Bubble

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<p class="Normal">Here’s the most remarkable statistic to emerge from the residential real estate industry this year: 32% of people think there’s a bubble.</p>
<p class="Normal">The remarkable thing is that so few believe in the bubble BS. Media has been running bubble stories daily. Recently a new B word has taken up headline space: bloodbath, now a popular word to describe predictions from the lunatic fringe who subscribe to bubble theories.</p>
<p class="Normal">But, according to an Investor Insight Survey, 55% of respondents said there was no property bubble and 13% were unsure.</p>
<p class="Normal">Media, being the strange twisted animal that it is, chose to highlight the 32% who do apparently believe there’s a bubble, with the inference that this number is significantly high. My reaction was quite the opposite: that it’s amazingly low, given that media constantly tells us that one exists.</p>
<p class="Normal">Among the many unworthy things that Nazi propaganda guy Joseph Goebbels gave to the world was the notion that “if you tell a lie big enough, and keep repeating it, people will eventually come to accept it as the truth”.</p>
<p class="Normal">That principle, if that’s the right word, is alive and thriving in Australian media today. Most of what consumers believe to be true about real estate – the affordability crisis, the chronic housing shortage crisis, the bubble, the Great Australian Dream is dead, etc – are lies that have been repeated so often that many people accept them as truth.</p>
<p class="Normal">This week the Australian Bureau of Statistics published its Residential Property Price Indexes, which are the latest figures to demonstrate the lie in the boom/bubble/bloodbath nonsense much beloved by tabloid media.</p>
<p class="Normal">Sydney’s price index is up 13% and the next best is Melbourne’s 4.7% annual rise. Brisbane has managed 3.9%, Canberra 3%, Adelaide 2.5% and Hobart 1.9%. The price indexes for both Perth and Darwin have fallen slightly. The weighted average rise for the eight cities is 6.9%, but seven of the eight cities are well below that average.</p>
<p class="Normal">I’ve scrutinised these figures, and similar data from other sources, from lots of different angles and directions. I’ve turned them upside down. I’ve looked at them in a mirror. I’ve examined them through a magnifying glass. And I cannot find a national property boom there. And without a boom, there is no bubble. And without a bubble, there is no prospect of a bloodbath.</p>
<p class="Normal">Few media outlets reported the ABS figures, as they don’t fit with the pre-conceived story line of runaway markets, blistering price surges and world-shatter<a name="_GoBack" href=""></a>ing bubbles. Goebbels also gave us the idea, much utilised by journalists today, that you never let the facts get in the way of a good story.</p>
<p class="Normal">The latest “bloodbath” forecast has come from a couple of attention-seeking conspiracy-theory twits who have put in a submission to yet another parliamentary inquiry in an attempt to drum up a bit of publicity for their consulting business.</p>
<p class="Normal">They’ve predicted a bloodbath. Naturally media had a field day with it. If someone is silly enough to predict a market crash, journalists will be delighted to recycle it as news, regardless of how outlandish it is or how often the forecasters have been wrong in the past.</p>
<p class="Normal">I’ve added this to the very large list of people who have predicted bloodbaths, bubbles bursting and markets collapsing in Australian real estate over the past 15 years.</p>
<p class="Normal">I have a heightened awareness of such predictions because I recently conducted a research exercise for a client on the predictions newspapers and other media outlets have made about real estate prices since the start of the century.</p>
<p class="Normal">Over 15 years there has been a constant barrage of articles making doomsday predictions about the housing market. Subsequent outcomes have proved them all wrong. Not one has been correct.</p>
<p class="Normal">I recently published a Top 20 list of worst predictions about property prices. For example, in January 2012 visiting US spruiker Jordan Wirsz, seeking to drum up some free publicity, predicted a bloodbath in which house values would fall 60% in 2013. He forecast land values would fall 90%. </p>
<p class="Normal">Not surprisingly, this did not happen. There is no precedent, not in Australia nor in any other nation on planet Earth, for such a calamitous decline in values. The actual outcome? Capital city prices, on average, rose 9% in 2013 and 8% in 2014, with most of that growth occurring in Sydney.</p>
<p class="Normal">But Wirsz’s ludicrous prediction, which should not have been published by any credible media organisation, was just one of numerous doomsday forecasts made over the past 15 years, and all of them have been proven false. They have come from US spruikers, Australian economists and the lunatic fringe brigade of anti-real estate campaigners.</p>
<p class="Normal"><span style="line-height: 1.3em;">But if Wirsz lobs in Australia again next month and predicts our property values will fall 100% - in other words, every property will be worth zero - newspapers around the nation will publish it, television will rush to do interviews and politicians will call for a parliamentary inquiry.</span></p>
<p><em>TERRY RYDER is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a> </em></p>
<p class="Normal"><span style="line-height: 1.3em;">Terry was recently joined by </span><em style="line-height: 1.3em;">Property Observer</em><span style="line-height: 1.3em;"> editor at large Jonathan Chancellor for a webinar on why research is the key to successful property investing in 2015. You can download slides and audio from the webinar </span><a href="component/content/article?id=42796" target="_blank" style="line-height: 1.3em;">here</a><span style="line-height: 1.3em;">.</span></p>
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Without a boom, there is no bubble: Terry Ryder

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<p>It didn’t take long for some property commentators to start declaring that the Sydney market was crashing when last week clearance rates came in at 65.1%.</p>
<p>The fools have been released from the asylum when you closely scrutinise this data where Sydney consists of approximately 700 suburbs, so are they all crashing? I looked up Mosman’s clearance rate for last week and it came in at a respectable 87.5% which is hardly crashing as some would have you believe. Don’t get me wrong it is clear that the Sydney real estate market is correcting rather than crashing – this is not a bad thing either.</p>
<p>The problem for some is that intellectually they can’t differentiate between the strong investment market over the owner occupier market, with the investment market cooling at a much more rapid pace due to lending restrictions and consumer sentiment adjustments – which are long overdue.</p>
<p>Many consumers who are chasing investment properties should be quite concerned about what’s around the corner and I’m not referring to banks increasing their respective lending rates. The Reserve Bank of Australia (RBA) can stand aside for the moment because on Melbourne Cup day should it decide to lower the cash rate the major banks won’t be following suit with Westpac, CBA, NAB and ANZ hiking their rates just in the last week. As soon as one moves inevitably the others will all follow although it would be highly unlikely that Westpac will be the next to increase rates.</p>
<p>All eyes should now be on the Australian Taxation Office (ATO) who have now taken over the responsibility of being Australia’s property watchdog. In 39 days the amnesty period for illegal property acquisitions expires and then we will start to see how many have deliberately broken the laws by purchasing Australian real estate – my tip is this will be huge where we can expect 2016 to be the year of the Divestment Order.</p>
