Price Decline

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The overwhelming weight of expert commentary has rubbished Macquarie Bank’s forecast of major price decline in the next 12 months. 
Some media has presented Macquarie’s simplistic analysis, based on Australian as a single property market with a very specific price prediction, as the gospel according to irrefutable economists. But most coverage has been a counter-attack from credible commentators presenting more considered and realistic views of next year’s markets.
Aussie Home Loans chief John Symond said "there's buckley's chance of a price correction." As Property Observer reported on 22 October, Symond told a Sydney investment conference that Sydney's market was nearing its peak, <a href="/news/47301-sydney-s-booming-residential-property-market-was-nearing-its-peak-john-symond" target="_blank">with “steam coming out of the market and sanity coming in”</a>, and predicted a more flat market – but no across-the-board decreases.
And he observed, quite correctly, that there would be differences from one area to the next. "Hot areas will still see a 7-9% gain, in other areas you might see 3-4% and in some other areas a 5% drop," he said. "You have to do your homework." 
Yes, indeed. That is a far more reasoned assessment of the near future than Macquarie’s prediction of a blanket 7.5% decline, apparently everywhere.
Louis Christopher of SQM Research has predicted house price growth in 2016 but at a slower pace than recent years. As an experienced analyst, he knows better than to make a generalised forecast that covers the whole nation as a single market. He has different forecasts for each city and includes three different forecast scenarios in each case, dependent on key events including economic growth, interest rates and the value of the Australian dollar.
In the latest edition of Housing Boom and Bust Report from SQM Research, he predicted Sydney prices will rise between 4% and 9% next year. Melbourne is forecast to overtake Sydney and be the best-performing capital city in 2016 with a rise of between 8% and 13%. 
Christopher said the market overall is unlikely to see price decline for a number of reasons, including the Australian dollar, which is tipped to stay at current low levels or fall further, providing a buffer to the economy and the housing market. 
Raine &amp; Horne executive chairman Angus Raine believes the Macquarie prediction is difficult to substantiate given the current performance of major property markets. He said the level of demand for property and the depth to the market do not indicate a major correction.
Veronica Morgan, the principal of Good Deeds Property Buyers based in Sydney’s inner west, quite rightly criticised the bank for broadcasting the prediction without considering markets on a micro scale.
“It really annoys me when bank PR people get hold of some economic data and suddenly an impending drop in the property market is front-page news,” she said. “Why can I say that this latest prediction will not come true? Because there is really no such thing as an Australian property market. Look at any national property data and you will see that no two capital cities perform in the same way. 
“And then there are regional markets that all have their own cycles to consider. So how can anybody make a claim that the entire country is over-priced or ready for a fall? Even within Sydney there are dozens, probably hundreds, of micro markets."
Business commentator Peter Switzer said the bank forecast "bordered on being stupid", while Andrew Wilson, the senior economist at Domain's Australian Property Monitors, said it was “unbelievably unlikely”.
Wilson noted that, in the past decade, there had not been any national annual drops of more than 5%. “Even in periods where we had prices falling, such as during 2008 when it was the global financial crisis, the national house price fell by just under 4%,” Wilson said. 
Stockland chief Mark Steinert expects house prices to continue to rise next year. His forecast is 3% to 5%.
"There has been quite a lot of talk going on for quite a long time now about the imminent downturn in housing, but no one has mentioned that it hasn't actually eventuated," Steinert told a Property Council lunch in Melbourne. 
"The reality is the economy in Australia is growing at a moderate level of around 2.5%. We have a low Australian dollar, continued population growth (albeit at a slower rate) and metro housing markets that are generally under-supplied. These are not the pre-conditions for some sort of general correction in housing."
There have numerous other commentators on the issue and the general theme is that there will be price growth in 2016 - but, in the case of Sydney especially, the rate of growth will be less.
An alternative view has come from accident-prone Shane Oliver, AMP Capital’s chief economist, who is predicting price decline but not until 2017.
Oliver has probably the worst track record of any economist in predicting real estate events. I could fill several pages with examples, but basically he believes housing is “over-valued” and has been predicting a significant correction for most of the past 10 years.
He clearly is one of those, not unlike another failed forecaster Steve Keen, who believes that if you keep making the same prediction year after year, you’ll eventually get it right.
So Shameless Shane was out there in the media again recently expounding his bubble theories, with claims of over-valuation of housing and predictions that property prices would fall “between 5% and 10%” - which might happen “around 2017”.
 
