Posts Tagged ‘real estate price falls’
Melbourne property prices experienced another month of near zero growth in August, with the market putting in its second weakest performance of the year.
Analyst Residex reported that Melbourne house values rose just 0.33 per cent last month (apartment values fell1.03 per cent).
That was only marginally better than the 0.27 per cent growth in house values recorded in May, when the market was commonly said to have ‘‘turned’’ after Anzac Day.
Residex chief executive John Edwards said Melbourne’s market peaked in April when the growth rate hit 3.2 per cent in a single month, declining steadily but not uniformly since then.
‘‘[The results] are not saying that the market is dreadful. Melbourne is just quieting; the rate of price growth isdefinitely slowing,’’ Mr Edwards said.
There was a strong level of demand witnessed in yesterday’s auction market as a surge of stock hit the market ahead of next week’s lull for the AFL grand final.
The Real Estate Institute of Victoria said that 72 per cent of the 607 properties up for auction this week were sold.
After tracking down a large number of unreported auction results from last Saturday, the REIV has downgraded last weekend’s clearance rate from 70 per cent to 67 per cent.
The outcome of 132 auctions from yesterday are still unknown, which may affect this week’s clearance rate as well.
In Footscray, the vendors of 2 Dawson Avenue saw the value of their double fronted weatherboard house rise
$200,000 in just over three years.
The three-bedroom property was bought for $411,000 in May 2007 and sold yesterday through Jas H Stephens for $611,000. It was quoted at $540,000 to $590,000 and declared on the market at $585,000.
A first home buyer beat an investor and two other would-be buyers at the fall of the hammer on 2/460 Middleborough Road in Blackburn. The double-storey, two-bedroom villa unit sold for $485,000 after hitting its reserve at $440,000.
Ray White quoted the property at more than $400,000.
The two-bedroom villa unit at 4/2-4 Simpson Street in Kew, one of a set of five, sold yesterday for $627,500 after being declared on the market at $620,000.
It was quoted at $500,000 to $550,000. Janet Spencer of Buyer Solutions, who was the under-bidder on the property, said a similar but unrenovated unit in the same set sold for $590,500 in August.
In Elwood, a two-way competition developed over 14 Ruskin Street after Hocking Stuart opened the auction of the three-bedroom Edwardian with a vendor bid of $1.05 million.
Declared on the market at $1.17 million, the property sold for $1.2 million after receiving about 25 bids. It was quoted at $1.05 to $1.15 million.
Six bidders fought over 1/42 Union Street in Brighton East, a renovated 1960s villa unit that sold for $650,000.
Hodges said that two bidders went tit-for-tat at the auction after the property was declared on the market at $600,000. It was quoted at $490,000 to $550,000.
The three-bedroom unit at 1/32 Loller Street in Brighton attracted enough genuine interest to open at $700,000 and rise to $750,000 before passing in.
ResCom Real Estate said a later offer of $765,000 was received but the reserve was $830,000.
In Armadale, the six-bedroom house at 28 Seymour Avenue passed in at $3.25 million after attracting just one
genuine bid, according to buyer’s advocate Michael Ramsay.Marshall White, who quoted the property at $3.5 million-plus, sold the property through after-auction negotiations but the price was undisclosed.
Elsewhere at the top end, the five bedroom house at 23 Bevan Street in Balwyn also sold through after-auction
negotiations for $3.48 million. JPP Buyer Advocates said it attracted only one genuine bid at $3.15 million before passing in.
Jellis Craig had quoted it at $3.3 to $3.6 million.
Meanwhile, the latest update on the Consumer Affairs Victoria inspection operation staged lastweek is that the regulator found only some minor ‘‘technical breaches’’ by agents at the 30 auctions they observed, instead of the 100 auctions reported by MarketWrap last week.
‘‘The vast majority of the auctions visited were all conducted in the correct manner,’’ CAV director Dr Claire Noone said.
Morgan Stanley’s Gerard Minack has diversified from being bearish about US equities into calling Australian housing a dud investment, a bubble, albeit one that just might steadily deflate rather than dramatically pop.
It’s two months since Reserve Bank deputy governor Ric Battellino delivered a myth-busting speech that included an effective defence of the Australian housing market and the sustainability of the present level of household debt. Minack’s latest newsletter to clients seems to take direct aim at that Battellino speech, but doesn’t go as far as
Sydney academic Steve Keen’s Doomsday forecasting.
Minack produces plenty of evidence that Australian housing is expensive on any number of counts – and there’s no news in that for anyone looking for a home in the capital cities. That process of becoming expensive made housing a rewarding investment over the past decade, but Minack thinks being expensive will make it a poor performer in the years ahead – if we’re fortunate.
