Burbs Property Sales Update: 18th June

A pretty quiet week with one published sale in the $500k+ in the Burbs and Surrounds (source: Courier Mail). There was one more that I know of - 18 Consort St in Corinda - that didn't make this week's paper.

The number of properties on realestate.com.au in this bracket fell from 644 to 634 but it is difficult to tell how much of this fall was: a) sales b) withdrawals or c) price reductions.

New property continues to come to market but the rate of supply appears to have slowed. School holidays are almost upon us so expect things to go quiet for a while.

Burbs Property Sales Update: 11th June

There were 6 published sales over $500k in the Burbs and Surrounds this week and two others that haven't yet been published that I know of. Five of the eight were in Corinda. The place to be, quite clearly! Two of the eight sales were over $1m, so week on week, this was a fairly strong result.

The bad news is that the total number of properties for sale in the Burbs and Surrounds over the $500k mark has increased from 634 to 644, according to realestate.com.au, which points to the supply side continuing to swamp whatever sales are occuring. April mortgage approvals data for Queensland came in better than expected (an increase of 4.8% vs 2.3%) but the overall number is still much lower year-on-year.

The pundits and 'experts' continue to scratch their heads as to why the housing market should be so weak during a time when:

- Australia has full employment
- the economy is mean to be recovering strongly (relative to the rest of the developed world)
- there is a commodity boom on

For these reasons they expect an imminent recovery, but they shouldn't hold their breaths.

Spruiker's Folly No.1

The first in a series of regular posts highlighting how badly mispriced much of the property is in this area. While the agents will defend themselves by arguing that it's often the vendors themselves who are the driving force behind the pricing, it's the agents that are willingly taking on the mandates at vastly inflated prices and endorsing these outlandish prices.

Ann-Karyn Fraser of Place estate agents is one of the stand-outs when it comes to over-pricing and under delivering. She wins a lot of mandates, for sure, but she doesn't appear to be selling anything. What a surprise!

After a massively expensive marketing campaign to shift 18 Consort Street in Corinda, the best bid at the recent auction was still a massive 20% short of the vendor target: $1.2m vs $1.5m. Hot on the heals of this outstanding result, Ann-Karyn has a new property to market at 39 Skew Street in Sherwood. For those who don't know, this is in the 'corridor' between Oxley Rd and the railway line. Not a bad thing in itself but this road is a well used rat-run for locals wishing to circumvent a lengthy wait at the intersection with Sherwood road and under the new council planning proposals developers are now allowed to build 5 story unit blocks here. Exactly where, then, you may wish to buy a newly renovated 4-bed Queenslander on a modest 607sqm, especially if you had $945k burning a hole in your pocket .... um, on the other hand ...

This property is surely not worth much more than $700k -- at best -- no matter how nicely renovated. Its location prevents a higher valuation. There have been nice enough properties on similar-sized blocks selling for far less in genuinely desirable high-side Sherwood locations.

Someone needs to explain to Ms Fraser, quite urgently,  that we're no longer enjoying a frothy bull-market here in Brisbane and that prices have actually fallen sharply since the peak just over 12 months ago. Perhaps she limits her reading to the likes of Mike Matusik, Queensland's most famous property cheerleader, er, expert. Who knows.

The good news for Ann-Karyn, is she's not (entirely) alone when it comes to egregious levels of delusion. Nope, there are plenty of other characters out there who clearly revel in spending endless fruitless hours on a Saturday showing people round properties that don't have a cat in hell's chance of selling at the advertised price (or anywhere near). These hardy folk will be exposed in future Spruiker's Folly columns. Until then....

Burbs Property Sales Update: 4th June

Reasonable news this week, even if it didn't quite match the success of last week:

There were 5 sales in the $500k+ category for the Burbs and Surrounds, as per Courier Mail. There were 2 other sales above 500k that didn't appear in the Recent Sales list that I know of. Of the 7 in total, none were over the $1m mark. As of today there are 634 properties on the market over 500k (last Saturday there was 635). All in all then a reasonable week.

Good news for Brisbane as a whole: there were 6 sales in excess of $1m, equalling the most I've ever seen listed in a single week.

Of note:

17 Clara Street, Corinda: finally sold. This is the original Queenslander that stood on a  block that was subdivided twice. 17 Clara originally came to market with a price tag of over $1m. It sold this week for $600k. The banks finally ran out of patience, it seems.

18 Consort Street, Corinda: this property achieved a maximum bid of $1.2m at last weekend's auction is now on the market at $1.5m. Quite a shocking result for the agent who should have ensured prior to the auction that the 'interested parties' actually had the budgets to reach the reserve. Quite clearly neither of the bidders were even close.

In today's CM Property section there is a headline trumpeting Ray White Toowong's "100% Auction Clearance Rate" at an event at the Toowong Rowing Club on Wednesday evening. Impressive stuff indeed. Further perusal of the article reveals that Ray White Toowong auctioned a massive 3 properties at this event. Hats off to Australia's finest!

Pamela Bennett, the REIQ Chairman, writes in today's paper that buyers would be "hard-pressed to encounter better opportunities than the ones presently available." Sadly, Ms Bennett doesn't answer the one question that's on every buyer's lips at the moment: how do we know we're even close to the bottom yet? Who's to say we don't have another 24 months of falling house prices ahead of us? Perhaps someone can answer that question at the upcoming housing seminar that the REIQ is organising ...

Infamous Spruikers Become Desperate

Anyone who received Pete 'n Brad's latest market update will have been treated to the mutterings of a blogger called John McGrath (who he?). In short, his thoughts consist of the following:

- the doom-mongers are wrong
- housing weakness will be short-lived
- prices are set to double again in the next 8 years
- commodity boom
- we're the lucky country
- er, that's it ...

No mention of anything that's fundamental to house prices in the real world like, um, high and rising interest rates, dreadful affordability, record personal debt levels. Nope, things are going to remain good because "we're the lucky country" -- and no doubt Mr McGrath is looking forward to the visit of Father Christmas a bit later on this year, not to mention his fairy godmother.

There's no surer way to destroy any ounce of credibility you have as a property 'expert' than by wheeling out the "lucky country" line. Just wait till the commodity boom turns to bust after China decides it should give up building whole cities that no one lives in.

P.S. Tomorrow sees the weekly update and an initial take suggests we had another decent week for sales. The number of properties in the $500k+ bracket appears to have stabilised, which is good news. The bad news is that the $1m+ bracket is not showing much sign of life. Underlying demand for property in our district is definitely strong but it's the cheaper end of the market that's keeping things half respectable.

Burbs Property Sales Update: 28th May

Great news! This past week has seen a sharp rise in the number of sales in the Western Suburbs according to the Courier Mail. The property section reports 9 sales over $500k, which is 3x the recent weekly run-rate. However, I mentioned in a recent post that a sales rate of 20 per week was needed to bring current 'supply' back to a more normal six months' worth.

There were no sales over the $1m mark.

The bad news is that the number of houses for sale in the Burbs in the $500k+ bracket has risen to 635 from 620 during the same period, so this blockbuster rise in sales has been swamped by new supply.

Auction news:

139 Queenscroft, Chelmer: Was bid up to $1.35m (with some arm-twisting) and was passed in on a vendor bid of $1.5m. By all accounts the price the vendors want (or have been promised by a bullish agent) is well north of $1.5m.

18 Consort Street, Corinda: The advertising campaign for this property was one of the most high profile (read: expensive) I have ever seen, with large ads appearing in several issues of the Brisbane News, B-Mag and the Courier Mail. The bidding kicked off at $1m and headed to $1.2m, with the original bidder dropping out early on, leaving two others to take it up to the $1.2m mark. Here it stalled and the property was passed in on a $1.4m vendor bid. The vendor is apparently committed elsewhere, so it'll be interesting to see how this plays out, if this is the case.

The vendor bid at $1.4m points to expectations of $1.5m+, which further supports my view (alluded to in a previous post) that the current gap between vendors and buyers is still substantial i.e. 20% plus and also supports the view from abroad that the extent of the over-valuation in the Australian market could easily be up to 40% (The Economist reckons c.50%). The consensus is that the market will remain difficult throughout 2011, with no real view of what 2012 holds, so the end to this weakness is some way off yet. However, if we continue to get stronger sales data across successive weeks, it will be a good sign for sure.

Burbs Property Auction Update: 21st May

149 Graceville Avenue

This is a new house, obviously built by a developer. It was likely flood affected (during the building process) albeit to a limited degree. As with so much of this type of property it is on a small subdivided block with a near identical house next door (No. 147), which will undoubtedly be on the market the moment 149 is sold.

I was unable to attend this auction but it did not sell as today it is listed as Price on Application according to the realestate.com.au website. Prior to the auction announcement it was indicated at $875k. The developer cannot accept a knock-down price for 149 as it will simply set a benchmark for 147 and likely wipe out a large portion of the budgeted return. That said, given the abysmal state of the market right now, this really needed to sell on Saturday -- there is most likely a large and expensive loan outstanding on the project. The risk is that this home sits on the market for endless weeks/months as the market deteriorates further and the financing cost eats into the potential return or indeed simply enhances the inevitable loss.

For now though, the valuable 'optionality' for the developer in waiting will mean he won't be prepared to pull the pin just yet.