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>
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terryryder-YECXbqmri2

Experts rubbish Macquarie Bank's price decline forecast: Terry Ryder

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Forecaster BIS Shrapnel this week used apartment oversupply as part of the justification for predicting (minor) price decline in some of our major cities over the next three years.
While I certainly share their concerns about over-building of high-rise apartments, I don’t agree that this means prices generally will fall in those cities.
Does a unit over-supply in inner-city Adelaide or Brisbane prevent house prices from growing in housing markets in the middle-ring and outer suburbs?
On the Gold Coast, past oversupply has resulted in key locations like Surfers Paradise having pricing levels lower than 10 years ago. But it hasn’t prevented inland housing suburbs from delivering price growth averaging 4-5 percent per year over the past decade.
So I expect price growth in housing markets in Brisbane, Adelaide, Canberra and Hobart – as well as the Gold Coast – regardless of the over-supply issue in the high-rise areas of those cities. I’m not expecting much from Sydney or Melbourne in the next few years, because those markets have passed their peaks and sales levels have fallen away dramatically, leading to price stagnation or minor decline.
The unit oversupply is a separate issue – and a serious one. It’s significant that lenders are including high-rise areas on blacklists, that developers are deferring planned projects and that vacancy rates are rising in key areas.
This week I updated vacancy rates for Brisbane inner-city suburbs for a seminar presentation. There has been a market blow-out in vacancies in all six suburbs I reference in that presentation. Most now have vacancies in the 5-6 percent range, according to SQM Research figures. 
In the space of three months, the vacancy rate for the Brisbane CBD has increased from 4.4 percent to 5 percent, while Woolloongabba is up from 4.8 to 5.5 percent and New Farm has increased from 5.3 to 6.1 percent.
These statistics will worsen as projects now under construction are completed and their apartments join the rental pool – because very few of the sales are being made to owner-occupiers.
Apartment markets with current or looming surpluses of stock make up half of the 10 markets highlighted in my No Go Zones report (the only half being regional areas impacted by the resources sector).
This really is one of the core issues facing the property industry. While the developer lobby keeps running the party line about dwelling shortages – despite two years of record building approvals pumped up by apartment projects – the big issue is the opposite problem of surplus.
It’s inevitable that, in some markets, vacancies will rise, rents will fall and values will be impacted.
As BIS Shrapnel senior director Angie Zigomanis says: “Nearly all capital cities are building apartments at record rates on the back of the recent strength in investor demand. As these projects are progressively completed, it is likely that there will not be enough tenants in a number of cities to support rents and consequently values upon completion.”
I’m amazed at how many people are still buying apartments in Surfers Paradise, inner-city Melbourne and inner-city Brisbane, and by the number of new projects seeking approval in oversupplied markets like Perth, Brisbane and Melbourne.
Across the key high-rise suburbs of the Gold Coast, Melbourne and Brisbane, 8,242 people have bought apartments in the past 12 months, including 1,588 in Surfers Paradise and 1,501 in the Melbourne CBD. 
Do these people not read? Don’t they have access to the Internet? The warnings from analysts, commentators, lenders and the Reserve Bank over the past 12-18 months add up to a deafening roar.
If you’re ignoring all that and still buying high-rise units off-the-plan in these markets - or if you’re oblivious to it because you haven’t done even the most basic research - you deserve to lose money.
 
Terry Ryder is the founder of hotspotting.com.au
<a href="mailto:hotspotting@gmail.com">hotspotting@gmail.com</a>
twitter.com/hotspotting
 
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Apartment over-building doesn't mean prices will fall: Terry Ryder