The Morgan Stanley economist says there are two potential pins that might pop the bubble. The first is Keen’s dire prediction of large-scale job losses, but Minack doesn’t think that’s likely in the foreseeable future. The second though is that the nation’s landlord class might realise en mass that they’re losing money and bail out.
Minack notes that bubbles more often pop than subside, but sometimes the less dramatic path is followed.
”Sydney, for example, has seen two periods – from late 1980s and from 2004 – where inflation-adjusted house prices were flat or declined,” he writes. And we’ve had a previous look at just that phenomenon of how an Aussie housing bubble deflates.
”This is a best-case outcome. Even so, it would make for a very unusual domestic cycle. Homeowners and investors are banking on steady increase in house prices. Flat or moderately declining nominal prices would presumably affect confidence and spending. Banks have relied on mortgage lending as their bread-and-butter. Growth will be structurally lower.
”Moreover, this underscores an obvious point: while we can debate the macro risks surrounding housing, it is likely to be a very poor investment given current valuations. House prices can – indeed, often do – show no growth in real terms for a very long period. To take an extreme example, real house prices in Melbourne did not surpass their 1891 peak until 2001. Buying a bubble is an extremely bad investment. I expect that the real returns on residential investment will be negative over the next decade.”
RBA’s early move
Minack reckons the RBA appreciates the risk of our housing bubble and that capping house prices was a key aim of RBA policy tightening earlier this year.
”Better to slowly deflate a bubble than to see it pop. If Australia could achieve a cycle where house prices are steady or see moderate nominal declines, while growing incomes at a trend 6 per cent growth rate, it could reduce the over-valuation and financial risks associated with excess debt,” Minack writes.
While appearing to welcome that policy aim, Minack says it was a major error by policy makers to let this bubble inflate in the first place.
”There is no value to society from rising house prices. It is simply a wealth transfer to existing owners from potential buyers. Pumping up house prices creates no more wealth than the RBA printing an extra six zeros on every piece of currency.
”’Worse, by increasing the leverage in the household sector and financial system, it increases the financial risks in the economy, as the last two years have demonstrated elsewhere. In short, there seems a strong case for policy-makers to aim to cap house prices.”
What Minack isn’t sure about is whether the large number of negative-carry property investors could create selling pressure if nominal house prices are flat for an extended period.
Hanging on
I’d argue that the Australian experience is that residential real estate owners, both owner occupiers and the landlord class, tend to hang on grimly as long as they can service the debt (i.e. unemployment remains relatively low) rather than facing up to the on-going financial drain. What Minack does, though, is debunk the real estate spruikers’ claim that “you can’t go wrong with bricks’n'mortar
”Australian Tax Office data confirm that residential investment is a poor investment: total rent has not covered total costs since FY2000 (the date the bubble started to inflate). In short, this is an investment that depends on capital gain for its payback.
”With net income not even covering interest charges, this is a classic Hyman Minsky Ponzi scheme. Ponzi owns the house, and he’s betting that house prices keep rising.
”Not only is the aggregate private rental market a loss-making affair, but a rising share of landlords are making rental losses. The percentage of landlords claiming a rental loss (that is, rent not covering interest and other costs) has increased from 50 per cent to 70 per cent over the past decade. It’s not just that there are more landlords, there are more loss-making landlords.
”This matters a lot. Much of the discussion on the residential market concentrates on owner-occupiers. But arguably property investors represent a significantly larger risk if they became widespread sellers of their loss-making investments.”
Middle-class exposure
A key part of the Battellino defence of household debt sustainability was simply that it tends to be the wealthy who have borrowed the most and therefore they can afford it, but that’s not the case when it comes to residential landlords, claims Minack.
”Certainly property investment is more prevalent at higher income scales. But it is simply wrong to assert that rental properties are largely owned by high-income households: losing on residential property investment is largely a middle-class affair.
”Only 3 per cent of all loss-making properties are owned by taxpayers with a taxable income of over $200,000. Taxpayers who earn $80,000 or less own 80 per cent of all loss-making properties.”
And there are a lot of residential property investors.
”Australia has become a nation of landlords: in 1988-89, 608,000 taxpayers reported rental income, by 2007-08 1,765,00 taxpayers did – 13.5% of the total. This clearly reflects the widespread belief that property is an excellent medium-term investment.
”Over the past decade property has been an excellent investment. But it is, in my view, extremely unwise to expect such gains to continue given current valuations. The investment fundamentals of housing have sharply deteriorated.”