<p>This may surprise you that there is a much larger property investigation that will have a significant impact on Australia’s property industry. That being Student Visa Holders who are allowed to purchase a property whilst completing their tertiary studies on the proviso that when they have completed their degrees the subject property must then be sold. The only problem is that Australia’s Foreign Investment Review Board (FIRB) who are entrusted to monitor such acquisitions have never actually followed through so we now have no idea how many thousands of properties this includes.</p>
<p>To make matters worse on 18 December 2008, the Rudd Government changed the policy where Student Visa Holder residents in Australia are no longer subject to a $300,000 limit on the value of an established dwelling as their residence. This then saw some students acquiring multi – million dollar residences. Also temporary residents were not required to notify FIRB of any intended acquisitions for established dwellings that were to be their principal place of residence.</p>
<p>Again we are talking about thousands and thousands of transactions where many will now end up with Divestment Orders.</p>
<p>The RBA this week declared in its biannual Financial Stability Review that “Recent investigations by regulators have revealed that standards were somewhat weaker than had originally been thought.” In that case any significant increase in property volumes onto the market would see prices coming down as these are established properties, so unlike off–the–plan properties where 100% can be sold offshore to non-Australian residents.</p>
<p>We are now seeing the housing price growth at its slowest pace since 2012 – which explains why the ATO have a duty of care when they start issuing Divestment Orders. We can also expect to see many households fixing interest rates on their respective mortgages.</p>
<p>A positive sign for those renting, when last Friday the Australian Bureau of Statistics finally got around to updating Australia’s housing occupancy data (the last release was in 2013), the proportion of those renting has edged up to 31.4% with 63.4% of Australians renting being under 35. To further identify just how big the investment market for real estate in Australia is, 1.5 million households now own investment properties on top of their principal place of residence.</p>
<p>Whilst the finger is clearly pointed at negative gearing (I will address that next week) when it was introduced in the late 1990’s, approximately 40% of houses were owned outright with only 28% renting.</p>
<p>The issues are clear in that we have problems with policy making, and that requires urgent attention although this has not been helped with actual mortgage interest rates falling from 7.1% to 4.7% over the past five years.</p>
<p>Property is all about supply vs demand – supply is what we need to be paying closer attention to, so watch the ATO with great interest. Who would have ever thought the ATO would play a central position with Australia’s property markets.</p>
<h5>MOSMAN – 2088</h5>
<p>• Number of houses on the market this time last year – 104<br>• Number of houses on the market last week – 61</p>
<p>• Number of houses on the market this week – 64</p>
<p>• Number of apartments on the market this time last year – 65</p>
<p>• Number of apartments on the market last week – 59</p>
<p>• Number of apartments on the market this week – 60</p>
<h5>CREMORNE – 2090</h5>
<p>• Number of houses on the market this time last year – 19</p>
<p>• Number of houses on the market last week – 9</p>
<p>• Number of houses on the market this week – 10</p>
<p>• Number of apartments on the market this time last year – 32</p>
<p>• Number of apartments on the market last week – 23</p>
<p>• Number of apartments on the market this week – 22</p>
<h5>NEUTRAL BAY – 2089</h5>
<p>• Number of houses on the market this time last year – 7</p>
<p>• Number of houses on the market last week – 13</p>
<p>•Number of houses on the market this week – 10</p>
<p>• Number of apartments on the market this time last year– 51</p>
<p>• Number of apartments on the market last week – 32</p>
<p>*Number of apartments on the market this week – 33</p>
<p> </p>
<p><em><span>ROBERT SIMEON</span> is a director of </em><em><a href="https://www.rwm.com.au/" target="_blank" title="RWM" rel="nofollow">Richardson Wrench Mosman and Neutral Bay</a> </em><em>and has been selling residential real estate in Sydney since 1985. <br>He has also been writing real estate blog </em><em><a href="https://www.rwm.com.au/news/" target="_blank" title="Virtual Realty News" rel="nofollow">Virtual Realty News</a> </em><em>since 2000. </em></p>
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Concerns about upcoming Divestment Orders: Robert Simeon

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<p>I think we all need to have a cold shower, a few aspirin and a wee lie down.</p>
<p>Then, having calmed down a bit, conduct a rational assessment of our property markets, without the emotion, the self-serving hyperbole and the publicity-seeking rhetoric.</p>
<p>We seem to have arrived at a point where any price rise anywhere in Australia is deemed a crisis. We're also at a point where the argument (it doesn't deserve to be called a debate) about real estate is driven by the people who make the most noise, rather than those with the most knowledge.</p>
<p>And, saddest of all, Australia in 2014 is a place where few people who work in or use the media give a damn about fairness, accuracy or balance. The only thing that matters is the headline or the political points scored or the amount of publicity achieved.</p>
<p>There was a time when journalists performed a worthwhile role. They were the filters through which information and comment had to pass. Claims were challenged, information was checked and alternative views were sought.</p>
<p>No one got to write about a subject unless they had credentials.</p>
<p>Today employees of media organisations are often mere conduits for propaganda. The public is asked to accept that if it's in a press release, it's valid. If someone describing themself as an economist makes a statement, it's likely to be fact. If an offshore "analyst" makes an observation, it's news.</p>
<p>The outcome is a melting pot of extreme views. The missing ingredients are objectivity, scrutiny and balance.</p>
<p>Many journalists no longer feel the need to support their statements with evidence.</p>
<p>A writer from a major media company (not a property specialist but apparently a "personal finance writer") this week stated as fact that Australia has "inflated house prices" and "surging property prices across the country". And that was just the first sentence.</p>
<p>No evidence was presented to back those big statements; we were expected to accept them as truth, despite the writer's lack of expertise and the reality that all the research data contradicts the notion we have "surging property prices across the country". According to the numbers I see every day, it's simply a lie.</p>
<p>On the same day, a writer from a different media company, with even flimsier credentials, sought to justify a pre-conceived attitude that investors exploiting the tax system drive up property prices. He presented graphs which he claimed showed that "whenever investor activity increases, house prices go up".</p>
<p>He saw what he wanted to see but, in reality, the graphs showed nothing of the sort. They showed, in fact, that investors do not lead price rises – they follow them. In every step along the graph line, a change in investor activity came after a change in prices.</p>
<p>My three decades researching real estate has taught me that investors never instigate property booms - they follow them. The biggest force in real estate, always, is the sector comprising home buyers other than first-home buyers, who dominate most markets numerically and have the financial capacity and motivation to pay high prices.</p>
<p>Meanwhile, another columnist with a bee in his bonnet about Asian investors tried to argue that "an influx of murky money from China" had been distorting and inflating our property markets "for years".</p>