Burbs Property Sales Update: 21st May

No sales data in this week's Courier Mail property section! What's all that about then?

Admittedly there was a quarterly update on the Brisbane property market, but that's no excuse. I shall pack my cynicism away if the sales data page returns next week.

Never fear though. I am able to inform you that the number of properties in the Burbs and Surrounds in the $500k+ bracket has risen to 620 this week, according to realestate.com.au. This number stood at 606 last week and 598 the previous week, so the pace of listings is picking up. This is a crucial time for the market: are home-owners (and investors in particular) beginning to lose their nerve? Bear in mind that negative press about the market has only really started to become prominent in the mainstream media in the past two or three weeks.

Prior to that there had been 'rumblings', but on the whole, the market cheerleaders (Michael Matusik et al) had been doing their best to put a positive spin on things. Sadly, you can't keep the truth buried forever. According to today's quarterly update, all four suburbs (Chelmer through Corinda) failed to register enough sales (i.e. 10) in the quarter to March to record a Median measurement. Chelmer had one sale in this period.

The line being trotted out lately by our pundits and the REIQ (now that the bad news has begun to spill into the open) is that Queensland's recent disasters are to blame for the poor performance in house prices. If only. This delightful theory conveniently ignores the fact that Brisbane's property market had already been identified as the most 'vulnerable' of all Australia's capital cities at the end of 2010, with an eye-watering 60% increase in listings in the 12 months to Dec 31st (source: SQM Research).

At this point in time there appears to have been a mixed response to this weakness with vendors choosing either to withdraw their properties or hang on in there and hope. While we have seen some price reductions, they simply aren't big enough -- as evidenced by the lack of results. There is a raft of developer stock yet to come to market and these guys need to sell. Then there's all that investment property out there in the hands of an increasingly nervous investor-base .....

As anyone who works in markets will tell you: "The first cut is always the cheapest"

The 7.30 Report

Last night’s 7.30 Report carried a piece on Australia’s property market. Slowly but surely the mainstream press is waking up to what is going to be one of the dominant stories on the domestic scene here for the next 24 months at least.

Most local pundits and almost all those connected with the real estate industry in Australia have vehemently denied the existence of a bubble, despite noises from very many credible voices abroad.

Ten minutes is, quite frankly, a completely inadequate amount of time to delve into a topic in any depth, and so, the piece came across as being very light on substance. Certainly, no impartial observer could be convinced either way.

What irks me is that the programme makers allowed most of the interviewees to air their views on the future of the market without offering any hard evidence to support these views – or, at least, if they did offer any evidence, this was not screened. How can anyone’s opinion be worth a grain of salt unless backed up by intellectually robust evidence? Tim Lawless of RP Data was happy to opine that he saw the market turning round in Brisbane and Perth soon and, in this instance, did offer a reason: those two cities had outperformed their peers for a long while during this past decade and are now underperforming as a result, which in turn means they will inevitably catch up again at some point. Huh?

I could almost accept this argument but for the fact that Mr Lawless, and many others, are clearly unaware of the more important stuff going on in the rest of the world right now – things that are material to Australia and its housing market. It’s this big picture stuff that will ultimately determine the fortunes of Australia’s economy and the future of its property market. What many fail to appreciate is that Australia’s economy does not exist in a vacuum. None of this was tackled on the programme – all we had was the ‘narrow view’.

Population growth was mentioned in the show and has been one of the mainstays of the pro-property lobby’s “why the market won’t collapse here” argument i.e. this is simply part of the supply/demand argument – Econ 101. However, right now, there are 370,000 properties on the market across Australia, a number which is growing fast. To put this in some perspective, this number is almost 70% higher today than it was 12 months ago. In other words, demand is currently being overwhelmed by supply – just in case anyone was in any doubt. Funnily enough, the supply/demand argument has suddenly gone out of vogue with the spruikers – I can’t think for the life of me why…

The market bulls are fast beginning to run out of even vaguely credible reasons for why there won’t be a crash here in good old Oz and so they’re now reduced to the tactic of issuing bullish statements while providing no evidence at all – and that pretty much sums up what was on offer on last night’s 7.30 Report.

Burbs Property Sales Update: 14th May

The Courier Mail property section lists 3 property sales over $500k in our neck of the woods: one each in Corinda, Indooroopilly and Taringa. There were no sales in excess of $1m. This sales rate remains consistent with the last few weeks.

The number of properties for sale in this area has increased to 606 according to realestate.com.au from 598 the previous week. This leaves supply at 202 weeks (essentially 4yrs worth).

Today's AFR has an article on page 4 highlighting the bleak state of the property market in South East Queensland and highlights (at last) how damaging the First Homebuyer's Grant has been -- another taxpayer funded flop doled out by the geniuses who govern us. There are apparently 2,572 homes for sale across Caboolture and vendors are being forced to slash prices to undercut the next guy in order to move their properties. All these outer suburbs that sprung up in the boom through home and land package sales are, quite frankly, toast. You have to feel for the people that got puffed into the purchases by a meddlesome government and a truck-load of misinformation (or, lies, if you prefer) from the housing industry and other quarters: you name it -- massive population growth, house prices doubling every 7 years .... blah blah and more blah.

My best mate, Michael Matusik, begins his column in today's CM with: "I've said it before ... 2011 is shaping up as a hard year for residential real estate". This is a something of a volte face given the upbeat tone of his articles in the past few weeks and appears to be a Matusik 'hedge'. Even Peter May and Brad Robson of Brisbane Realty saw fit to quote one of Mr Matusik's more recent, upbeat comments in their weekly Market Update and suggest he is pretty much always right. Shameless stuff by the Burbs' most infamous duo - but hardly unexpected...

Burbs Property Sales Update: 7th May

Well, Easter is well and truly out of the way and the industry is looking forward to a big upswing in the market.

In short, there were a total of three recorded sales (in the CM Property pullout) over $500k for the Burbs and Surrounding areas over this past week, one of those over $1m. One of the three sales was in the Burbs itself – in Sherwood.

A search on realestate.com.au shows there are 598 properties for sale in the Burbs and Surrounds over $500k. Rounding those 3 sales up to 5 (to account for potential sales not recorded in the CM), that equates to roughly 120 weeks of supply – or 2.3 years. At that level of supply we are in for a rough ride. For supply/demand to be in equilibrium you’d be looking for supply of around 5 to 6 months. We have more than quadruple that number. That Brisbane has a housing supply problem is beyond debate and something both property bulls and bears can agree on.

Remember though, the figure of 598 does not include all those properties being ‘marketed on the quiet’, of which there are an increasing number and it doesn’t include all those that were on the market recently, failed to sell and were withdrawn. These should, strictly speaking, be included in the overall supply number as well because the owners’ intentions are likely to remain intact. So the real supply number could be well north of 120 weeks. And, if we take the actual recorded sales as gospel (i.e 3 this week) the supply number (598/3) is actually around 200 weeks! (or nearly 4 years of supply). At that level you have armageddon.

House sales need to ramp up from 3 to around 20 per week (in the $500k plus camp) for anyone to legitimately declare a recovery and I struggle to see that happening soon, or indeed at all while rates are headed north. With first time buyers on strike there is no longer any support at the lower end of the market to allow the complex to "trade up" -- a classic Ponzi scheme, if ever there was -- so a collapse is inevitable.

Government Intervention

Boy, don’t governments just love to meddle in stuff. Good intentions and unintended consequences – it’s the staple of governments the world over. Well-intentioned as most of it is, you can count on the fingers of one hand the number of instances where governments have intervened in something or other (markets in particular) that have had sustainable long-term benefits. Indeed, in most cases, intervention in markets has led to long-term damage, but will they ever learn? Now that Australia’s property market is well and truly on notice, the government’s increase in the First Homebuyer’s Grant to $21k during the GFC, is about to come under the spotlight.

Firstly, I think it’s fair to say that this action was designed to benefit property developers and not first home buyers – this much is obvious. But, why was this intervention such a bad thing? Well, interest rates at the time were about the lowest they’ve ever been in recent history – the cash rate at 3%. Wouldn’t the cheapest mortgages this generation has ever seen be enough to stimulate demand on its own? Apparently not.

The FHG was a straight-up taxpayer gift to many (better-heeled) first home-buyers but allowed an entirely new group of people i.e. those who were simply incapable of saving a deposit in the first instance and could just about afford a mortgage with cash rates at 3%, to get onto the housing ladder. But there is a nasty unintended consequence to this seemingly noble act by the Rudd government.

Fast forward to 2011 and cash rates are now 4.75%. It’s only 1.75% more, I hear you cry, what’s the big deal? The big deal is that it’s not the absolute increase that’s the issue, it’s the relative increase that matters i.e. a 58%! Adding in the banks’ synchronized (cartel, anyone?) raising of mortgage rates an additional 0.25% and 0.40% at the end of last year, and you can easily arrive at an all-in increase in mortgage cost of 30%+. That’s massive.

 The increase in financing costs is significant, particularly to the marginal borrower. So, it’s not a stretch to believe that a large portion of this group who just managed to squeeze onto the housing ladder before costs ramped up -- not to mention fuel, food and utility costs, since – will be “doing it tough” right now. Fact is, a significant proportion of this group will be delinquent even as we speak, putting further supply-side pressure on the market over the coming years and causing untold misery for those who took out these full-recourse loans.

