The Land market’s big sigh

by David Collyer on February 5, 2013

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The ABS House Price Indexes 8 Capital Cities Dec 2012 6416.0 was released this morning and shows prices rising 2.1 per cent for the year and 1.6 per cent for the quarter.

This result will encourage those who see expensive land as a badge of honor.

It provides no respite for Australia’s 1.1 million negatively geared ‘little landlords’ who need at least 6 per cent price growth to break even.

The year saw the Reserve Bank cut interest rates by 175 basis points to delay the bursting of The Great Australian Land Bubble. They succeeded.

In more normal times – whatever they are – big interest rate cuts are a powerful stimulus to housing demand.  They change the affordability arithmetic. A wave of first homebuyers, eager to begin, make the biggest single commitment of their lives.  They liberate second homebuyers to trade up and the market lives.

Property prices have been trending down in real terms for two and a half years. Trends do buck around and partial reversals are to be expected.  A single data point does not fully describe a market as large and complex as Australia’s land market.

This very modest rally should be seen in the context of:

I see no government policy initiatives to correct these highly unusual economic settings.  Clearly they expect a market resolution.  The market will deliver one.

Don’t Buy Now!

 

2 Comments

  1. Andrew06-02-2013

    Chip on shoulder much?!

  2. Bobby Fischer06-02-2013

    Andrew, may I suggest to you that your comment exhibits:

    “Lack of analysis/critical thinking much?”.

    There are few outlets that don’t sell the party line of ‘Aussie Property 4EVA’. So, you should listen when someone points out to you that:

    – credit is dead (35 year lows for the RBA series)

    – FHB are turned off property & they are essential to turnover in the broader housing market e.g. investor turn over in stock, upgraders, down-graders, sea changers and so on

    – housing is VERY expensive by international standards and about double the long term average since the late 1800s (see Stapledon research for confirmation)

    – the housing under-supply sold to us by the vested interests, insinuating that this will put a floor under prices, is simply an urban myth. Recent research on water usage for Melbourne shows very high rates of vacant homes. In all likelihood, there is an OVERSUPPLY of houses nationally, because it has been profitable to squat on properties purely for capital gain during the last 15 years (mostly) and not house those filthy second-class renter cohort (sarc).

    – Eventually, excess supply will come to market and help drive down prices during a process of debt liquidation and panic selling because for investors, rental yields are ABYSMAL (far worse than risk free cash) – so without capital gains, Aussie housing is a polished turd my friend

    – low interest rates have barely nudged up house prices, despite them being at record lows (3%). The RBA is running out of ammo. They should have thought hard about this problem about 13 years ago as the land bubble started to explode (jacking up rates) instead of sitting on their hands and letting this disgrace happen under their watch. What are they going do at ZIRP? Jawbone a bit harder? Pull the other one. They are culpable to the extreme – perhaps they need to read Austrian Business Cycle Theory re: manipulated low rates leading to boom-bust cycles. They might learn something

    – Construction is dead because people are simply not interested at the RIP OFF prices in this country. The whole FIRE sector deserves to get burnt and burnt badly. No bailouts. No covered bonds. No guarantees (without cost). No RMBS purchases. In fact, if Mr No (our future prime-minister) wishes to fill in the blanks, there is some content for him right there

    So Andrew, I suggest that perhaps you lose the attitude pal and open your mind; you never know, you might learn something instead of burning your financial future in a dead consumption asset that is, on aggregate, valued in the stratosphere and bears no sensible relationship to fundamentals like the median household income.

    In other words the property market is simply a ponzi financed land bubbled wrapped up in a commodity bubble, squared. ‘Invest’ at your peril.

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