<p>There was little in the way of research evidence, just a convoluted set of statements that led to no apparent conclusion.</p>
<p>So there we had, on the same day, three writers, all of them working for major media organisations but none of them with any real estate expertise, all claiming "Australian property prices" were unreasonably high, but each blaming a different bogeyman – one claiming it was foreign investors, another pointing the finger at local investors boosted by negative gearing, and the third blaming slack lending standards.</p>
<p>The one thing they had in common is that they all got it wrong. And probably don't give a damn because the headline is the thing.</p>
<p>So, setting aside all the ego-driven noise, here's a reality check.</p>
<p>Sydney remains the only city to have produced boom growth to date. The figure so many misguided commentators keep quoting – and describing as "the surge in Australian property prices" – is nothing more than the average increase across the capital cities, greatly inflated by Sydney's growth.</p>
<p>The key thing is this: Sydney's upturn follows 10 years of under-performance. Even with the rises of the past year or so, Sydney's average growth over the past decade is still below par. As a number of the more rational observers have commented, Sydney has been playing catch-up. But, despite the recent increases, it still hasn't caught up.</p>
<p>Here are some examples of what I mean. The median house price for <a href="https://www.urban.com.au/property-observer" target="_blank">Vaucluse</a> has increased 17% in the past 12 months, according to Australian Property Monitors, but the average annual rise in the past five years is just 1.4%. The 10-year growth average is 3% per year.</p>
<p>The median unit price for <a href="https://www.urban.com.au/property-observer" target="_blank">Point Piper</a> is up 17% in 12 months, but the 10-year average is 1.5% per year. In real terms, they've lost value over the past decade.</p>
<p>In <a href="https://www.urban.com.au/property-observer" target="_blank">Darling Point</a>, the median unit price today is lower than it was 10 years ago, despite the recent growth. They've lost money, even without allowing for inflation.</p>
<p>Heading out west to a more mainstream and affordable market, the suburb of <a href="https://www.urban.com.au/property-observer" target="_blank">Blacktown</a> (Sydney's most popular suburb in terms of sales volumes) has recorded 18% median price growth in the past year, but it's 10-year average is just 3% per year.</p>
<p>You'll find similar numbers right across the Sydney metropolitan area. Even when you examine above-average performers, the numbers are still modest. Balgowlah's five-year growth average is 5% per year; its 10-year performance is 4.1% per year.</p>
<p>All the froth and bubble in the media is being caused almost exclusively by Sydney's growth, but in reality Sydney's long-term performance remains decidedly poor.</p>
<p>Take the recent Sydney growth out of the equation and the average growth in the past year across the other seven capital cities is 4-5%. And that follows several years of price decline.</p>
<p>But, amid the prevailing atmosphere that any price rise is a national disgrace, even that number would be described by some as a bubble.</p>
<p><em>Terry Ryder is the founder of <a href="https://hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. </em>You<em> can reach Terry via <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email</a> or <a href="https://twitter.com/hotspotting" target="_blank">twitter</a>.</em></p>
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Headline obsessed writers need a reality check

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<p>That pesky property bubble is mainly contained to the investors chasing yields and taking advantage of a chronic under-supply which is driving up rents – well it was however, we are now starting to see rents flat lining given supply has significantly increased.</p>
<p>New lending initiatives are quickly changing the investor landscape where I suspect it will be a very long time before we see lenders offering 90 per cent loans as we are now seeing lending ratios sitting more around the 70% mark. <a href="/expert-insights/43497-overseas-buyers-will-support-sydney-house-prices-during-apra-crackdown-nab" target="_blank">Overseas buyers will support Sydney house prices during APRA crackdown: NAB</a>; it is fair to say that the federal government won’t be tweaking the foreign buyer ratios (presently at 100 per cent) anytime soon.</p>
<p>There is a reason for this; Australia’s population is set to hit 40 million people by 2056. In order to meet this demand we will see the greatest infrastructure spending in Australia’s history given it’s been calculated that by 2056 Australia will need a further 1,100,000 apartments. Across Australia that means an additional 27,000 apartments each year for the next 41 years, it is expected Sydney and Melbourne will do the majority of the heavy lifting. This also plainly identifies why the Baird government wants to amalgamate the councils to ensure that these new developments keep getting approved.</p>
<p>The message is quite clear that if you want to reside in close proximity to the CBD you will have to live with an avalanche of high density developments.</p>
<p>This week the residential data from the 34th Property Directions Survey was released which is an industry based group comprising property experts – Valuers, Fund Managers, Property Analysts and Property Financiers.</p>
<ul>
<li>58% of respondents stated that Sydney residential property was in or entering a bubble, while 53%t of the respondents believe that the Melbourne property market is in the same position. Seventy per cent of the survey respondents do not believe that the Brisbane residential market was in a bubble.</li>
<li>The majority of the respondents also believe residential property prices will continue to rise for 6 to 12 months. Fifty – three per cent of respondents believe that Sydney residential property prices will continue to rise for either 6 or 12 months with 26% stating 18 months. Respondents are more certain in their predictions for Melbourne residential property with 76%seeing prices continuing to rise for 6 to 12 months.</li>
<li>In 2016, Sydney residential property is seen as reaching the top of the property cycle and moving past the top in 2017. In 2016 respondents see Melbourne residential property having passed the top of the cycle but remaining close to the top through to 2017. Brisbane residential property is seen to be just nearing the top of the cycle.</li>
<li>All respondents to the Property Directions Survey see low interest rates as either a significant or very significant driver of demand for residential property in Sydney, while 95% also point to foreign investment being significant or very significant.</li>
<li>Respondents list a number of other factors they also believe play a role in increasing demand in Sydney, such as population growth, low supply over the past decade and the trend towards smaller households.</li>
<li>The major drivers are considered to be similar for the Melbourne residential property market however 94% see foreign investment as a significant or very significant driver and 87% sight low interest rates as significant to very significant.</li>
<li>A large majority of respondents see low interest rates as the main driver of demand and prices for Brisbane and Perth residential property; however this view is not as strong as it is for Sydney and Melbourne. The majority of survey respondents do not view foreign investment as a significant or very significant factor in driving demand in Brisbane or Perth, but believe negative gearing plays a bigger role.</li>
<li>Most respondents believe both interest rates and inflation will remain similar for next year, while moving higher in the next three years.</li>
<li>It’s a different story with foreign investment, with a small majority of respondents believing levels will remain similar for the next six months. Respondents are less certain over the next 12 months, but most see foreign investment at similar or higher levels. Respondents are even more uncertain about the outlook for 2018,</li>