So then, as a tax-payer, marks out of ten please for the government’s stellar intervention in providing short-term succour for developers and long-term pain for a whole swathe of hard-working Aussies ….. not to mention the contribution this action will make to the severity of the property downturn.

P.S. Comment on the carbon tax and Gillard’s proposed teacher bonus scheme to follow

Burbs Vendors Opt for Slash 'n Burn

I wrote in an earlier blog that vendors were now beginning to slash offer prices (o/p) to try and move their properties and that this could herald the start of a “race to the bottom”. It's certainly a situation to keep an eye on, so I've highlighted some examples:

54 Rakeevan Road, Graceville: original o/p $899k …. Now "$829k to $849k"

25 Morley Street, Chelmer: original o/p $1.3m+ …. Now Buyers over $1m

111 Nelson Street, Corinda: original o/p $1.2m …. then $980k, now Auction

116 Hilda Street, Corinda: original o/p $1.2m+ …. Now $1.05m

90 Long Street West, Graceville: original o/p $895k … now $839k

19 Clara Street, Corinda: o/p $770k …. Now $700k+

17 Clara Street, Corinda: o/p $830k …. Now $600k+  (ouch)

59 Kew Road, Graceville: o/p $895k …. Now 800k+

82 Clewley Street, Corinda: o/p $899k …. now $860k

49 Quarry Road, Sherwood: o/p $795k …. Now $735k

20 Egmont Street complex, Sherwood: multiple dwellings for sale – lower prices assured.

Difficult to see any of the above price adjustments having the desired effect (apart from 17 Clara St) but I stand to be corrected. There are numerous sellers who are sticking for now with their original prices (in the hope of a recovery), but if they’re serious they too will need to consider a chunky haircut. The problem is that, when buyer confidence evaporates, it becomes difficult to sell anything but the top line stuff, so it becomes a choice between ‘retreat’ or ‘slash to sell’.

In a previous blog I related the tale of a friend who commented at a BBQ one evening, after the sale of a Mortlake Street block in winter 2010: “Well, that’s it then, a new benchmark price for land has been set in this area.” The inference here was that the benchmark was more a high-water mark. Sadly, however, it doesn’t work on a high-water mark basis and new benchmarks do get set on the down-side as well as the up. This we will undoubtedly see across the board over the coming 12 to 18 months. 

P.S. In the past 24 hours there has been an increase in the number of properties on the market in the Western suburbs and Surrounding areas of 27 i.e. from 568 to 595 (according to realestate.com.au). This doesn't include all properties on the market, of course, so the real number is much higher. Given that properties are selling in this area at an average rate of about 2-3 per week, I might suggest we all write to Julia Gillard to request she send some well-heeled immigrants to this neck of the woods post-haste to help mop up the rapidly burgeoning supply. Or perhaps Mike Matusik could put his money where his mouth is and step in to catch the proverbial "falling knife". 

Post Easter Update

Firstly, an update on the spectacular “Gala Auction” failure in Noosa over Easter i.e. one sale from 28 Lots (see previous Noosa blog): a vacant lot in Wesley Court did actually sell just before my return to Brisbane, which is some good news, at least. The Agent appeared, in his literature, to be guiding toward the $3m-$3.5m mark, so it’ll be interesting to see what it went for in the end. Away from the Noosa Heads & Sound area, Sunshine Beach property continues to languish on the market, with the same old stuff for sale that was on the market 3, 6 and 9 months ago. When the vendors will wake up to reality, God only knows, but you get the feeling there has been plenty of over-capitalisation in recent years and vendors are simply refusing to sell below the all-in cost - for the moment, at least.

A cursory check on the ‘Burbs property inventory suggests the picture hasn’t changed that much:- one or two things have gone under contract but there’s a lot more that has come onto the market. However, my $850k+ search on realestate.com.au has remained mysteriously constant in terms of the number of properties that come up in that search. On further investigation it appears to be a case of several vendors dropping prices (generally in the order of 5 to 7.5%), thus causing those homes to drop into a lower bracket. A handful have been withdrawn altogether but price revisions seem to be the dominant theme, which suggests that most sellers are serious and not speculative. Is this the beginning of the proverbial “race to the bottom”? Time will tell, but it’s not looking good for the property bulls.

Speaking of which, Michael Matusik, was lending his support to various vested interests on the Sunshine Coast in recent weeks. Again he opined that there was definitely no bubble and that a major correction was simply not on the cards – in fact, Mr Matusik is confident that we can look forward to 15% growth in prices over the next 5 years! Not sure whether to laugh or cry at that claim. Evidence to support these assertions becomes more ridiculous every time he goes to print – as I’ve noted before, he clearly has no clue what ultimately drives property markets (or indeed any markets, for that matter) and is no more than a paid-up cheerleader, rather than the “expert” he styles himself as. Erle Levey, the editor of the Sunshine Coast Daily, quotes Matusik as if his word were gospel – one wonders if Erle is up to the eyeballs in "investment property" or whether he simply likes to buff that special rose tint in his readership's metaphorical spectacles.

In short then, consumers are expecting rates to continue their upward trajectory; inflation is higher than the RBA would like, with most non-discretionary spend affected (i.e. fuel, utilities and food); interest rates are already at a level that is causing a substantial number of households financial stress; house-prices are quite clearly under pressure here in South East Queensland (unless you live in a parallel universe with Mike Matusik and Erle Levey); property is likely to continue to flood onto the market as stressed (and 'committed elsewhere') homeowners pull the ripcord, carefully prepared retirement plans involving the sale of property face potential jeopardy and investors dump their negatively geared, depreciating assets.

P.S. I did a search on realestate.com.au on Wednesday evening (May 4th) for all properties in the $500k+ bracket, encompassing the Burbs and Surrounds and counted 568 properties. A similar search on Thursday around lunchtime showed 593 properties! It may be obvious to most, but unless someone starts buying these properties, there's going to be a spectacular bust here in South East Queensland. It truly is time to forget what the "experts" are saying and to start looking at the hard evidence. 

Noosa (Not so) Sound

I'd heard that the Gold and Sunshine Coast property markets weren't faring that well but I had no idea quite how bad things were till I travelled up to Noosa for a short break. Sure, the same properties that were for sale 3mths, 6mths and 12mths ago are still for sale today, but that's often the case on the coasts, where the more expensive stuff in particular, takes a while to shift.

For example, I went to view a property on Noosa Sound (in Key Court) in 2007 that eventually sold in mid-May 2009 with a 20% haircut on the original asking price. The period that straddled May 2009, if you recall, was actually fairly strong for property.

Easter is traditionally a huge period for property sales in this part of the world, and after a disappointing Christmas for the spruikers, Easter 2011 was going to put the year and the market back on track -- or so some of the big knobs were saying in the press ahead of their "Gala Auction" events. I haven't yet looked at how all the agents got on yet but I thought I'd get the ball rolling with the Big 2:

Tom Offermann Real Estate was first up on Thursday, April 21st, at the Sheraton. They auctioned 17 properties that day (2 on-site) and sold a total of ZERO out of the 17. "It's our people that make the difference" -- so the marketing blurb goes, but I wouldn't wish to be overly critical at this juncture and it would only be fair to see if their competition fared any better.

Richardson & Wrench also held their "Gala" event at the Sheraton, two days later. The press insisted they had 11 properties on the block, although I counted only 10. R&W managed to secure ONE sale out of their 11 efforts and this was a Receiver's Sale i.e. a property that had been taken possession of and was going to be sold whatever. The property, 37 Mossman Court, sold for $3.5m which sounds quite a result, until you consider that this masterplan development would probably have been on the market for closer to $6m under ordinary circumstances.

I think it's fair then to conclude that, without the gift of a receiver's sale, the Big 2 agents in Noosa would have turned in a total of ZERO sales at one of the two most important marketing periods of the year. Added to this is the fact that there is an absolute mountain of other property for sale in the area. At some point, something's got to give.

The above two auction events/catastrophes (take your pick) were covered in the local press. In the Friday 29th edition of The Noosa Journal, the paper's Property Editor, Geoff Crocket, titled his report (buried on Pg 12 - why so coy?):

Easter a Treat for Auctions

"With stunning blue skies, full car parks and busy beaches, Noosa certainly turned on a treat for holiday-makers this Easter .... strong crowds at the two major in-room auction events .... On Thursday night ... 101 Noosa Parade, Noosa Sound provided the most excitement of the evening ... 11 bids bringing a buzz to the room and helping to bring the sale price to the $2 million mark." ($2m was clearly nowhere near reserve and this didn't sell)

"Easter Saturday's auction ... off to a solid start ... bidding for 37 Mossman ... reached $3.49m. Apartment 5, The Emerald, 42 Hastings Street, was another standout, sold under the hammer for $740,000."

Now, you would be forgiven for thinking, having read the key bits of the article, that these gala events were a raging success, with the author mentioning just 'one or two of the highlights' while the overall tone implies there were other successes. The actualite: 1 sale (under contract, post hammer) out of 28 lots. For those of you who've spotted the obvious mistake, let me clarify that Apt 5 at The Emerald is in fact available to view this Saturday and next, should you so desire. A curious state of affairs for a property that's apparently just "sold under the hammer", I'm sure you'll agree.