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EXPERT OBSERVER
Headline: House prices fell in May. Alternative headline: House prices rose in May. 
Which is right? Actually, both. Or, more correctly, it depends on whose figures you believe.
CoreLogic records a 0.4% reduction in house prices (overall, the average across the nation) during May, but Louis Christopher’s SQM Research reports a 1.1% rise in house prices over the same period.
And when the latest figures from Domain and the ABS become available, they’ll have different numbers as well.
We could spend hours discussing why different sources produce different (and sometimes conflicting) results on what’s happening with property prices. But suffice to say that they all have their own methodologies and parameters – and what they’re attempting, to distil tens of thousands of sales in myriad locations into a single growth figure, is a tad challenging.
But, ultimately, it’s doesn’t matter whether CoreLogic is right or SQM is right. Essentially, they’re saying the same thing: property prices are remarkably stubborn in the face of major negative forces. As they so often are.
House prices continue to defy the doomsday forecasters, many of them economists who refuse to let go of their flawed theories about how property prices SHOULD behave – and others among them opportunists who see potential to generate free publicity.
Here are some headlines:
<ul class="ul1">
<li class="li1">“House prices to drop 20%: AMP Capital” – The Australian, 19 March.</li>
<li class="li1">“House prices could drop by up to 20%, says UBS” – Financial Review, 18 March</li>
<li class="li1">“Prices to plunge 30% as clearance rates fall off a cliff” – The Age, 8 April</li>
<li class="li1">“House prices will collapse, says UBS” – Financial Review, 2 April</li>
<li class="li1">“Can’t rule out 30% fall in house prices, says SQM” – Financial Review, 7 April</li>
<li class="li1">“House prices could dive 30%” – The Age, 27 April</li>
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For those who declare “but it’s early days”, it isn’t.
This pandemic shemozzle, in terms of its impact on Australian life, declared itself on 20 February when the share market had its first meltdown. We’ve already been through the worst of the health impacts and the toughest of the restrictions and now we’re emerging steadily from lockdown towards increasing levels of normality.
When the price data for March (showing growth in most markets) was published, many in mainstream media said: “Yeah, but wait to we get the April figures, then we’ll see the true impact of Covid-19.”
When the April figures came out (again showing minor growth in most markets), we got the same reaction: “Yeah, but May will see prices nosediving.”
Well, that didn’t happen either. The CoreLogic data showed that in May there was growth or no change in house prices in nine of the 15 market jurisdictions (eight capital cities and seven state regional markets), with an overall result of -0.4%, while SQM reported a national rise of 1.1% and a capital city rise of 0.5%, with increases in Sydney, Melbourne, Perth, Adelaide and Canberra.
So, now the standard line from failed forecasters seeking to justify their negative stance on property markets is this: “Yeah, prices are stable for now but in September when the stimulus runs out everything will fall off a cliff.”
This comes direct from the kindergarten of real estate forecasting. It assumes that nothing will change over the next 3-4 months and that governments and lenders will recklessly turn off the tap without any regard to consequences. 
It also assumes that it’s all about JobKeeper and mortgage holidays, and overlooks the importance of infrastructure spending, loans and grants to businesses, support measures for renters, ongoing government stimulus measures like the $25,000 grant to home builders and renovators, and a whole lot more.
Australia has done well in this crisis and continues to do so. And the future belongs to those who see opportunity rather than calamity.
Terry Ryder is the founder of hotspotting.com.au
<a href="https://mailto:ryder@hotspotting.com.au">ryder@hotspotting.com.au</a>
twitter.com/hotspotting
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How true are real estate price fall headlines? Hotspotting's Terry Ryder

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National dwelling values dropped 0.1% in April, the seventh consecutive month-on-month fall since values started falling in October last year, according to the CoreLogic April home value index results.
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CoreLogic head of research Tim Lawless found that the declines were concentrated within the largest capitals, while regional dwelling values edged 0.4% higher. 
Capital city dwelling values were 0.3% lower over the month, driven by larger falls of -0.4% in Sydney and Melbourne and a smaller decline in Brisbane values (-0.1%). 
The falls were offset by flat conditions in Perth and subtle rises in Adelaide (+0.1%), Darwin and Canberra (both +0.6%). Hobart was the only city where dwelling values rose by more than 1% in April.
Click here <a href="https://www.propertyobserver.com.au/images/2018/5/1/index_corelogic.jpg" target="_blank">to enlarge.</a>
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On an annual basis, the combined capitals recorded the first decline in dwelling values since late 2012, with values slipping 0.3% lower.
They were driven by falls in Sydney (-3.4%), Perth (-2.3%) and Darwin (-7.7%).
Hobart dwelling prices were the only to soar in double digit growth, while most pockets of Melbourne secured strong price growth.
Unsurprisingly, dwelling values across a number of sub regions in Sydney saw values, some areas up to nearly seven percent.
Click here <a href="https://www.propertyobserver.com.au/images/2018/5/1/capitals.jpg" target="_blank">to enlarge.</a>
 
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Regional areas are outperforming capitals, after a five year period where capitals have been the dominant areas.
“At a macro level, the latest trends are virtually the opposite of what we have become used to over the past five or so years," Tim Lawless said.
"Regional areas are now outperforming the capitals and units are outperforming houses. Also the most expensive properties are now showing weaker conditions than the more affordable ones.” 
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The past five years has seen combined capital city dwelling values appreciate at the annual rate of 6.8% which is almost double the annual rate across the combined regional markets at 3.5%. The past twelve months has seen capital city dwelling values fall by 0.3% while regional values are 2.4% higher. 
Click here <a href="https://www.propertyobserver.com.au/images/2018/5/1/REGIONAL.jpg" target="_blank">to enlarge.</a>
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jrobinson-rf4aSBido9