<li>Some respondents listed current or emerging factors which they believe may have an impact on the Australian property market. Factors listed include a slowing Chinese economy, any increase in the unemployment rate and potential changes to foreign investment or immigration rules.</li>
</ul>
<p>So the eastern seaboard is where we will see the majority of the new developments with NSW leading the way. This again will be investor led although it would be reasonable to suggest that with such a huge apartment platform the house prices will continue to rise with less single residential housing being built.</p>
<p>With that in mind it’s scary to think where prices will go for houses within a 15 kilometre radius of the Sydney CBD. Through the roof springs to mind.</p>
<p>As for that pesky property bubble – it won’t be doing any damage when the vast majority of suburbs across Sydney are posting record low stock levels. When markets are booming (or bubbling along) you see record stock levels which is the complete opposite to what we are seeing across Sydney at the present.</p>
<h4>MOSMAN – 2088</h4>
<p>• Number of houses on the market this time last year – 85</p>
<p>• Number of houses on the market last week – 55</p>
<p>• Number of houses on the market this week – 46</p>
<p>• Number of apartments on the market this time last year – 63</p>
<p>• Number of apartments on the market last week – 41</p>
<p>• Number of apartments on the market this week – 43</p>
<h4>CREMORNE – 2090</h4>
<p>• Number of houses on the market this time last year – 8</p>
<p>• Number of houses on the market last week – 7</p>
<p>• Number of houses on the market this week – 2</p>
<p>• Number of apartments on the market this time last year – 9</p>
<p>• Number of apartments on the market last week – 11</p>
<p>• Number of apartments on the market this week – 8</p>
<h4><span style="font-size: 1em; line-height: 1.3em;">NEUTRAL BAY – 2089</span></h4>
<p>• Number of houses on the market this time last year – 9</p>
<p>• Number of houses on the market last week – 3</p>
<p>• Number of houses on the market this week – 2</p>
<p>• Number of apartments on the market this time last year– 42</p>
<p>• Number of apartments on the market last week – 29</p>
<p>• Number of apartments on the market this week – 30</p>
<p> </p>
<p><em><span>ROBERT SIMEON</span> is a director of </em><em><a href="https://www.rwm.com.au/" target="_blank" title="RWM" rel="nofollow">Richardson Wrench Mosman and Neutral Bay</a> </em><em>and has been selling residential real estate in Sydney since 1985. <br>He has also been writing real estate blog </em><em><a href="https://www.rwm.com.au/news/" target="_blank" title="Virtual Realty News" rel="nofollow">Virtual Realty News</a> </em><em>since 2000. </em></p>
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Living with an avalanche of high density development: Robert Simeon

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<p><span>Many doomsday predictions have been dumped on regional cities in the wake of adverse events. Few of those forecasts have come to pass.</span></p>
<p>When negative events sour the economy of a regional city, the community mobilizes. Civic, business and political leaders take action. The apparently doomed city fights back, recovers and often reinvents itself.</p>
<p>The latest to have a premature death proclaimed, Townsville and Whyalla, follow a long line of notable examples of cities about which their death was greatly exaggerated. They include Newcastle, Wollongong and Geelong.</p>
<p>Newcastle was widely considered to have suffered a mortal wound when BHP shut down in the late 1990s. It fought back and is today one of Australia’s largest and strongest regional cities. Its economic strength and diversity has been sufficient to withstand the negative impacts of the recent downturn in the coal sector.</p>
<p>When Bluescope Steel seriously downsized in 2011, it was declared the end for Wollongong. I recall one newspaper headline which predicted a 50% decline in property values. In contrast to that rather extreme forecast, Wollongong’s property market has shown strong growth in recent years. </p>
<p>What many failed to realise is that Wollongong was no longer a smoke-stake town dependent on steel furnaces for its prosperity. It had been reinventing itself for years, with education, IT and tourism the key sectors.</p>
<p>Similar things are true of Geelong, once a factory town but now a modern city where the biggest employers are the health and education sectors. The decision to locate the national headquarters of the NDIS in Geelong has created a new industry sector, with related businesses keen to locate nearby.</p>
<p>So the impending closure of a car plant, while an adverse event many would prefer did not happen, can be absorbed by this growing economy without too many side-affects. Geelong continues to be the strongest Victorian property market outside of Melbourne.</p>
<p>Now we have Townsville apparently on its deathbed because another of Clive Palmer’s extravaganzas has gone belly up.</p>
<p>When this story exploded in January I wrote: “The latest Australian regional city to inspire a premature obituary is Townsville in the wake of the decision by political and business buffoon Clive Palmer to shed 237 jobs at his Queensland Nickel refinery.</p>
<p>“As has become common in the wake of such events, the media coverage has been a tad over the top since the announcement. I’ve seen reports predicting devastation of the local economy. One suggested Townsville would become ‘a ghost town’.”</p>
<p>The story has moved on since then, with the refinery business collapsing. That’s a hit to the Townsville economy, particularly as it was struggling a bit beforehand. But it’s far from terminal.</p>
<p>Townsville is a very resilient place. It has one of the most diverse economies in regional Australia, with strong elements of government administration, education, tourism, the military, the resources sector and manufacturing.</p>
<p>And lots of positive news has emerged more recently. Some seriously major enterprises have stepped forward to help take up some of the economic and employment slack created by Clive’s latest brain explosion.</p>
<p>The economic and defence deal between Australia and Singapore means $2.25 billion in new defence infrastructure will be built in Queensland, including in Townsville, which already has a big military presence through its RAAF Base and recently-expanded Army base.</p>
<p>In the past week came the announcement of “Australia’s biggest solar farm” covering 200ha just outside Townsville, with Origin Energy signed up to buy the electricity generated from 2017 to 2030.</p>
<p>A $400 million maintenance contract for Queensland Rail will be shared between UGL in Townsville and Downer EDI in Maryborough, reportedly at the behest of the State Government.</p>
<p>The State Government says it has fast-tracked almost $200 million worth of infrastructure spending in the Townsville area to boost the economy in the wake of the nickel refinery collapse, while $75 million in Federal Government funding will help establish the new Cooperative Research Centre for Developing Northern Australia in Townsville.</p>
<p>If you add together all those positives, and subtract the nickel refinery negative, I see it as a net gain for the city of Townsville.</p>
<p>Whyalla in South Australia will take a hit if attempts to rescue the Arrium steel business are unsuccessful. Arrium, formerly OneSteel, is a big chunk of Whyalla’s economy and is in voluntary administration.</p>
<p>But is this the end for SA’s biggest regional city? I would suggest not. Like Townsville, Whyalla has been attracting plenty of positive announcements in the past few weeks.</p>
<p>Oz Minerals is advancing its $975 million Carrapateena copper mine expansion and it wants to build its $150 million Concentrate Treatment Plant at Whyalla. The mine expansion will create 800 jobs and it’s hoped many of the workforce members will be sourced from Whyalla.</p>