Terry Ryder Strikes Again!

A local Western Burbs real estate agent, Zoe Diss, is desperate to break the home-buyer's strike on her patch. To do this, she's taken to sending articles by Terry Ryder, of the Australian, to her mailing list -- articles by a journalist who, one can only assume, is in the twighlight of his career. Mr Ryder, in one of his latest columns, has either been unable or unwilling to conduct any research of his own, preferring to fall back on some recent work by another (admittedly, part-time) journalist, Michael Matusik. You'd have thought that Mr Ryder, in choosing not to conduct his own research might have picked a reliable source to draw on, but he chose instead, to lean on Queensland's Chief Property Cheerleader, a man who has more than a vested interest in seeing the property boom continue for the forseeable future. It's hard to know whether Matusik is being disingenuous in his utterances or whether he's genuinely ignorant. Anyhow, Terry Ryder's latest article headlined:

Hysterical Bubble Talk Just A Load Of Hot Air

..goes through a list of reasons (all trotted out by Matusik, recently) why the Aussie property market won't crash. I've already knocked most of these reasons over in a past blog, but there are a few presented in Ryder's article that Australians can easily understand for themselves are downright rubbish -- it may just take me to highlight why this is the case.

One of Matusik's favourite comparisons is the US property market, because it has 'non-recourse' mortgages i.e. if you get fed up paying your mortgage over there then you can just hand back the keys and you have no further obligations to the lender. There's no doubt that this isn't great for banks and that this 'easy come, easy go' policy (only for those who don't have any equity in their home) can exacerbate a property glut. However, what Matusik fails to point out is that the Irish housing market, which has full-recourse mortgages (exactly the same as Australia does) has completely melted down and is in easily as bad shape, if not worse, than the US's market. So much for recourse over non-recourse, then. Does Matusik not know this? Or is this just too inconvenient a truth for him? Irrespective of the reasons for this oversight, it doesn't do his credibility a great deal of favours.

Back to Terry Ryder briefly: he claims ".... and, notably, Reserve Bank governor Glenn Stevens, agree we don’t have a price bubble...."
No shit, Sherlock! As if Glenn Stevens is going to admit to a property bubble on his watch. How many people in his position would admit to that while in office and then risk those comments setting in motion a house price crash. Clearly the journalistic threshold at Ryder's paper is lower than many imagine. If anyone out there is currently unemployed and fancies a crack at journalism, it seems you could do worse than apply to The Australian for a job.

Back to the inimitable Matusik whose anti-bubble arguments are so thin, that a one-year-old wielding a soft toy could poke holes in them:

He says: "...also odd to claim our homes are unaffordable when we have, still, one of the highest home ownership rates on the planet.."
What has high home ownership got to do with anything? He doesn't explain -- it's just left hanging out there as though the answer were obvious. His own paper, the Courier Mail, published an article earlier in the week, saying that a recent survey found that a staggering 40% of Queensland families were struggling to make ends meet given the recent hike in the price of just about everything non-discretionary. You add that claim to Matusik's own claim that "we have one of the highest home ownership rates on the planet" and it's hardly reason to crack open the Moet & Chandon -- in fact, it's the complete opposite -- it's time to be deeply concerned, particularly in the context of the future property prices.

And yet more rubbish from Matusik: "As long as our unemployment rate stays below 8 per cent (it’s currently around 5 per cent and steady), then falls in property values are unlikely."
Where he dug this up from is beyond me and he doesn't identify his source -- quite possibly, he dreamed it one night. Generally, I like to deal in facts though, so let me quote this in response: the US housing market peaked in July 2006 (source: the Case-Shiller Index), at which time US unemployment was around 5%. A full year later, the GFC kicked off, triggered by the falls in house prices. Right, there you have two 'Matusik myths' knocked straight over, the other being that you need some or other 'catalyst' to set in motion a price crash. Here the price falls were the catalyst for the GFC, rather than the other way round, as imagined by Queensland's premier property guru.

There's nothing like avoiding the facts when you're a journalist (not to mention doing some real research) and just plumping for a load of information (however dubious) which supports your particular viewpoint. Hats off, Terry Ryder, you're a credit (or perhaps that's debit?) to your profession.

High Costs Begin to Bite Hard

A diversion from housing today albeit there are some inevitable links.

It's funny, isn't it, how the perceived increase in the cost of living never appears to be reflected in the official government stats? High inflation has consequences for wage settlements and interest rates, of course, and the last thing the Aussie housing market needs now is another round of rate rises, while the tax-payer could do without being saddled with a higher public-sector wage bill. That said, if the RBA needed an excuse to raise rates again, I'm sure inflation could be made to 'rise' again.

My friends at the Courier Mail ran with a story yesterday suggesting that as many as 40% of Queenslanders are now struggling to make ends meet, given recent hikes in food, utility and fuel prices. While I've personally been aware of the sharp increase in the cost of living, even I was shocked at the 40% number, which, if accurate, is even more of a reason to worry about the medium-term future of the housing market in Queensland. The theory goes that home-owners will hang onto their homes for grim death and will sell the shirt off their backs before handing the keys over to the bank and I'm willing to go along with that, but default willbe unavoidable for an increasing number of us, while the tought of "trading up" will be furthest from our minds. It's this trading up (along with plentiful credit) that keeps the housing Ponzi going -- and prices going up. If moving or trading up stops and first home-buyers (FHBs) disappear, the pyramid effectively starts to collapse on itself.

But enough of housing because that isn't today's bugbear. No, today my bile is reserved for Australia's large and dominant retailers -- you know, the ones that had a public whinge about Australians shopping abroad online. The Australian Dollar, as everyone knows, has appreciated north of 30% against a basket of major currencies over the past 2yrs and this makes the Cost of Goods for Australian retailers a hell of a lot cheaper. However, instead of passing on these savings to their customers the greedy retailers have decided instead to pocket the higher margins while throwing the odd bone, in the form a few "Specials", our way.

Then, when the consumer, fed up to the back teeth from being gouged by the likes of Gerry Harvey and friends decides to shop abroad, GH and Co get shirty and try to force the government to tax these imports. I firmly believe most Australians get what's going on here, and that being the case, I only hope for the sakes of these retailing tycoons that they have adequate security, because the people they've been merrily robbing all these years have a right to be furious with them. A high Aussie Dollar should be helping to mitigate (through cheaper foreign imports) the inflation being felt in other areas, but it isn't -- thanks to a few money-grubbing retailing types. As the non-resources part of the economy continues to struggle, so too will Australia's big retailers and I can't say that I'll be shedding a tear as their earnings progressively slip into the abyss over the next year or two.

No doubt they're furiously lobbying the government as we speak, threatening headline grabbing redundancies if the government doesn't act -- lobbying that's sure to intensify the closer to the next election we get. Of course, this would require Tony Abbot's LNP to come out behind the retailers on a "save Aussie jobs" ticket, a noble cause, no doubt, but one that I believe would be a nail in Abbot's coffin, because Australians have simply had enough.

Burbs Auctions April 16th - Update

84 Long Street West: a new contemporary-look house on a block just under 600sqm.

I must admit, I didn't think this property had a cat-in-hell's chance of making the $1m mark, possibly because it's just a large ugly box with a nice paint job. Clearly, BCC's Planning department, is still open to incentives in exchange for permission to build modern eye-sores in character suburbs. It's the type of house that's just about acceptable in a rundown inner-city suburb. But I digress.

The Bidding opened, after much cajoling, at $850k and the auctioneer painstakingly dragged it toward the $950k mark before the vendor had to step in at $1m to get things going again. I thought proceedings would conclude on the vendor bid but someone (unsighted by me) took it to $1.05m, at which point another bidder  went to $1.06m but the auctioneer appeared reluctant to go to $10k increments albeit he accepted the higher bid. At this point, the unsighted bidder decided to move the bid straight to $1.1m from $1.06m. Maybe it's just me, but that seems a little strange (why pay $1.1m when you could potentially pay 1.07m, etc). I've seen something similar happen at an auction run by this agency in the recent past. I had to leave at this point (much to my regret) but I don't think this sold, and certainly, the reluctance of the auctioneer to move to $10k increments at the $1.05m mark suggests to me that the vendor target price was well north of this. As I said previously, I thought the property would be lucky to reach the $1m mark and was staggered when it failed to be declared "on the market" at $1.05m

To 121 (?) Hassall Street now for the auction of a small post-war house on 1300sqm (much of it sloping away). Having been on the market for several months without success, the owners clearly grew impatient and an auction was announced. When it initially went on the market, the agent said he was looking for an offer in the $1.3m area. At the auction, two bidders took the bidding to $820k at which point it was declared on the market and went under the hammer at $835k. Now, that is an impressive revision of vendor expectations: $1.3m to $835k. That's a 36% discount to the original asking price! I'd love to know how that came about. Perhaps I'll knock on their door and ask.

**I have since rung the agent about Long Street West and a colleague of his informed me that the property went under contract post the auction at 'north of $1.2m'. The listing has yet to be removed from realestate.com.au or identified as Under Contract. While not that unusual in itself, it'll be worth watching to see whether this transaction completes.

Burbs Housing Market Update

In my Sub Million Dollar Houses blog I included an update of the local market using information gleaned from the Courier Mail's Property Section and the website, www.realestate.com.au. This was sales data for the week April 2nd to Apr 8th.

