65% 4.13% $500 4.00% 38,056 -9.39% 4.14%
NSW Country $334,000 6.53% -3.11% -1.82% -1.19% 5.47% $320 9.38% 39,219 -6.75% -0.47%
Australia $432,000 8.31% -3.43% -0.91% -0.51% 4.53% $365 2.74% 295,340 -6.95% 2.75%

 

Units

AreaMedian ValueGrowthRentSalesPredictions
10 Years % p.a. Year Ending Oct 2011 Last Quarter Last Month Rate Month Ending Oct 2011 Month Ending Oct 2011 Year Change Year Ending Oct 2011 Year Change 5 Year % p.a.
ACT $422,000 9.46% 2.75% -1.46% -2.02% 5.19% $420 0.00% 3,415 15.88% 1.66%
Adelaide $312,000 9.82% -1.08% 1.25% 0.56% 4.77% $270 5.56% 4,732 -7.83% -1.04%
SA Country $231,000 7.71% 0.03% -1.39% 1.23% 4.52% $190 5.26% 523 -15.37% -2.10%
Brisbane $352,000 9.07% -3.48% -1.74% -0.98% 5.19% $350 0.00% 10,191 -18.80% -0.28%
QLD Country $315,000 8.16% -8.30% 0.78% 0.19% 5.30% $310 3.23% 10,557 -22.61% 0.92%
Darwin $386,500 10.44% -8.38% -1.25% -0.95% 6.05% $450 0.00% 755 -23.66% 2.60%
Northern Territory $377,000 10.52% -7.38% -1.38% -1.22% 5.95% $430 0.00% 974 -21.96% 2.16%
Hobart $267,000 9.88% -5.94% -4.27% -0.41% 5.47% $270 3.70% 573 -14.73% 3.70%
TAS Country $205,500 10.01% -10.16% -0.83% -1.24% 5.59% $200 10.00% 483 -18.69% 3.30%
Melbourne $435,500 7.04% -3.31% -3.13% -1.53% 4.31% $350 2.86% 28,111 -1.88% 2.53%
VIC Country $255,500 8.30% 1.79% -2.15% -1.65% 5.31% $230 13.04% 6,140 -11.71% -0.44%
Perth $379,000 9.33% -6.65% -2.43% -0.76% 4.82% $350 0.00% 5,161 -14.91% -0.78%
WA Country $297,000 6.92% -5.28% -0.17% -1.93% 5.27% $290 3.45% 554 -14.64% 0.42%
Sydney $485,500 5.05% 2.77% -0.54% 0.42% 4.84% $440 2.27% 38,111 -5.22% 1.01%
NSW Country $302,500 6.98% -0.39% 0.75% 0.49% 4.83% $260 7.69% 10,104 -11.67% 0.20%
Australia $394,500 6.62% -1.57% -0.98% -0.52% 4.76% $355 1.41% 119,629 -8.94% 1.20%

There is still further downside in some of our capital city housing markets with some having already bottomed out and showing growth.

In the below graph we present the current position of monthly house price trends.

For me, the most important trend is Sydney. This market is the largest, most unaffordable and often seems to be the pointer to the future. Its stock situation is moving to neutral and it is a market largely based on an economy of financial services. Debt levels need to be high due to property costs so both available funding and risk perception are probably more acute in this market.

Auction Clearance numbers are not moving as one would expect in a situation where we are at the height of the selling period. In the graph, Monthly Clearance Numbers, we present Sydney auction numbers for the last 12 months.

Perhaps, more than anything else, Sydney data is a reflection of the view that the market has about the risks and events in Europe.

Looking at the graphs and data it is hard to imagine that there are still success stories in our markets. On this basis it is interesting to look for these suburbs in Sydney for example, that have produced good growth in the last three months. Do these still exist?

The answer is yes. The below table shows the top 10 growth suburbs for Sydney houses.

Sydney Houses

Suburb Postcode Salecount Last 3 Months Median Value Median Rent Median Rent Rate Capital Growth Last Month Capital Growth Last 3 Months Capital Growth Last Year
CECIL HILLS 2171 14 $627,500 $460 3.84% 0.88% 3.72% 11.46%
GLADESVILLE 2111 23 $1,122,500 $735 3.41% 1.35% 3.58% 6.26%
ROPES CROSSING 2760 25 $366,000 $430 6.10% 1.69% 3.54% 15.30%
MARSFIELD 2122 9 $972,500 $585 3.13% 1.50% 3.52% 2.91%
BIDWILL 2770 8 $288,000 $320 5.80% 1.74% 3.38% 10.96%
CASTLE HILL 2154 138 $779,500 $610 4.09% 1.66% 3.25% 3.89%
CABRAMATTA WEST 2166 26 $462,000 $410 4.61% 0.86% 3.24% 10.13%
CONCORD WEST 2138 13 $1,093,000 $620 2.97% 0.99% 2.95% 5.38%
RICHMOND 2753 8 $412,000 $360 4.55% 1.66% 2.91% 6.73%
LUGARNO 2210 21 $838,500 $685 4.26% 0.76% 2.81% 3.39%

 

Perhaps the best buying opportunities are found in situations like the current one we find ourselves in; however doing so requires thought and research. Additionally, renovation in the right suburb is a sensible risk aversion approach to increasing property wealth.

Our Top 100 Predictions Reports for the quarter ending October 2011 are now available and these, together with our new Renovator Reports, will help to ensure that you can take advantage of the current position of our housing markets. So often, those who work through risk and find themselves undiscovered rough gems will succeed. We should all see the current situation as presenting opportunity for wealth creation and work on it.

December will be an exciting month on many fronts, but should allow us all to see what the most likely outcome will be in the European mess.

Best regards.
John Edwards
CEO and Founder,
Residex Pty Limited.

*The results provided above are not subject to any future revision. Residex has developed technology which allows it to release statistics on the performance of the markets with proven high levels of accuracy with lower levels of data than is required for hedonic and stratified median results. This means Residex is able to release accurate results earlier than any other party in the market. The Residex method is unique and while it is based on a repeat sales technology it is not the usual method and therefore avoids the inherent problems in generally accepted hedonic, repeat sales and stratified median methods.