<p>BHP Billiton continues to work on its alternative plan for development of the Olympic Dam resource and said in April it hoped to include Whyalla in the new project plans (put together after the previous $30 billion scheme was shelved because it was too expensive).</p>
<p>And there is hope for Arrium in the announcement that 15,000 tonnes of its steel will be used for a $620 million road project, the Darlington Upgrade Project, in Adelaide.</p>
<p>The Federal Government has handed Arrium at $80 million contract to replace around 1200km of rail lines for federal agency ARTC.</p>
<p>Arrium is also a chance to attract steel orders from the recently-confirmed Federal Government project to build 12 submarines in Adelaide.</p>
<p>I’ve been getting lots of emails from people who own real estate in Whyalla. I would suggest those who panic and sell in the wake of recent negative headlines will regret it later.</p>
<p><em>Terry Ryder is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a></em></p>
<p><span><em> </em></span></p>
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Doomsday predictions dumped on regional cities: Terry Ryder

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<p><span>Talk in the industry is about whether or not house prices are in a bubble, if so have we been in one for some time and is it expensive bubble or a seriously expensive one?</span></p>
<p><span>One quote I read recently in relation to the current housing market was "One thing seems clear: If we’re having a discussion about whether or not house prices are in a bubble (as we have been for some time now), house prices do not represent good value at the current level. The debate is about whether they are expensive, or seriously expensive."</span></p>
<p><span style="line-height: 1.3em;">Now, of course we're all guilty of making sweeping comments - and myself more than most given my tendency towards a macro focus on this blog - but this snippet gives the full broom treatment to Australia's property markets.</span></p>
<p><span style="line-height: 1.3em;">The last time I checked in at the back end of 2014 there were 9,448,300 dwellings in Australia, a figure that will be approaching 9.5 million or so today. </span><span style="line-height: 1.3em; font-weight: bold;"> </span></p>
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<div><img src="/images/2015/05/22/Waregent1.jpg" alt=""></div>
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<div><span style="line-height: 1.3em;">Are some of those dwellings expensive? Indeed, and some of them are extraordinarily so in the present and persistent low interest rate climate.</span></div>
<div>
<div> </div>
<div>But equally, aren't some house prices very cheap? Very much so - in outer suburban Adelaide and Hobart, for example, and in any number of regional centres - although of course, "cheap" does not been good value ("cheap today is cheap tomorrow" as the old real estate mantra goes).</div>
<div> </div>
<div>The same holds true of share prices and indices, for that matter.<br><br>Are some share indices and stocks trading at high valuations? Yes. In fact, globally some markets are romping ahead to dizzying heights as I looked at only earlier this week.</div>
<div> </div>
<div>That does not mean that some individual stocks don't offer great value, though, particularly for those investors with the requisite skills in fundamental analysis.<br><br>With the benefit of hindsight, although not my favourite sector due to being capital intensive and reliant on the sale of commodities, 1999 was a great time to buy resources stocks. 2009 was an amazing time to load up on bank shares.  Today, health care and materials companies are worthy of consideration.</div>
<div> </div>
<div><img src="/images/2015/05/22/wargent2.gif" alt=""></div>
<div> </div>
<div> </div>
<div>
<div>Of course, this doesn't mean all companies in a sector are worth buying, or even any of them. There is no "one size fits all."</div>
<div> </div>
<div><strong>Focus</strong></div>
<div> </div>
<div>This was one of a raft of pieces of late referencing popping property bubbles, property speculators, the end of the property boom, shares now being due to outperform property, and so on.</div>
<div> </div>
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<div><img src="/images/2015/05/22/monty.jpg" alt=""></div>
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<div>All fair enough, although the truth is that ex-Sydney (and to a lesser extent Melbourne) there hasn't actually been a property boom to date in this cycle, rather a protracted period of relatively flat prices in real terms, and correspondingly there is no "Australian property bubble".<br><br>Resources influenced Perth and Darwin are seeing declining rents, the polar opposite of frothy conditions, while a number of mining towns have already capitulated. Canberra's property markets seem similarly uninspired.</div>
<div> </div>
<div>Why so much angst from equities-only investors then, one wonders, apart from the wider ramifications for the Australian economy and share markets of a genuine and material property correction?</div>
<br><div>An obvious point from a fundie perspective is that more funds under management equals more fees, so naturally enough does make sense to point out from time to time the benefits of a diversified share portfolio over the risks of holding a specific investment property or portfolio of properties.<br><br>I'm not sure whether it makes a great deal of difference, though. In my experience there exists a fair proportion of investors who are simply "shares people" or "real estate" people, and they won't ever be budged either way!<br><br><strong>Stock valuations decline</strong>
</div>
<div> </div>
<div>Perhaps another of the reasons for the angst is that the Australian share markets (generally!) have been on the receiving end of a bit of a shellacking over the past month, which naturally the financial media reports unfailingly on a daily basis.</div>
<br><div>Since threatening to crunch through 6,000 on March 18 the market has tanked, paring all the way back down to 5,600.<br><br>6,000 now seems like a distant dream once again, although the recent dovish Board Minutes from the Reserve Bank reinstated a moderate easing bias, which may help to fire markets up again.</div>
<div> </div>
<div>Now as intelligent people both you and I know that such short term movements don't mean a great deal for stock market investors with a long term mindset.<br><br>In fact, cheaper market prices equates to a greater array of buying opportunities for those with an appropriately disciplined investment approach.</div>
<div> </div>
<div>But it's funny what daily media headlines can do to folk, particularly when Sydney house prices are suddenly once again rising at an annualised pace of somewhere north of 15%. </div>
<div> </div>
<div>The XJO (ASX 200) chart shows that this index has pulled back to the same level as the beginning of March 2007, well over eight years ago.</div>
<div> </div>
<div><img src="/images/2015/05/22/ASX.jpg" alt=""></div>
<div> </div>
<div>
<div>While experienced investors are well aware that accumulated returns inclusive of dividends have been robust, a good proportion of Mum and Dad investors tend to like to see capital gains, preferably of the fast buck variety.<br><br><strong>Sydney property leads cycle</strong>
</div>
<div> </div>
<div>What seemed to be a highly unlikely outcome for much of the past decade is now once again becoming a reality - Sydney houses selling for double what they did during their last cyclical low around 2005.</div>
<div> </div>
<div>Granted I have only come across a few such examples to date, all of them houses rather than apartments, and usually in popular beachside suburbs such as Bondi, but I expect this will become an increasingly common occurrence over the year ahead.</div>
<div>
<br>Of course, the main advantage that property investors have over share market investors is the use of leverage which can magnify gains...and losses.</div>
<div> </div>
<div>An investment which doubles in value can see the dollars invested increased 10 or 20 fold before transaction and holding costs - for those who get it right and are prepared to hold through the lean periods of the cycle.</div>