I've repeated the exercise this week -- Apr 9th to 15th:

The good news is that there appears (optically, at least) to have been more sales in this past week i.e. the sales data column is longer, so I'm willing to accept that the total number of sales was higher (not very scientific and it may not actually be true but let's look on the brightside). The more pertinent data came in as follows (this includes houses and units only):

Total published property sales for the Western Burbs, plus surrounding areas: 4 (prior week, 3)

Total published property sales for the Western Burbs only: 2 (prior week, zero)

Total property sales for the Western Burbs, plus surrounding areas over $500k: 2 (prior week, 3)

Total published property sales for All Brisbane over $500k: 30 (prior week, 33)

Total published property sales for All Brisbane over $1m: 1 (prior week,3)

As I discussed in a previous blog, some simple research lead me to conclude that there are at least 1,000 properties across the Brisbane metropolitan area for sale in the $1m+ category, and the actual number is likely to be north of 1,250. With one published sale over $1m this week, you can see that there is quite an overhang (to put it mildly). I'll be mightily impressed if that clears without any serious impairment to the overall level of prices. In truth, we haven't really seen a clear move lower in prices across the board -- this is still some way off. We're in a classic seller standoff, where there's preference to hold out for the right price or simply withdraw properties from the market altogether, but the pressure on prices is building all the time and eventually they'll crack, leading to many sellers taking to a more 'proactive stance'. Then it becomes a race to the bottom, while buyers stay on the sidelines to observe. Bear in mind that all those properties that have been withdrawn for now are effectively part of the overall supply number, because they'll be back just as soon as a) the market firms up or b) the markeet cracks.

Naughty Naughty!

If times are tough for estate agents in the Burbs, times are tougher in the Boom Bust Belt that is the Gold and Sunshine coasts. These areas are For Sale -- in a big way.

Someone I know just received a Noosa Property Alert for a property that has just been reduced by $1m (!!) for an urgent sale. The price? $3.8m. Ugly stuff, indeed ..... until I took a look at the property details and decided something smelt a bit fishy - which may not ordinarily have been unreasonable given the property's proximity to Noosa Sound, but here's where I have an issue:

My rudimentary maths tells me that, if a property is on the market for $3.8m having just been reduced by $1m, then it's previous sale price must have been $4.8m (don't hesitate to shout if I've gone wrong somewhere here). Now, don't ask me how or why, but I know that over the past couple of years the average asking price of a fancy new-build house on Noosa Parade has fallen into the $4m to $5m bracket but the aforementioned property is an old, un-renovated house which could not (in my estimation) have been valued anywhere near $4.8m. I checked the website On the House which has (largely) reliable data and it suggested that this property, 10 Noosa Parade, had been listed for sale at various prices over the past few months varying between $3m and $4m, which only supports my contention that this alleged $1m price reduction is dubious, to say the least.

The marketing agent is Tom Offerman Real Estate, which, by a happy coincidence, is also marketing 8 Noosa Parade. Here too the sales pitch claims a $1m price reduction: "Was $4million, Must Be Sold, Now $3million".

I did wonder whether the real estate industry had any rules pertaining to "markdowns" in prices i.e. the property concerned needs to have been marketed at the elevated price for a minimum period of time before the agent is then allowed to say the price has been reduced. And if there are no rules relating specifically to this practice, are the agents free to tell bare-faced lies?

Financial Review: Major Banks are Lowering Lending Standards

A few weeks ago there was an article in the AFR outlining how lending standards were being lowered in order to encourage borrowing i.e. we're back to the heady days of 95 or 97% mortgages, capitalisation of the mortgage indemnity fee, and so on. Now, call me odd, but this article just set the alarm bells clanging for me.

And I think it would too for anyone who was in possession of at least one brain-cell: "Come on folks, it's time to leverage yourselves to the eyeballs just as the housing market crash is beginning to gather pace."  Isn't this just downright immoral?

Spruiker BS Alert!

Hardly a revelation but the Western Burbs' favourite spruiking duo have just issued their latest "Market Update" in which they shamelessly deny the market is weak -- in fact "it's quite the opposite" -- they then support this thesis by trotting out some spurious theory to illustrate why the market's never been hotter. Apparently, the fewer listings in Q1'11 versus Q1'10 mean that the supply/demand balance heavily favours sellers:

"..with such little competition in the market ... if you're thinking of selling, now might be the best time to do so."

Personally, I'm willing to take the other side of that. What is true, however, is this -- if you have to sell anytime in the next year or two you'd be better off doing it now and taking the first vaguely sensible offer. Putting it off in the hope of a recovery in the coming months is likely to seriously damage your wealth, particularly if you're already 'committed elsewhere'. If you don't need to sell at all, don't waste your time. Take holiday, consider a new hair-style , take up a hobby -- do anything but worry about the value of your property.


The Housing Finance figure from the ABS on April 6th was awful -- the lowest in 32 years. This follows three months of low commitments. First home buyer commitments have fallen off a cliff. This does not bode well, to put it mildly. What is going to stem the current weakness in property? The goverment stepping in with new incentives? Unlikely -- there's a danger that even drawing attention to the weakness would precipitate a sharper fall. Will the RBA reverse direction? I'm not sure -- depends on Glenn Stevens' willingness to eat humble pie. It would be an admission of failure on his part and he strikes me as some who's quite strongwilled. Once he's made a decision etc.....

A fullblown crisis might be a game-changer, though. We won't have that long to wait to find out.

Real Estate Agent Lived Under Stone for Nine Months -- Official

Yes, folks, it's official. Your author has recently discovered hard evidence that a local estate agent has been living under a stone for at least the last nine months. I was just perusing the local house listings for our leafy 'burb when I happened across a new property for sale in Allardyce street in Graceville. The detail is a little more sketchy than I'd ordinarily expect, but the available photos suggest a modestly sized house on a confirmed 700sqm of land. The price? An eye-watering $895k! This is the kind of money that was fetched by a renovator on a (slightly) larger block in one of Chelmer's more prestigious high-side streets when the market was at its frothiest i.e. some nine months ago.

Now, I'm no snob, but I do know for a fact that Chelmer's "high-side" sells for a hefty premium over Graceville's "low side" and I wouldn't be surprised to discover that this premium has in fact grown since the recent floods. What on earth possessed the agent to suggest such a price-tag? Yes it's true, they could be masochists.... Personally, I wouldn't fancy doing endless viewings and open houses on a property that had absolutely zero chance of selling at such a nosebleed level. In fact, I'm not certain a 25% haircut would make a lot of difference to the chances. Then again, an agent did recently confide to me that the vendors themselves often called the shots on pricing, so one could view securing the mandate as a 'free option' -- that's if you don't mind the endless hours of fruitless marketing. Anyway, I think it would only be right that someone take this agent aside and point out to them that, while they were living under their stone, the housing market peaked and has been on a steady decline ever since, with recent evidence suggesting that the pace of decline may be picking up. At least, this way, the disappointment of failure won't be as great for the poor soul.

As an aside, the above property may not be the worst offender in the "Egregiously Over-priced" stakes. I did spy a small block of land for sale on the Oxley Road, that comes with planning permission for four 2-bed units, "reasonably priced" (the agent's words) at $1.5m. Mmmm....
Time once again for the cigarette packet and my trusty biro. I reckon you'd struggle to sell a 2-bed unit on the Oxley Rd for much more than $400k (and that's being somewhat generous -- in truth, $300k is more realistic).

But, let's don the rose-tinted spectacles for the sake of this exercise. I bet you've already done the rough mental calculation and concluded that $1.5m is easily 100% over-priced? Four units at $400k gives you a total of $1.6m, which would represent a return of around zero after costs and assuming you didn't spend a dollar building the units. Sounds like a bargain at $1.5m, then!

On closer inspection, it became apparent that the agent with the mandate is based in New Farm. Doing what I do best, I shall go out on a limb here and suggest that land prices in New Farm and Corinda may not be comparable, but I stand to be corrected given the agent's undoubted genius in securing a mandate so far away from his usual patch.

Sub Million Dollar Houses

As a follow-up to my Million Dollar Houses blog I thought I'd extend my research a bit because I wouldn't want to be accused of focusing solely on the high-end stuff, which of course is potentially not reflective of the real world.

So, I grabbed the lastest copy of the Courier Mail's Property Section and logged on to www.realestate.com.au and set to work. According to the latest CM there were 33 sales (including houses and units) over the $500k mark in the past week (Apr 2nd to Apr 8th) across all Brisbane and according to the aforementioned website there are 631 properties for sale in the Western Burbs and surrounding areas alone in the $500k+ bracket. Referring to the Recent Sales Results page in the CM, the total sales in the Western Burbs in this segment amounted to: zero. When you include the surrounding areas (Fig Tree Pocket, Taringa, St Lucia, Indooroopilly, Tennyson, Yerongpilly etc) the total sales in this bracket amounted to: 3.

At that sales pace, it would take in excess of 4 years to clear the existing inventory alone. I'm going to stick my neck out at this point and suggest that many of these sellers may not be willing or have the capacity to wait that long and will need to engage with reality sooner rather than later and drop their prices - probably quite significantly. This will eventually re-price the entire market.

