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.