The Rumblings Of Discontent Continue
The Aussie property market seems to be running out of steam at an increasing rate, evidenced by key property statistics, consumer confidence, and interesting commentary appearing in unusual places (see the recommended reading link below).
Property Statistics
RP Data (now known as Core Data) have just released their November Data Home Value Index and it declined by 0.3%, evidencing a slowing in the growth rate across the country as a whole.
Over November dwelling values appreciated in Sydney (+1.0%), Brisbane (+0.4%), Perth (+0.9%) & Hobart (0.2%), and declined in Melbourne (-2.6%), Adelaide (-0.3%), Darwin (-0.8%) and Canberra (-0.5%).
As can be seen in the image below, there appears to be a declining ‘top’ in regards to percentage growth for the last three market peaks.
Furthermore, judging by the shape of the graph below, we seem to have reached a market peak with a classic ‘head’ shape emerging.
If the past is any indicator of the future, the previous two ‘head’ formations have preceded stagnate and negative growth periods of between 1 to 3 years.
Rental yields remain precariously low, with the 8 Capital City yield being 3.7% pa for houses and 4.5% pa for units. Given interest rates are circa 5% pa, this means that every median house in every Aussie capital city would be negatively geared.
The Economy As A Whole
GDP numbers released yesterday failed to impress, missing expectations and leaving economists wondering where future growth in the Aussie economy is going to come from given the mining boom has ended and commodity prices are in decline. Journalists are calling it an income recession, as real net national disposable income was negative for two consecutive quarters.
The Aussie Dollar hasn’t got too many friends right now, dropping to fresh four year lows against the USD. Bad news for anyone planning a visit to Disneyland this Christmas!
Consumer confidence remains in the red, and I suspect we shall remain in pessimistic territory for a while yet.
The only bright spot has been the collapse in the oil price putting a smile on the face of anyone driving a V8 (or any petrol car, for that matter). Did you read my recent blog about oil prices? If not then you can read it here.
But just be careful about the joy you feel watching the petrol price fall. There are some good articles pointing to recessions for significant world economies; in particular Russia (and beware a World Superpower in financial trouble!)
Steve’s Summary
Low interest rates have certainly fuelled a property price revival. But it’s been patchy. Sydney and Melbourne have done really well, Brissie less so, and pretty much the rest of Australia has been stagnant.
Yet even the kick along from low home loan interest rates is fading.
September mortgage statistics revealed that for the first time ever, investors made up more than half of all new loans. This is a significant warning sign, as a market dominated by speculators will often exhibit significant volatility.
Overall, while home loan interest rates remain low (and might even go lower in 2015!), it’s getting harder and harder to mount an argument for strong house price growth in the first half of next year.
The message for the moment is: remain alert, not alarmed but fasten your fiscal seatbelts, just in case of unexpected economic turbulence.
All the best,
– Steve
P.S. If you want some further recommended reading, here’s a good article:
http://bloom.bg/1v5obJb
Comments
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What are the alternatives? We want to make the most money in the quickest time with the lowest risk and least aggravation. By the sounds of this article and all the data coming through realestate seems like it’s turing into a high risk investment.
Consumers are spending. The impact of job losses yet to be a factor. The dollar devalues and benefits the export market. Resource values are down. Oil prices reduce. Government revenue is down. GDP is down. Government spending up with increased debt levels (infrastructure). The rba is between a rock and a hard place. Volatility is rising with a resulting loss of stability. The government has lost the battle of the budget, all huff, no puff.
If you can predict a way through that minefield…….then you’re a winner. It boils down to this. If the rates go down we are factoring in more risk to the property market. The short term focus is full of risk because the long term is in fact the real influence and is not being addressed. The rba does not want to reduce interest rates. It wants stability. We are seeing complete opposite assessments by market experts including the commercial banks. The American interest rates will eventually rise. Err on the side of caution, a correction is coming.
Remember we can’t all be rich but we all can be poor.
Hey Josef,
Yep – higher risk in the sense that the market is doing less of the heavy lifting.
But as I say, it’s always a great time to buy a great property.
Best I can say is be aware of the assumptions that underpin your profit, be wary of sales hype, and that under-performing property is going to be harder to offload from here on in.
– Steve
Here’s a good article from a trusted website on the prospect of the Russian economy sliding into recession:
http://www.huffingtonpost.com/2014/12/02/russia-recession_n_6255810.html
Of course, sanctions and a co-ordinated lower oil price smack of a wider global geopolitical effort to alienate Russia, but I’ll leave more talk on that front to the conspiracy theorists.
– Steve
Great snapshot Steve.
The population’s income has always been a key indicator of where house prices might be trending so its a worry that that journalists are calling it an income recession!
Having said that, I’m sure that will just lead to more opportunity for investors to pick up a great deal
Thanks for the insight :)
Cheers,
Matt
PS. I’ll have to upgrade my Hyundai Getz to a V8 while the goings good!
Agreed Matt.
I think there might be some bargains hitting the market in the months ahead, at least by today’s standards.
– Steve
Great article steve,
Where abouts do you get your data for the rolling annual change in capital city dwelling values. Can we access this?
Cheers,
Brian
Here you go Brian:
http://www.corelogic.com.au/media-release/home-value-growth-rate-continues-to-moderate
– Steve
Thank you very much Steve for the great info.
You’re welcome. Thanks for your encouragement.
Great article Steve, looking forward to finding some great deals around this time next year
I suspect the market is going to take a brief pause over Christmas, but the real test will be to see what happens from March next year. A soft Autumn will be a precursor to a weak 2015, in my opinion.
That said, investing generally is quite volatile at the moment. If interest rates fall in 2015 as some are predicting then there could be another uplift in Melbourne & Sydney.
Perth / WA is the most at risk market, as generally their economy follows the fortunes of commodity prices, which as we know are quite soft at present.
– Steve