I know the above is "research" is not particularly scientific and I know that some sales don't make it to the Recent Results section of the CM's Property section (why not, I couldn't say -- you'd have thought that with housing sales now about as rare as a white truffle in K-Mart, that spruikers would be shouting every one from the rooftops), but by the same token, not every property that's for sale appears on realestate.com.au, so we'll call that one quits, I think. In short, there's enough in these stats to give an accurate picture of the market today.

P.S. In my Million Dollar House blog I challenged the assertion by some local agents that there are 148 properties for sale over the magic $1m mark in all of Brisbane and thought the number was closer to 1,000. This morning, consuming all of about 36 and a half seconds of my time, a search on realestate.com.au reveals there are in excess of 739 properties for sale over $1m. I must confess, I was somewhat surprised that this number was that low, so I delved a little deeper and discovered that my Brisbane City - Greater Region search actually only covers the CBD and inner Brisbane suburbs i .e only as far west as St Lucia (for example). I'm cannot find a way to do a single broader search on realestate.com.au that covers the outer suburbs as well but my estimate of 1,000 properties over the $1m mark now looks somewhat light. As I mentioned recently, there are 200 properties in the Western Burbs and surrounds over that mark alone. These numbers are worth keeping an eye on over the coming months because I fail to see any catalyst that would drive a spate of buying to start clearing this inventory. Even if there was a willingness to do so, it looks very much like the market's severe unaffordability is finally beginning to tell.

Are Real Estate Agents About to Change Tack?

Real estate agents .... three words that have the capacity to send a shiver down the spine. Down the spines of buyers, mainly, in recent times, but this may be about to change, and the reason is this:

The property market has been running hot for the best part of the past ten years and buyers have had to bear the brunt of nauseating spin and blatant lies -- all designed to puff panicked souls into hopping onto the ladder before "prices take off" for the stratosphere and it all becomes too unaffordable. Believe me, a significant chunk of the people who have bought in the past five years have been motivated by this very fear. There have been plenty of speculative purchases too, but when those go sour few tears will be shed. Sympathy should be reserved for the poor souls who have mortgaged themselves to the hilt and may be marginal cases if the market does collapse.

But here's the thing: with the market now definitively on the back-foot, RE agents simply don't have the leverage over buyers that they once did -- the lies and spin simply don't work anymore because any fool knows now that there really is no need whatsoever to rush in. Patience and not panic is the order of the day -- and for the forseeable future. Real estate agents then potentially face a bleak few years ahead unless they're able to keep the old sales turnover going. It's a case of adapt or die (not literally, of course, joining the dole queue might feel like you have done). So, if they can no longer execute sales by leaning on the buyers, what do they do? That's right, they start to lean on the sellers -- the panic will be going in the other direction this time i.e. "These are the worst conditions I've experienced in my 30yr career--you should really consider any vaguely decent offer; If you pass this up now, the next offer may be a lot lower; There's a bloodbath ahead for the property market". And so on. In doing this, of course, the agents will be assisting the market lower, which is ironic, if only for the fact that just about every sale in prior months and years will have been achieved after assurances that the market was likely to double again in the next 5 yrs or so -- you know the score by now: resources, China, well-heeled migrants etc.

There is a bullish alternative that can be spun, I grant you i.e. that the 'shrewd' or 'astute' buyer steps into the market when all the rest are standing on the sidelines, however, the truly shrewd buyer does not step in at the start of a correction in prices to catch the proverbial falling knife , which is where we appear to be right now. In any event, agents will find themselves having to be bullish with buyers and bearish with sellers, so one of the new skills learned by spruikers will be to ensure conversations with each party are not over-heard by the other.

The 'Catalyst' Myth

According to any number of property pundits, experts and spruikers here in Australia, house prices will not crash because, in order to do so, would require some kind of 'catalyst'. The GFC came and went without incident, so if that doesn't prove how solid the market is here, then what does? The pundits have decided amongst them that only a spike in unemployment can threaten the rampant progress of the property market in "The Lucky Country" -- and look where that is: 5% and declining ...

As discussed in a previous blog, this is a complete myth. The U.S. housing market started declining when unemployment there was at 5% i.e. there was no real catalyst -- at least not from unemployment. Unemployment started to spike at least 18 months after the housing peak. While it's intuitive and possibly correct to suggest that a large increase in unemployment could cause a housing correction it's equally feasible that it works the other way round, and here is how:

I'll use Australia as an example because I believe that, if there is a sharp property market correction here, then this is exactly how things will play out. The Australian consumer is already stretched financially -- many have large mortgages to service, inflation in food and energy is rampant and pressuring already stretched domestic balance sheets, interest rates are high (relative to other developed world countries) and this has led to sales in discretionary retail and services falling off a cliff in recent months. Australians are, quite rationally, shopping abroad (on the internet) for non-food items because domestic goods are way too expensive. If there is a crash, or a severe correction, in property prices, something will have to give because already weak retail sales will all but evaporate as people batten down the hatches and horde their cash in case they need it sometime down the line to assist with non-discretionary spend and their mortgages. This HAS to lead to large-scale redundancies across the non-resources sector - and the mining sector simply cannot and will not mop up all this excess labour. Unemployment, therefore, will rise as a result of a weaker property market.

As an aside, I just hope the Chinese economy is still cranking when this all happens otherwise you'll see unemployment in double figures in the blink of an eye and a falling housing market will turn into a wholesale meltdown. You know the old adage: the higher you go, the further you have to fall.

Million Dollar Houses

In mid-March I received an e-mailed "Market Update" from a pair of the Burbs' finest spruikers. It is less of an actual update these days as this would require admitting to serious weakness in the market and even this pair realise you can only spin things so far.

So, instead of a useful and informative update the aforementioned duo furnished recipients with "an interesting fact":

'.... according to the Courier Mail, the first time a home sold for over $1,000,000 here in Brisbane was in the late 1980's. Today, $1,000,000 plus sales account for 6 per cent of sales made and that is double what it was in 2005.'

When I first read this I was puzzled as to why they would think their pool of potential buyers might find this particularly helpful ... and then the penny dropped: was it possible that our friends were attempting to embed the idea that, with the number of $m property sales doubling in Brisbane in the past 5 yrs, that this trend could well repeat itself in the next 5yrs? They go on to suggest that this isn't unreasonable either because $1m+ sales currently only make up 6% of all property sales.

6% is a small number, but it's a number without any context, so we are none the wiser as to what is reasonable under the circumstances. With the market as slow as it is right now, you'd have thought our spruikers would have had the time to look up the percentages for other metropolitan areas for the purposes of comparison -- and perhaps they did, but maybe the results didn't "suit" their thesis, who knows.

Of course, the lateral thinkers out there might consider the view that a doubling of $m+ property sales in just 5 short years may be an indicator that the property market has indeed risen too far, too fast, but perish that thought. No, prices are simply marching toward their long-run equilibrium value which is some way off yet, surely.

The final paragraph in the Market Update says the following:

'According to realestate.com.au, there are currently 148 properties listed for sale for more than $1 million around Brisbane, 305 in Sydney, 191 in Melbourne and 217 in Perth.'

Again, I'm scratching my head trying to decide why this is relevant in any way. In fact, it's not even that interesting. However, it does prove one thing and that is that our spruiker friends are not very adept at using the nternet:

Dated March 17th, they suggest there are 148 properties listed for sale across Brisbane on www.realestate.com.au above the $1m mark. A curious claim, I must say, because I've just done a search of properties in this bracket for the Western Burbs alone (including the immediate surrounding areas) and it suggests there are 199 properties for sale in this bracket. Goodness knows what the total number is for the whole of Brisbane but I'm willing to wager it's a lot closer to 1,000 than it is to 148.

For further reference, a similar search of the Burbs and surrounds two weeks ago revealed only 170-odd properties for sale in this bracket. I can't recall the precise number but that same search in August/September last year was only offering up 50 to 60 properties. Wow! Somebody had better start buying these $m homes soon otherwise the market will be drowning in them before long. I opened the Courier Mail property section this weekend and counted 3 sales over $1m in the 'Recent Sales Results' section (for the entire Brisbane Met). I know not all sales get reported in this section, so let's be generous and triple that number to 9. Nine sales in that bracket and something close to 1,000 properties on the market with the numbers rising fast.

But never fear, folks, there are thousands of migrants arriving in Brisbane every week with $m housing budgets and they're all dead keen to help keep the great Aussie dream from deflating -- not to mention the bank balances of the Burbs' favourite spruikers!

Property Cheerleaders

Michael Matusik writes a regular column in the Saturday Courier Mail's Property pullout. He is a self-styled property "expert" and I've heard him interviewed on the radio on occasion and I have no doubt he does other media gigs too. In the latter half of 2010 the tone of his columns in the Saturday CM was decidedly bullish just at a time when the market was softening up and I had him tagged as just another "cheerleader". However, at the start of 2011, the tone of his articles changed and he tried to present a more balanced view of the market and its prospects, a development that naturally challenged my opinion of his credibility as an expert and led me to believe that perhaps he did have some genuine value to add.

In today's CM column (Apr 9th, 2011), the "tide ran out", so to speak, and all readers will be able to judge for themselves whether Mr Matusik is in fact "wearing any bathers" after all.