Capital city dwelling values record their first annual decline since 2012

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SQM are reviewing their annual Housing Boom and Bust Report outlook, which they published in October 2017, due to recent developments to the housing market.
The annual outlook - which offered three scenario's - did forecast moderated dwelling price rises in 2018, at a slower rate than the price gains in 2017, led by a slowdown in Sydney.
The SQM housing expert Louis Christopher confirmed the new review in his latest update. 
"Any revisions will be released next Tuesday, 8 May," he said.
It was only four weeks ago that Christopher told the firm's annual conference he was sticking to his forecast of a 4 percent to 8 per cent rise for Sydney and 7 percent to 12 per cent growth for Melbourne.
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"APRA will loosen the market again because they are under instruction not to crash the market," Christopher said, according to The Australian Financial Review.
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<div>"We think APRA will lift the credit growth limit limit, if that does occur, we think it will stimulate the investor market."</div>
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<div>"What the banks are doing is they have been lowering interest rates for property investment...the gap between owner-occupier and investor loans has now narrowed."</div>
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<div>SQM suggest in a worse case scenario - should investors not return - Sydney's house prices would fall only by about 1 per cent, buoyed by steady population growth.</div>
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"I think the reality would be that the first quarter will be line-balled whether prices in Sydney and Melbourne have fallen or not.
"If they fall, it won't be more than 1 per cent," Mr Christopher said.
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<div>"It's very hard to be bearish when you see strong population growth and low unemployment, unless we see a major credit default occur," he said in March adding Melbourne had a greater chance of a more severe downturn than Sydney, if a large correction happens.</div>
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"In absolute dollars, Melbourne is cheaper than Sydney, but compared to incomes Melbourne is more expensive and more susceptible to a downturn," Mr Christopher said.
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SQM Research’s base case forecast last year for 2018 was for capital city dwelling prices to rise between 4% to 8% in 2018, which would represent a fall from a growth rate of approximately 8.5% over the past 12 months to 30 September 2017. 
The rate of property price increases will be slower in 2018, predominantly due to a slowdown in the Sydney housing market, which should continue into the first half of the year. Melbourne’s property market will also lose some momentum, however, this will only be a relatively modest slowdown, according to predictions in Christopher’s Housing Boom and Bust Report. 
“Offsetting a slowdown in Melbourne and Sydney will be first-year property market recoveries for Perth and Darwin and an ongoing real estate boom in Hobart’s property market, which is set to record the highest level of accelerated price growth of any capital city next year at between 8% to 13%,” Christopher said.
Click here <a href="https://www.propertyobserver.com.au/images/2017/10/18/Crash1.jpg" target="_blank">to enlarge</a>.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/10/18/Crash1.jpg" alt="">
The report forecast Brisbane’s property market will experience slightly stronger gains than those posted in 2017, with property prices forecast to rise between 3% to 7%. However, the persistent overhang of surplus property listings will hold back property in that city from a faster rate of inflation. 
The base case for all capital cities forecasts assumes no changes in interest rates next year, a stable exchange rate and the existing restrictions by APRA on investment lending to remain in place. 
“Through the actions of APRA earlier this year, a possible deeper housing correction in Sydney and Melbourne has been averted, for now. Accelerated population growth rates in Melbourne and Sydney have enabled the cities to avoid severe property downturns. On the flipside, housing affordability will likely continue to deteriorate in 2018 with growth in property prices still outpacing wages growth,” said Christopher. 
“The authorities were right to take action earlier this year to restrict investing lending by banks. Failure to have taken action would have resulted in out-of-control Sydney and Melbourne housing markets, where additional aggressive monetary policy may well have triggered a large fall in dwelling prices in 2018,” said Christopher.
“APRA’s action, which came earlier than I had expected, has meant that the Sydney housing market is cooling sooner than expected. That has meant our Sydney forecast for this year of price growth of 11% to 16% will not be reached and a more moderate 6% to 8% increase in prices can be anticipated for 2017.
“Our Sydney forecast for 2018 is for a 4% to 8% increase in prices whereby Sydney will record a soft market in the first half of the year, but property prices will start to recover in the second half as the banks will likely increase investment lending once again. There have been reports of banks investment lending ratios being under the maximum thresholds allowed, so we can expect a rise next year as banks increase investment lending up to this limit.” 
“Hobart’s property market is expected to remain the fastest growing city in 2018, with the combination of a fast economy and housing supply shortages likely to ensure the second year running of double digit price rises for that city,” Christopher said. 
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j.ballantyne1990-6AQqhLzZaK