<div>
<br>Dare we even mention it, some folk even used 100 per cent leverage in the period leading up the the financial crisis, making the returns on "investment" extraordinarily high.<br><br><strong>Risks to the downside</strong>
</div>
<div> </div>
<div>There is an old saying in investment that if something sounds too good to be true then it probably is.<br><br>So, what's the catch? </div>
<div> </div>
<div>One such catch is that most people just aren't very good at investing in property. The stats show that most don't achieve their goals, owning only one or two properties, with many selling within the first early years of ownership.</div>
<div> </div>
<div>It's not always entirely their fault, mind - property advisers have recommended some desperate choices over the last decade, including mining towns and any number of far-flung locations which haven't fared anything like as well as Sydney has. </div>
<div> </div>
<div>It was popular for a while to say that capital city investors were singing the same old tune from years ago and had failed to move with the times, though I haven't heard anyone saying that of late as the Sydney market continues to take off.<br><br>Inner ring Brisbane is now seeing prices rising again too, though not for all property types and suburbs it must be said, and I believe that generic apartments will struggle through this cycle.</div>
<div> </div>
<div><strong>Spruikfest</strong></div>
<br><div>You only had to set foot in the <em>Sydney Homebuyer Show</em> this year to see that the property forum was packed to the rafters with the flocking crowds far outweighing the numbers at the share trading and investing event.</div>
<div> </div>
<div>This is what always happens when house prices are rising, of course.</div>
<div> </div>
<div>Unfortunately so too were the self managed superannuation fund (SMSF) property spruikers out in force, barking orders about setting up trust structures to buy property to anyone who would listen - and anyone who wasn't listening as well, come to think of it.</div>
<div> </div>
<div>The thing to remember is that property and shares are not really directly comparable investments for any number of reasons which I don't have the space or inclination to repeat here.</div>
<div> </div>
<div>Equities are a far "cleaner" and more liquid asset class, very well suited to retirees of the right mindset contrary to popular opinion, particularly given the favourable tax treatment of franked dividend income in Australia.<br><br>No tenants or related headaches. No repairs and maintenance bills, Quick and easy to sell parcels of shares. </div>
<div> </div>
<div>Property investment suits many long term Mum and Dad investors, despite its illiquidity, and the leverage can see them magnify gains (or losses) at a greater rate, provided they invest well (or badly).</div>
<div> </div>
<div>For reasons I never really got my head around some property advisers have recommended investing in towns where there is acres of land around and thus no scarcity. </div>
<div> </div>
<div>The key to long term successful property investment is finding an asset which is in extremely high demand.<br><br>This generally means the larger capital cities, near jobs and where people want and need to live - and is scarce in supply, which ideally means a dwelling with a land value content, and in a land-locked suburban location.<br><br>The long run data shows that even most average capital city property has generally done well through the cycles, beating inflation over time.<br><br>It won't be long before the Sydney median house price has doubled again since 2003, soon thereafter to be threatening the $1 million level.</div>
<div> </div>
<div><img src="/images/2015/05/22/Property.jpg" alt=""></div>
<div> </div>
<div>
<p><em><span>PETE WARGENT </span>is the co-founder of <a href="https://allenwargent.com/" target="_blank">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em></p>
<p><em>His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.</em></p>
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Blowing bubbles (again): Pete Wargent

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<p>With plenty of talk about a housing bubble and home values climbing much higher in Sydney and Melbourne, housing is looking expensive to many Australians. </p>
<p>Low interest rates and the strong gains in certain areas are making residential housing investment quite attractive for some which is one of the drivers resulting in increasing home values. While housing may be looking expensive to locals, the declining Australian dollar means that it may be looking more attractive to foreign buyers.</p>
<p>Since combined capital city home values reached their most recent low point in May 2012 they have risen by 26.8%. At the same time the Australian dollar has fallen by -13.3% over that period in trade-weighted index terms. While the depreciation in the dollar has no impact on local buyers, for off-shore buyers the fall in the Australian dollar is likely to make Australian housing even more attractive. Furthermore, the Reserve Bank continues to state that there is a need for an even lower dollar which would exacerbate the relative affordability even further.</p>
<p>Foreign buyers are meant to be purchasing brand new homes in most instances. There have been numerous recent reports of foreign buyers not adhering to these rules.  Furthermore a recent parliamentary inquiry found that the Foreign Investment Review Board was significantly underfunded and as a result has not been able to effectively monitor and enforce foreign investment rules.</p>
<p><a href="/images/2015/07/08/Chart-31.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2015/07/08/Chart-31.jpg" alt=""></p>
<p>Combined capital city home values have increased by 26.8% between May 2012 and June 2015. Keep in mind that these figures are heavily influenced by the Sydney and Melbourne housing markets with these the only two capital cities recording value growth in excess of this figure over the period. When you look at that 26.8% increase across other currencies you can see the impact of the falling exchange rate. Of those currencies highlighted only the Japanese Yen and Indonesian Rupiah have seen values rise by a greater amount. Across most other currencies the relative value rises have been significantly lower than they have been in Australian dollar terms.</p>
<p>Once you look at capital cities that have seen relatively lower recent capital growth, there has been a significant improvement in Australian housing affordability for foreign buyers. Not to mention the fact that in many of these foreign countries mortgage holders are borrowing at significantly lower interest rates than those available to Australians.</p>
<p>Sydney</p>
<p><a href="/images/2015/07/08/Chart-21.jpg" target="_blank">Click to enlarge</a></p>
<p> </p>
<p><img src="/images/2015/07/08/Chart-21.jpg" alt=""></p>
<p>Melbourne</p>
<p><a href="/images/2015/07/08/Chart-31-1.jpg" target="_blank">Click to enlarge</a></p>
<p> </p>
<p><img src="/images/2015/07/08/Chart-31-1.jpg" alt=""></p>
<p> </p>
<p>Brisbane</p>
<p><a href="/images/2015/07/08/Chart-41.jpg" target="_blank">Click to enlarge</a></p>
<p> </p>
<p><img src="/images/2015/07/08/Chart-41.jpg" alt=""></p>
<p>Adelaide</p>
<p><a href="/images/2015/07/08/Chart-51.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2015/07/08/Chart-51.jpg" alt=""></p>
<p> </p>
<p>Perth</p>
<p><a href="/images/2015/07/08/Chart-61.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2015/07/08/Chart-61.jpg" alt=""></p>
<p> </p>
<p>Hobart</p>
<p><a href="/images/2015/07/08/Chart-71.jpg" target="_blank">Click to enlarge </a></p>
<p><img src="/images/2015/07/08/Chart-71.jpg" alt=""></p>
<p>Darwin</p>
<p><a href="/images/2015/07/08/Chart-81.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2015/07/08/Chart-81.jpg" alt=""></p>
<p> </p>
<p>Canberra</p>
<p><a href="/images/2015/07/08/Chart-9.jpg" target="_blank">Click to enlarge </a></p>
<p><img src="/images/2015/07/08/Chart-9.jpg" alt=""></p>
<p> </p>