He outlines seven reasons "why I believe we will not see major falls in home values", and I believe all seven reasons are worthy of closer examination:

1. Population growth - roughly speaking he argues that growth in the number of migrants in the 20s to late 30s will keep prices under-pinned.

This statement is somewhat wishy-washy and Mr Matusik offers no other information to back up why this should make a material difference. The statement pre-supposes that most migrants a) want to buy a property rather than rent b) have the necessary deposit handy c) have the salary to afford the property they want and d) are completely oblivious to the fact that Australia's market is the most expensive and wouldn't therefore wish to wait for a better entry point (in short, most migrants are 'crassly stupid'), which I find highly unlikely. It is a "demand-side" argument which simply doesn't stack up. Students of property crashes know that demand can evaporate in a flash - all it requires is a change in sentiment. If people think prices are falling, or going to fall, they stand on the sidelines, plain and simple.

2. Tight Lending practices - here he talks about Australia's apparently unique "full recourse loans", while "many overseas markets which experience which a housing crash have non-recourse loans".

This claim I take real issue with and it's about as tardy a bit of journalism as you're likely to see. The U.S. mortgage market has non-recourse loans and has crashed, but actually has some significant advantages over the Australian market like fixed rate loans for the full duration of the mortgage which borrowers are able to refinance at will, virtually cost-free. The UK and Irish markets have full-recourse loans and their mortgage makets are about as similar to the Australian model as you could get. The Irish housing market, as all who have not been living under a stone for the past 24 months will know, has completely melted down -- we're talking a 40%+ fall across the board. This makes a mockery of Mr Matusik's claim. As an aside, diligent readers of the AFR will have seen an article a couple of weeks ago on how the major lenders are loosening lending standards again in order to attract borrowers. Yup, 97% mortgages are back and the mortgage indemnity fee can now be capitalized i.e. added to the borrowed amount and paid back over the life of the mortgage. So much for "tight" lending practices.

3. High Equity - according to mortgage broker AFG, current loan-to-value ratios are around 53% "reflecting our conservative position towards debt. Simply, most of us own about half of our homes."

It is statements like this that gave rise to the phrase: "Lies, damned lies, and statistics".
On the face of it this aggregate LTV number looks impressive but broken down, the picture looks a lot less rosy. This is an average and does NOT reflect the situation of each borrower. There are a horde of baby-boomers out there whose mortgages are approaching maturity which means their mortgages will have, say, a 5 to 10% LTV, balanced on the other side by more recent borrowers who are mortgaged to the eye-balls and have 90 and 95% LTV on their homes. It's this latter group that are the issue -- you only need a relatively small percentage of homeowners to become "stressed" to precipitate a fall in prices.

And here's an anecdotal reason that may help people understand how the LTV picture can be enhanced: a neighbour bought a house in the area for around $1m at the end of 2008. They did extensive work on the property, financed by their lender (to the tune of $350k), who valued the property at the end of the renovation at $2m. This makes the LTV on that property 67.5% which is impressive indeed, right up until you consider that this property in the current environment would struggle to fetch enough to break-even if sold, thereby making the real LTV around 100% (perhaps higher). Multiply this situation, which involved Mickey Mouse valuations tens of thousands of times, and perhaps the mortgage industry's LTV is not that great after all. And here's another question: in the current weak environment, are banks revising property values lower across their loan books to reflect reality? I think I know the answer to this one....

4. Undersupply - this speaks for itself

...and it is complete garbage. There are 340,000 houses and units for sale across Australia as of a few days ago and this number is increasing by the week. If this is undersupply then I'm Luke Skywalker. Mr Matusik does qualify this claim slightly by saying the undersupply may be at the lower end of the market i.e. "affordable housing", but how people who don't have the wherewithall to buy property can help support prices, I don't know. Someone please explain that one to me. And lets hope all those migrants that are arriving daily are able to help mop up this burgeoning supply, which is only likely to increase over the coming months.

5. Economy growth - "housing markets usually crash with large falls in employment".

Again, complete trash and the tardiest of journalism. The U.S. housing market peaked in early 2006 and started to decline shortly afterward. U.S. unemployment was around 5% at the time, roughly what Australian unemployment is right now. Australian interest rates are among the highest in the developed world and its people the most personally indebted -- at risk of sounding controversial, I'd say that's not a good combination.

6. Low unemployment - "as long as unemployment stays below 8%, then wholesale falls in property prices are unlikely"

Hey?! The riposte to the above ludicrous claim is the same as that for reason 5 but where, oh where did Mr Matusik come up with that 8% figure? Was this gleaned from some academic text book? Is he suggesting that, if Australian unemployment hits 7.9% the market will be A-okay but the moment it ticks up to 8% all bets are off? Only someone with an IQ in single figures would grant any credibility to this claim.

7. Few mortgage defaults - while the number of mortage defaults is currently rising, overall the number is still low.

The number is rising -- the trend is UP and there's no knowing when or where this trend will peak, so how could this possibly be a positive for the housing market?! Where is the logic in this? If we are only at the beginning of a housing market correction, then it's only logical that the default rate will still be low.

Make no mistake, the key to property prices rising or falling is people's expectations of what is likely to happen. Mr Matusik and his ilk (i.e. property "experts") have been riding the wave (and nurturing it) for the past decade but despite the best efforts of the "spruikers" to keep the bubble inflating, reality is finally dawning and sanity is hopefully returning to the housing market.

I don't know if there is a body in Australia that monitors standards in journalism, but if there is, they may wish to review some of Mr Matusik's recent work. I do wonder whether today's piece contravenes any guidelines pertaining to "investment advice" because I'd hate to think that any poor soul taking him at his word might go out and do something stupid like make an investment in property at the present time.

Irritants

A couple of things I need to get off my chest this afternoon:

Firstly, I simply can't get over the number of properties in our area that have been on the market for 3 months or more -- in fact several have been on the market for well in excess of 6 months. Has it not occured to the vendors that maybe, just maybe, their properties are well over-valued? In my view buyers are happy to engage sellers if they think a property is around, say, 10% over-valued but much more than that and buyers are dissuaded because they'd rather avoid dealing with anyone they deem to have their head in the clouds. How successful is an offer of, say, 20-25% below the asking price likely to be? The answer to most rational people is: "not very", and so they prefer not to waste their time and look to other opportunities.

It's true that some vendors, not so long ago, were able to adopt a strategy of: If I wait long enough, some idiot will eventually turn up and pay the price, but this is far less likely to work in the current environment where the market has turned sour and the newsflow has turned negative. With the "Buy property, get rich quick" trade finally burning out, even the property market cheerleaders out there will have to acknowledge reality at some point.

But my message is this: If your property isn't selling, it's probably because it's grossly over-priced and nothing more. Get your head out of the clouds and adjust your expectations otherwise the financial pain down the line may be greater than you can feasibly handle.

My second gripe centres on the information peddled by metropolitan Brisbane's Saturday morning must-read, the Courier Mail's Property section. (And before anyone mentions it, I accept that the "must-read" status may recently have been downgraded as Brissy's denizens choose not to find out how much their property may have depreciated in the past week).

But I digress. The issue I have is with the data in the Recent Sales section, specifically that which relates to Auction results. When a property fails to sell it is Passed In, often with the highest Bid posted in the Price column. Ordinarily this information would be very useful to the market i.e. if it were the highest real bid from a registered bidder on the day, but most often, this is the vendor's bid, which I would argue is useless information for the market and, in fact, highly misleading (and deliberate, at that). I can't believe this practice hasn't been outlawed at either Federal or State level. At the very least it should be flagged whose Bid this was. In any event, the last real bid is the information that buyers really care about. The vendor bid is as useful as a chocolate tea-pot because, at best, it may serve to inform the public around what level the vendor wishes to sell their property and all we buyers want to know is where the market is valuing it.

Sorry, did I say "a couple" of things? I meant three. Median house prices -- what a pile of good-for-nothing $%&*@£! I mean, has the penny not dropped yet, that this is largely, in the case of housing, a completely useless and meaningless measure? Especially as you start to look at local stats where granularity deteriorates markedly. A local agent sent around a booklet, complied by herself, that contained some stats that "buyers might find useful", one of which was a list of Median house sale prices for each month of 2010 in the local area. The lowest price was in the low $400k's, most in the $500k's and the highest was around $1.5m (in a month when there was essentially only that one sale!). Gee, thanks for all your help. How, on God's green earth, could that information ever be useful? All it does is highlight just how useless it is. But it's not the agent I'm irritated by -- she's simply one of many sheep drawn to Brisbane's housing market beacon. Yup, I'm talking about the Courier Mail's Property paper!

Western Burbs Housing Update

Well, property continues to flood onto the market here in "the Burbs", although to be fair, this has been partially offset by several vendors withdrawing their properties until the market "improves". I just hope for their sakes that it does but I wouldn't hold my breath. This feels for all the world like the start of a genuine correction, and if it is, then said vendors could be waiting several years for a turnaround. And I can't see the RBA coming to the rescue of the market anytime soon -- at least not while the resources boom remains in full swing.

Meanwhile, real estate agents are either staying silent on the subject or talking things up with guff like: "there's never been a better time to buy" or "the market's as cheap as it's been for a while, what a great opportunity for buyers and investors". Yup, and if buyers are patient, it'll get even cheaper!

