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 ..