<p>With the RBA stating that the Australian dollar remains overvalued, any further falls in the Aussie dollar are likely to result in even more attractive buying conditions for foreign buyers. Given this it is imperative that foreign investment rules are tightened and FIRB improve their surveillance work.  A central register of foreign buyers would also be seemingly important. The Victorian Government has recently announced that it will increase fees and charges to foreign buyers of property in that state.  Despite howls of protest it would seem that this is likely to have little material impact on foreign demand for housing.  Furthermore, a national approach similar to this would be a good step towards appropriately funding FIRB to undertake their review and surveillance of foreign housing investment.  Particularly given that should the dollar fall further demand from off-shore buyers is likely to increase.</p>
<p>Earlier this week Federal Treasury released the Exposure Drafts and Regulatory Impact Statement of legislation designed to tighten foreign investment rules, including those relating to residential real estate. The document can be read <a href="https://treasury.gov.au/ConsultationsandReviews/Consultations/2015/Implementing-Foreign-Investment-Reforms" target="_blank">here</a> and submissions can be made up until Friday 17 July.</p>
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Australian property, expensive for us, not so for foreigners: Cameron Kusher 

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<p>Q: Is there a housing bubble?</p>
<p>A: Nationally no, but if we are talking about Sydney, Melbourne and new inner Brisbane apartments, then yes.  That's a YES, in case you somehow missed it.</p>
<p>Sydney and Melbourne have been distorted by an influx of 'grey' money coming from China. Many don't like to hear this, but it is happening. No hard statistics, but our groundtruthing is looking worthy of a hefty bet.  And of late, some of this grey has shifted north, along with local superannuation funds looking for cheap property &amp; a longish timeframe to settle, in the hope of double digit price growth.</p>
<p>Brisbane always follows Sydney, right?  Property is so cheap in Brisbane, hey! You can buy two in Brisbane for the price of just one in Sydney. Bris Vegas here we come.</p>
<p><strong>Sidebar</strong></p>
<p>I have an internal debate several times each month – it's fun, like talking to an imaginary friend – about whether or not to write on a certain topic. </p>
<p>Do I let blast about China? Publish my thoughts about smaller apartments?  Call out all those BS artists promising double digit price growth &amp; rental increases?  And this week, it's a yes.  Write something about the Reserve Bank (RBA), Foreign Investment Review Board (FIRB) and how we will all be rooned.</p>
<p><strong>We'll all be rooned</strong></p>
<p>Now, there is nothing wrong with a global property market, nor being in the recovery phase of the property cycle and having closer ties to China – or any of our major trading partners for that matter.</p>
<p>But a housing bubble is a different story.</p>
<p>Property values have almost trebled over the past two decades, while wages have not kept pace. House prices in both Sydney, Melbourne, some parts of Perth and now across inner Brisbane, are often over 10 times household earnings. In many cases, weekly rents also far exceed 30% of a renter's income.</p>
<p>And things can start getting out of hand when the proportion of investors buying accounts for around half of all residential sales – double the 25% of the housing market made up by private renters. This happens every cycle, but its current trajectory is unsustainable.</p>
<p><strong>Got some doubts?</strong></p>
<p>Well this year alone, housing credit and house prices have climbed at, respectively, more than two and three times the rate of household income growth. It isn't the actual rate of credit and price growth that is the problem, but their relationship with our ability to afford this inflation.</p>
<p>It's true that this is mostly a Sydney and Melbourne phenomenon, but we only have a few blunt tools in the back of our ute to temper the times. And besides, we have never been that good at small, fiddly renovations. Slash and burn is more our style.</p>
<p><strong>The good and the bad</strong></p>
<p>Yes, there are reasons for property demand to be improving – we have record low interest rates, relatively low vacancy rates, high population growth and a strong penchant for owning property.</p>
<p>But on the flip side, we have falling commodity prices, an employment baton change which, for the life of me, I cannot see happening smoothly nor correspondingly, little wage growth, ageing demographics, high debt, an increasingly economically wobbly China and a close to epileptic Europe. Not to mention what may or may not happen with the rest of the world.</p>
<p>For those who only hear good news, you might have missed that Australia's federal budget deficit last year (2013/14) was close to $50 billion &amp; yet the Palmer United Party wants to keep the red ink flowing until the early 2020s. </p>
<p>If that happens, then our prized AAA sovereign credit rating could be at risk, especially if something goes wrong with our economy – or that of a major trading partner.</p>
<p>In short, we might see the vulnerable economic conditions of southern Europe down under.</p>
<p><em>This article continues on the next page. Please click below to continue.</em></p>
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<p><strong>True blue</strong></p>
<p>But in true ocker fashion – it's all "she'll be right mate", "nothing to see here". Those questioning our "property at all costs" mentality need to take a double dose &amp; retire to bed early. Keep on moving on. Bid higher at that auction. Buy something tiny and off-plan. Doesn't property double in value every seven years? You cannot lose.</p>
<p>Too far-fetched?</p>
<p>Well, our real wages are falling. Yes, falling, as average earnings rose just 2.3% over the last 12 months – that's 0.3% lower than inflation. Unemployment is over 6%, without counting the 700,000-plus on disability pensions.</p>
<p>True, the RBA does predict higher economic growth next year, real wage growth in some distant future and lower employment one day, maybe, but this is predicated on the assumption that nothing economic will go bang or that China's economy won't slow down further.</p>
<p>Excuse me for being a skeptic, but trying to predict an economic future, these days, is almost impossible.  I would just love to read or hear one of those talking eco heads say something like, "well, frankly we don't have a bloody clue".</p>
<p>If you ask me what's going to happen, your guess is as good as mine.</p>
<p>But I do like to guess, so here goes.</p>
<ul>
<li>Government will not reign in spending; we (the senate) won't allow it.</li>
<li>No workplace reforms, for fear of a union campaign.</li>
<li>The RBA will continue jawboning and keep interest rates where they are (when looking at the whole of the Australian economy – not just housing in Sydney and Melbourne – they really need to fall).</li>
<li>Plenty of talks about macro-prudential action – like higher investment loan to value ratios; changes to property taxation or minimum product sizes – but nothing done. Maybe that is a good thing?</li>
<li>No enforcement by FIRB regarding illegal overseas buying – and it has almost all been illegal in recent years.</li>
</ul>
<p>And it's the last point that is the most pertinent right now.  If you want to slow down the Sydney, Melbourne and inner Brisbane property markets without stopping the rest of the country, then you must enforce offshore buying laws.</p>
<p><strong>Inert FIRB</strong></p>
<p>An inert FIRB has done nothing to inhibit the grey economy that exists to get money out of China (ironically, helping them deflate their own housing bubble) &amp; into safer overseas havens like Australia.</p>
<p>It's true that the Chinese government imposes a $US50,000 a year limit that can be sent out of the country, but cashed-up Chinese bypass this system via personal relationships rather than transparent bank transfers. Heaps of property – just how much is unknown (but it shouldn't be) – is being bought this way in Sydney &amp; Melbourne, Perth, and now in Brisbane and starting to again on the Gold Coast.</p>