And let's not forget our friends the journalists, many of whom appear to have their rose-tinted spectacles surgically implanted:

Terry Ryder, writing in the Australian on April 2nd, headlined his article:

"Leave the herd and profit from a buyers' market"

.... the full article is available on the web, but in effect, Mr Ryder suggests that if you don't jump into the market now you're probably an idiot, and if you do, you're probably as savvy as Warren Buffet. I only hope Mr Ryder has taken his own advice and snapped up a few "cheap" investments of late.

The article was sent to my mother-in-law by a local Burbs estate agent, desperate to puff anyone she can into making a very bad decision. Personally, I'd have written back to the agent saying how offended I felt by the article.

A few more developer properties on the market in our area in the past week and the only thing for them to consider right now is how much of a financial hit they're likely to incur. Bear in mind that the land on which these properties stand was most likely bought at (or close to) the peak of the market, while the business plans will have factored in a rise in prices by the time of completion, not a fall. This just takes more developer funds out of the market and sellers of land or renovators can no longer rely on demand from this sector. Banks too have grown very wary of extending loans to developers, especially the smaller-to-medium sized operations.

On a related note: I haven't actually done any hard analysis on the subject but my guess is that the cost of building continues to go up (or is flat at best). The reason I say this is that the cost of labour is either flat but more likely rising (flood-related demand) while commodity prices have surged and show no sign of letting up. If property prices are falling while the cost of building is going up it has to mean that land prices are falling quite sharply -- anyway, something to consider. I'd like to add that rising building prices should provide support for house prices in general but if salaries aren't keeping pace with the rise in "real" inflation then house prices will continue to be pressured and private residential building will dry up fast.

Anyway, there are a couple of auctions to watch out for in our area on April 16th before we break for Easter. One vendor looks like they want an excessive amount for their property and my feeling is that this will fail to sell (by a large margin) while the other vendor looks to be pretty keen to pull the ripcord, so we'll see.

Until next time ..

Bye Bye Brisvegas?

There's been much written of late about the state of the property market here in Australia with (predominantly) foreigners insisting that there is a subtsantial housing bubble, while most 'locals' insist there isn't. The RBA and the main lending banks deny it, as you'd expect them to, while journalists in the mainstream press are either crassly ignorant or simply paid-up cheerleaders for the residential property market. The group, meanwhile, who claim there is a bubble is largely made up of prominent hedge fund managers and a handful of publications of reasonably high standing, The Economist, among them.

But rather than contribute to the already crowded intellectual debate on whether a bubble exists or not, I thought it might be time to look at what's going on at the coalface, so to speak -- look at some hard evidence. I live in Brisbane's Western suburbs and have been "in the market" since June 2010. Having kept a close eye on things and been involved in several "situations" in an attempt to get onto the housing ladder I like to think I have, by now, a reasonable feel for what's going on around these parts. Of course, this is simply an area of Brisbane and perhaps not reflective of Australia as a whole, but Brisbane is certainly one of the more 'affordable' cities in Australia so any housing stress, such that any exists, should be felt across other metropolitan areas, you'd expect.

While the market in these parts appears to have peaked in early 2010 (perhaps late 2009), the latter part of 2010 appears to have been the period when the froth was finally lopped off the stimulus-induced housing spike. The following situations stood out for me in 2010 (from June).

Firstly, two transactions which got the denizens of Chelmer and Graceville very excited about the future prospects for house prices in that area during winter 2010:

41 Richmond Street sold for $2.7m in July 2010 and it was a transaction that was hailed as highly significant given it was the best ever price achieved in the area (at least, on a per square metre basis). On the basis of this, prices in the area were heading to the moon according to the RE agents and the residents. This transaction may well have been significant but I'm not sure it was for the reasons trumpeted by various parties: interestingly, prior to this sale, the property last sold for $2.25m in December 2006 and if the property value had simply matched the aggregate rise in Brisbane house prices (using myRPData stats), 41 Richmond should have sold for north of $2.9m. But that's not the end of the story. The people who owned it between Dec '06 and Jul '10 actually spent a lot of money on the house (I don't know the sum exactly - the agent wouldn't say), but adding a modest amount for renovations to the $2.25m purchase price and then adjusting for the rise in Brisbane Met over that period suggests that the property should have been worth closer to $3.2m (assuming it was matching the broader market). So, although the headline number was impressive, Chelmer was actually underperforming by some margin -- I did similar studies for a number of other properties that sold in the area at the time and they confirmed this underperformance.

45 Mortlake Road, Graceville went to auction and sold for ~$902k. It was significant because the house is a knock-it down job and therefore this gave the market some idea of what pure land value is in the area. The price achieved was some $150k north of where many expected the property to trade. It set the new benchmark, according to all those in the know.

In amongst the highlights were some transactions which estate agents were a little more coy about:

7 Jaora Street, Graceville: sold in May 2010 for $1.7m and sold again in October 2010 for $1.4m (after a comprehensive marketing campaign and auction).

22 Lama Street, Chelmer: sold in October/November 2010 for ~$1.8m (PT) having originally been on the market in January 2010 with a guide price of mid-$2m. An offer in the "low 2s" was knocked back during the January marketing campaign, apparently.

225 Dewar Terrace, Corinda (absolute riverfront): another with a guide price of mid-$2m that sold for $1.8m (PT) in August 2010.

12 Wylie Street, Graceville: yet another with a guide price of mid-$2m early in 2010. The original agent was eventually replaced and the price with the new agent was $2m+. When it failed to sell at the new level, the house went to auction where it was passed in at $1.51m, which I can only assume was the last real bid because the vendor bid would surely have been closer to $2m. The house was withdrawn from the market not long afterwards and remains unsold, to my knowledge.

8 Long Street West, Graceville: was purchased in mid-2007 for just under $3.5m and was put on the market in winter 2010 (PoA, but one assumes north of 3.5m) and is now on the market for what is a "reduced" $3m+. It has been on the market for well over 6 months now and failed to attract any interest at the lower price BEFORE the floods. The owner is apparently committed elsewhere.

The above is a handful of examples -- admittedly at the premium end of the market, which is traditionally more volatile --but I think they perhaps reflect the subdued mood in the market in the latter half of 2010 overall, especially in the 1m+ bracket and, although this segment only makes up a relatively small proportion of the overall market (single digits percent), I believe it is very relevant for reasons I'll reveal below.

Now to 2011, and the market genuinely looks weaker: sales in metropolitan Brisbane have fallen off a cliff YoY while the number of properties on the market at the end of 2010 was up 60% on the prior year. If there is a shortage of property, as is often claimed, then the shortage exists in the "affordable" segment of the market. And this appears to be the problem -- the premium end of the market, say $800k+, is egregiously oversupplied and appears very vulnerable to a collapse as a result. Property developers (both professional and amateur alike) have spent the past few years turning $500k properties into $1m properties and there simply aren't that many buyers in the $1m+ bracket. This segment is grossly oversupplied at a time when interest rates have risen sharply, government stimulus has been scaled back (first home buyer grants) and utility and grocery bills are rising sharply -- not to mention petrol prices of late. With owners across the board (in all price segments) now under pressure there will be little support for the premium segment from below.

A couple of anecdotes from the past couple of weeks:

227 Dewar Terrace, Corinda: this riverfront renovator in one of the Western suburbs' most prestigious stretches of road was sold in July 2010 for $1.72m and went to auction last week after a high profile marketing campaign and a reasonable amount of cosmetic work to make it presentable (no idea of the cost). The property attracted one bid of $700k and it was eventually passed in on a vendor bid of $1m. The owner is selling because of "changed circumstances" -- or perhaps the original purchase was purely speculative as has been the fashionable thing to do until recently. More than one real estate agent in 2010 recommended "just buy property, sit on it for a while, then sell!". When there's apparently free money on offer, you know there is bad news just around the corner.

I was shown a house the other day (not officially on the market) belonging to a local estate agent that he/she wants $1.5m for. A superior house in the area that is in far better condition and better located struggled to fetch $1.15m just recently. Go figure - the bull market clearly hasn't ended in the minds of some people!

The example of 227 Dewar Tce, again, may not be representative of the broader market -but this certainly serves as a warning shot across the bows of anyone who feels vaguely bullish about resi real estate here in Brisbane.

Apart from the above there is the usual glut of hard-luck stories from developers who have frantically been trying to kick properties out and wearing some large losses along the way (again, I have had some privileged access to a number of situations in past months). There are several properties that are still in the process of being completed and will need to be shifted ASAP.

And then there are all those owner-occupied properties that have been on the market at nose-bleed prices for several months. In the past few weeks a number have been withdrawn (not flood-related) to wait for "better market conditions", but others undoubtedly need to sell and the (ahem) "huge price reductions" (2-5%) are beginning to come thick and fast. Intuitively (given recently acquired knowledge) I'd say reductions of 10-20% for the better properties and 20-40% for the dross are required to get things moving, but I stand to be corrected.

In the meanwhile, a recent article in the Financial Review reveals that the major banks are now loosening lending standards in order to attract more borrowers and beef up those mortgage books -- alarm bells, anyone?

I will follow up this blog with more local sales anecdotes (as balanced as I can make it) and also discuss the subject of the apparent "low" loan-to-value of the major lenders' mortgage books and how things may not be as rosy as they like to make out.