SQM's Louis Christopher says he's reviewing the annual Housing Boom and Bust Report

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Financial commentator David Koch says the Australian property market could start to look ugly over the next six months, however has suggested there's no need to panic and patience is needed.
"Like all investment classes, property moves in a cycle: up and down," Koch write in The Telegraph.
He said the cycle at the moment is definitely down, and it's been coming for quite a while.
"The signs have all been there: a massive building boom, a regulatory crackdown on foreign buyers, and banks tightening lending criteria," Koch said.
"All of these changes came off the back of an eight-year boom in property values along Australia’s east coast which, in some areas of Sydney, saw prices rise 70 per cent in five years.
"A year ago, at the peak of the market, there was general hysteria about home affordability and how first-home buyers were being forced out of the market because of crazy prices.
"Now, the market is rebalancing and affordability is improving in a controlled manner. It’s a good thing."
Koch said that instead of welcoming the change in cycle, the hysteria is now one of pending doom from a major property crash.
He is the latest to criticise the recent 60 Minutes property segment Bricks and Slaughter, which sensationalized the property market downturn.
Koch said that instead of welcoming the change in cycle, the hysteria is now one of pending doom from a major property crash. 
First analyst Martin North said 60 Minutes chose his <a href="https://www.urban.com.au/news/89508-45-percent-housing-price-collapse-was-least-likely-scenario-martin-north-on-the-60-minutes-washup" target="_blank">least likely scenario</a> of a market crash on the show, then SQM Research managing director Louis Christopher said he shot around 45 minutes worth of footage, in which <a href="https://www.urban.com.au/news/89622-sqm-s-louis-christopher-disappointed-with-60-minutes-editing" target="_blank">only a minute was used</a>.
John McGrath then called the episode <a href="https://www.urban.com.au/news/90042-60-minutes-property-segment-was-particularly-misleading-and-unsurprisingly-melodramatic-john-mcgrath" target="_blank">"misleading and problematic."</a>
Koch said to contemplate a cataclysmic fall of 40 per cent is just crazy, suggesting the Australian economy would need to be dragged into a global economic recession triggered by a US/China trade war.
He said unemployment would have to soar, immigration numbers would have to half and housing construction would have to continue at record levels.
Last month every capital city, expect Canberra, Adelaide and Darwin, saw its property values decline. 
Melbourne was hit the hardest, seeing a 0.9 percent decline <a href="https://www.urban.com.au/expert-insights/buying/90127-house-price-correction-now-a-year-long-corelogic" target="_blank">over the month of September</a> to bring its dwelling values down 2.4 percent over the quarter. 
Koch said the most at risk are the property owners who stretched themselves to make a purchase in the last two years.
"With the Spring selling season now underway, it is a vastly different environment than a year ago," he said.
"It has definitely turned into a buyers’ market while recent homeowners need to be careful these falling market values don’t put them on their financier’s watchlist."
 
 
 
 
 
 
 
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jonathanchancellor-7SQnKwU6yx

David Koch fires property market warning, but says there's no need to panic

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Housing prices could fall 10 percent as banks crimp riskier lending and the ALP plans to limit negative gearing tax breaks, warns UBS.
The global financial services firm has suggested the number of home loans could drop 30 percent due to credit tightening.
They said the economy could be set for a record long house price downturn.
"We expect further credit tightening, and the RBA’s lack of willingness to cut rates this time, to see the longest house price downturn in decades," the bank advised.
UBS have suggested the risks are now "tilted to the downside", having previously predicted the value of home loans written could drop 20 percent and housing prices could fall 5 percent.
They now expect home loan falls of up to 30 per cent and price drops of up to 10 per cent.
“Positively, the economy and labour market remain solid for now,” UBS noted.
They said borrowing capacity could reduce by around $100,000 for many households with new comprehensive credit reporting rules from mid next year.
Credit card limits and other debts could be taken into account.
National dwelling price to income ratio is near a record high of about 6.5 times. It's around nine times in Sydney and eight in Melbourne. 
Researchers George Tharenou, Carlos Cacho and Jim Xu said the federal opposition’s plan to limit negative gearing tax concessions for future purchases to new housing and halve the capital gains tax concession to 25 per cent.
Moody's recently suggested more borrowers will <a href="https://www.urban.com.au/expert-insights/finance/89837-australian-rmbs-home-loan-delinquencies-to-rise-moderately-over-2018-moody-s" target="_blank">fall behind on their home loans</a> in 2019.
 
 
 
 
 
 
 
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Price Decline

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