Thoughts on 2013 property price rises

I read your blog its describe 10% hike in property price in 2013.

Isnt it so much?

What more do you think about that?

The value of things is quite often related to "perception" or "confidence".  This is why you can put shiny new taps in a place and nobody notices they are not the expensive brand, yet it improves the value of the place.  It's also why the value of the British Pound crashed the day one very foolish then-Prime-Minister Gordon Brown got in the media and said of the GFC "It's bad.  It's really really bad."  There were no accompanying comments indicating how he planned to lead his nation to glory through the badness.  Just a scary comment about that it was really really bad.  The value of the pound plummetted that day and has not since recovered.

DWolfe makes a very valid point that markets can move around election time, because the leadership of the country will either remain the same or change.  This will dictate who gets to talk to the people via the media and model their perceptions.

I agree Media and government do have a large part to play, but like it or not there are other factors that are contributing to this downturn. 

1) Europe: stuffed, I wok for a European shipping line the 2nd biggest in the world and trade from Europe is almost at nothing

2) talking to contacts in china who are in the shipping industry have noticed a downturn as well 

It's not the end of the world it's just a challenge that's all, I know I might sound negative but I am a positive person

for me the share market has been my cup of tea

The only thing most general people need is fincial education, the amount of people who can't budget or save is incredible, I'm waiting for ASIC to come back with a positive reply to give me permissions To write a book about how to save for a deposit, how to budget etc, how to build up knowledge 

Wish me luck anyways 

Not really. I don't read the Kouk. Not enough economic brains to butter a cracker.

My 2c, there's little chance of 10% + median price increases for several reasons:

1. affordability (unless wages increase substantially)
2. lack of new projects coming out of the ground (ie supply isn't going to go thru the roof so there is no stock of new property which will be driving prices upwards)
3. lack of new (green) blood in the market – migration levels aren't going to change a great deal
4. election process puts a dampener on sales activity until the outcome is known (ie uncertainty slows the market not increases activity).

Think about internal migration.  In other words, circumstances that cause people already residing here in Australia to relocate to another part of Australia. Perhaps just half an hour down the road.

Some of the reasons people might do this are:

– They are retiring and want to move to somewhere "nice" (segment 1)

– Their family unit is starting or indeed expanding.  The family home needs to be bigger and cost less, because there are more mouths to feed on either the same household income or a lesser household income, because mum has taken time off to look after the kids (segment 2)

– To move for employment purposes (segment 3)

So.  Let's ignore the retiree market for now, because I don't know much about that market segment.

Segment 2: the expanding family.  They are going to need a bigger house than they currently have and a patch of grass out back, but they cannot afford the inner city suburbs.  So they move further out.  But daddy still needs to be able to commute somewhere that offers lots of jobs.  So let's say somewhere within a 1 hour commute radius of a major employment centre.  So if we're talking Melbourne you could go as far as Geelong or Ballarat.  If we're talking Sydney I think you can go as far as Penrith, which is one perfectly reasonable explanation as to why the St Marys, Mt Druitt etc district went nuts.

Segment 3.  To get these people you follow the infrastructure.  Mining towns if your heart can stand the risk, or normal infrastructure if you have a lower risk profile.  So you might prop your investment dollars near a forthcoming airport, desalination plant, or new major shopping centre perhaps.

The easiest segment to hit is segment 2.  Get out your google maps, figure out what is within a reasonable commute of major centres, and also happens to be on a train line.  Easy   Now imagine if you could hit 2 segments at once.  Segments 2 and 3.  Let's say you are within an hour of a major centre that has a major infrastructure project coming its way.  That's some good hedging.  This is why I like Geelong.  It's within a reasonable commute of Melbourne, the prices are lower than Melbourne, Avalon Airport is going from little Jetstar airport to International Airport (enter the jobs), and you've got the lovely surfcoast too for lifestyle.  Noice.  Not hard to see why all suburbs of Geelong have been enjoying great growth.  You could almost throw a dart at a map of Geelong and buy in whatever location it hits and not mess it up.

I remember looking at Rockbank VIC on the map about 18mths ago and thinking that was a logical place to establish a township, because an existing trainline passes straight through the guts of it, as does a major freeway.  But no of course local council was going on about how Rockbank was special and they wanted to keep the blocks large and exclusive.  Whatever.  That lasted about as long as it took their accountant to get back from his lunchbreak and ponder how many council rates dollars they could charge if they carved the big pieces up into little pieces.  Sure enough, it seems Rockbank will be carved up into bits.  Not where I would choose to park my dollars, but if people already had landholdings there they would be rubbing their hands in glee.

Those areas are still going nuts to which you ask yourself why am I paying $380k for a house in MD?

Regards

Shhin