<p>Also, the Significant Investor Visa (SIV) is dominated by mainland Chinese who meet the $5 million requirement. They are paying stupid prices for potential development sites (with site values doubling in the past five years), but property economics do not apply here, as the SIV is really a fast-tracked qualification for a permanent visa. Dual nationality is the want, but sadly, too many Chinese just want an Aussie passport as an insurance policy, not a new way of life.</p>
<p>Lower down the chain – much lower, if you ask me – is another sheltered workshop – property spruikers flogging Chinese investors little high-rise boxes in Sydney, Melbourne and now Brisbane. Entire high-rise buildings are financed, built and sold for the Chinese market, with local buyers and developers rendered irrelevant. Small, one-bedroom dogboxes are the norm. The more the merrier. How divine, indeed!</p>
<p>And all of this should be illegal. If only FIRB would enforce the law!</p>
<p>All of this illicit activity is creating a demand that would not otherwise exist. Well at nowhere near the levels that it is increasing spruiked. Quarterly newspaper lift-outs about Australia's sudden urge to live on top of each other – I mean, come on.</p>
<p>And this, coupled with local superannuation investors – many of whom appear to have been sold a pup – has created valuations that are dangerously detached from average weekly earnings &amp; sustainable owner-resident demand.</p>
<p>But then again, it is Australia mate; stop all this fussing; she'll be right; tyranny of distance and all that stuff.</p>
<p><strong>But seriously folks</strong></p>
<p>But seriously, something has to be done.  We are now entering some serious hot water.</p>
<p>Here's another guess.  Nothing will happen until this gets political; economic sense doesn't seem to cut the mustard around here anymore.  The political wedge, for mine, come next federal election, is overseas buying.</p>
<p>But between now then, I will take Terry's advice – <a href="terry-ryder/36256-headline-obsessed-writers-need-a-reality-check" target="_blank">take a couple of aspirin &amp; have a good lie down</a>.<br><br></p>
<p><em>Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.  Read Michael's <a href="https://matusik.com.au/missive/" target="_blank">Blog</a> or follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank">Facebook</a> and <a href="https://twitter.com/michaelmatusik" target="_blank">Twitter</a> or connect via <a href="https://www.linkedin.com/in/michaelmatusik" target="_blank">LinkedIn</a>.</em></p>
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Is there a housing bubble? Or should we all take a wee lie down?

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<p>I've always liked the saying "can't see the forest for the trees".</p>
<p>It appropriately sums up so much of the distorted self-indoctrinated bias of opinion pertaining to real estate in Australia.</p>
<p>The debate has never been so fierce – especially when it comes to the definition of that 'bubble'. I am of the firm belief that it is those who are actual historians of the Australian property markets who are the ones with the greatest ability to call the exact path and outcomes.</p>
<p>If you want to end the 'bubble' debate simply ask the question: "So when do you see this bubble bursting?"</p>
<p>It's always the fastest way to draw the debate to a fast halt. History has shown when you closely analyse the property market machinations through the Reserve Bank of Australia (RBA) – Cash Rate Target interest rate changes only then can we see the significant market changes.</p>
<p>That being when the RBA increases the cash rate twice (not once) we are starting to see a new course being charted. Then it takes another two to four years for the affects to be seen given that is when households start to come out of their fixed mortgage periods into the higher mortgage agreements.</p>
<p>Given we are the best part of at least 12 months away from the first cash rate increase – which should send the alarm bells ringing – then depending on the next increase we won't start seeing any noticeable market price corrections until 2016 to 2019.</p>
<p>We also need to bear in mind that when the cash rate increases so does the exchange rate as that goes up in unison, which is the last thing the RBA wants to see given it's presently trying to get the exchange rate down.</p>
<p>We should consider that the RBA is well down the track to introducing its new macroprudential tools as well as waiting to receive (then implement) the findings from the Murray Financial System Inquiry.</p>
<p>No doubt the RBA would be very much looking forward to tinkering the markets with these tools so that (for the very first time) other than increasing the cash rate  it may just be able to manipulate the markets in a way never seen before. For the first time ever (as many would not be aware) we are witnessing history with these new real estate market initiatives.</p>
<p>Again, history will show whether or not they were effective. However, it will be fascinating to watch the outcomes.</p>
<p>So back to those fools on the hill who following this week's RBA decision to leave the cash rate on hold at 2.50% – they even managed to get that wrong. No it was not a record (as some declared). Even though 14 straight months is getting up there, the actual record is 17, not 16 as some would believe. Furthermore, you can only apply consecutive meetings as the RBA doesn't meet in January.</p>
<p>Having said that, when you go back through the history of the cash rate movements at the RBA we start to see fascinating stories evolve.</p>
<p>I have conducted my research on instances where the cash rate remained on hold for 10 or more consecutive meetings:</p>
<p>The first period of RBA cash rate holds started on 30 July 1993 when the cash rate was moved from 5.25% to 4.75%, where it remained until 27 July 1994 – in total 12 holds. Then on 17 August it was bumped up 1.25% to 5.50%.</p>
<p>The next run of holds, which is the equal record 17 holds, happened on 14 December 1994 when the cash rate increased from 6.50% to 7.50%, where it remained until 3 July 1996.</p>
<p>Then it fell to 7.00%. So we are seeing long holds followed by increases and decreases.</p>
<p>On 30 July 1997 we saw another 16 consecutive holds at 5.00%, to then see it drop to 4.75%.</p>
<p>On 5 June 2002 we saw 16 holds at 4.75%, to then see it increased to 5.25% in November 2003.</p>
<p>On 4 February 2004 we saw thirteen holds at 5.25%. When the cash rate was increased to 5.50% in March 2005, that was followed by another twelve holds that was followed by an increase to 5.75%.</p>
<p>Then on 8 December 2011 we had another ten holds at 4.75%, then saw the rate dropped to 4.25%.</p>
<p>We are now in the current hold pattern after fourteen meetings, so based on history it's anyone's guess what or when the next movement might be. I predict the current rate will be set for the longest period in RBA history as it will go well into the twenty something meetings.</p>
<p>So when you see the arguments mounting that many commentators were disappointed that the RBA hardly mentioned that ''bubble" following this week's decision – history clearly shows that the board members may not be that concerned about that "bubble".</p>
<p>Maybe they are more concerned as to why investors have steered clear of the stock market which, by the way, had a few massive corrections this week – although, wait a minute, nothing much was written about that either.</p>
<p>It all depends on what you are looking at – the forest or the trees?</p>
<p>As to be expected stock levels increased significantly this week – so now we finally get to see firsthand just how strong the markets really are.</p>
<p>Watching these numbers will be telling over the period leading up to Christmas, although I don't believe we will see anything that even resembles that imaginary 'bubble'. Time will tell!</p>
<p> </p>
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