The property market has lots more life in it yet | Louis Christopher

There’s still momentum in the property market!

Contrary to statements made by other real estate commentators that the property boom is over, SQM Research’s latest Housing Boom and Bust Report has forecast growth to continue in the housing market for the remainder for 2014 and into 2015.

Overvalued but no bubble

The market is somewhat overvalued but not by as much as what some have very publicly stated.NO

I don’t believe at this stage the market is in a bubble.

Some cities are heading into overvalued territory, but the point overall is the market is far from a bubble situation when taking into account historical valuations over the past 30 years.

In fact SQM Research predicts continued price rises for Sydney of between 8-12% with the weighted average capital city gain in 2014 to be between 5% – 9%.

The forecast takes into account a scenario whereby the economy is steady, interest rates remain unchanged and the AUD stays above 85 US cents.

table lc

 

What’s ahead?

We believe that an interest rare rise is an unlikely scenario because of the economic slowdown occurring, which has been brought on by the mining downturn and subsequently, has negatively impacted upon employment and wages in Australia.

Over the last 12 months hourly labour rates grew by just 2.6% – the slowest rate of growth recorded since the recession of 1991.

For some time now,we have been aware of the strong correlation between house prices and wages.

So what does this mean for house prices in this country?

Simple – low income growth levels are not conducive to out performing housing markets.newspaper

Interest-rate setting has become increasingly critical to economic growth in house price levels.  This means that for now, the market is being boosted by low interest rates and will continue to do so into 2015.

However beyond this the market will require a stronger economy to keep the momentum going into later 2015 and 2016.

At this point in time we think this is unlikely unless there is a significant fall in the dollar, which would drive income growth for 2016. But in that case, such a scenario would likely force the RBA be a lift rates in that year.

Our Housing Boom and Bust Report is available at our SQM Research website for a one off introductory purchase of $39.95.



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Louis Christopher

About

Louis is recognised as one of Australia’s most respected and impartial research property analyst. He has extensive knowledge and experience of property and is regularly quoted in the media on his insights and is director of SQM Research.
Visit www.SQMResearch.com.au


'The property market has lots more life in it yet | Louis Christopher' have 6 comments

  1. September 18, 2014 @ 8:10 am Tim

    What a clown

    Reply

    • September 18, 2014 @ 8:16 am Michael Yardney

      Tim
      Obviously you have a different view. Would you care to elaborate?
      We publish the views from all the respected commentators here and Louis Chritopher has a great track record. Many laughed at his predictions last year, but he was pretty accurate

      Reply

      • September 18, 2014 @ 9:37 pm Tim

        I read this website to actually have a laugh at all the spruikers that don’t have a clue about economics 101. I have been in the property game for a very very long time and own several houses outright but what is going on in this country right now is simply not sustainable. In simple words it is a run away train that has passed all reasonable fundamentals. The clowns that think that propert will just keep going up is simply living in Disneyland. Wages buy houses and wages pay for rents. Maybe you should check the wage growth data for the last 18 month Michael…..real wages are going down and will keep going down. Sydney is the only place on this earth where people have lost their minds and are paying $900,000 to live 46km from the cbd in suburbs that have always been classified as working class entry level. So Michael maybe you should publish articles from time to time that actually inform the reader of the real reasons why australian housing is so overvalued, such at the primary reason of the stupidity and complexity of land regulation. Example of this is in Melbourne where it has been identified that there are 540 separate regulatory ticks required from when the land was designated as approved for housing and a house’s completion . This inordinately complex and expensive process is the sole reason for Australia’s unaffordable housing.

        Reply

        • September 18, 2014 @ 10:30 pm Michael Yardney

          Tim
          Thanks for taking the trouble to get back and make a sensible comment rather than just calling the author a clown.
          A few thoughts:
          1. Many of the authors on this site DO understand economics and have tertiary degrees in this filed and practice in the real world.
          2. Calling complex regulation the “sole” cause for expensive housing sound a little simplistic.
          3. Sure housing is expensive, but if you’ve been in property for a long time you’d know that there have been other times in the last few decades where housing was even more expensive by almost every measure (rather than raw house prices not adjusted for inflation) and yet the markets haven’t crashed

          Reply

          • September 22, 2014 @ 9:26 am walt

            Let’s assess whether overvaluation exists within AU real estate. States of financing can be described as either hedge, speculative, or Ponzi.

            With hedge financing, asset income flows are sufficient to pay down both principal and interest on the debt used to finance the asset purchase, and prices are based upon fundamental or intrinsic value. The second state is speculative finance, where income flows cover only interest repayments but not principal, requiring debt to be continually rolled over from the current time period to the next.

            The terminal phase is that of Ponzi finance, as income flows cover neither principal nor interest repayments. This leaves owners completely reliant upon escalating asset values to realise substantial capital gains upon sale to meet the cost of debt and expenses. In the case of real estate, if property investors can’t profit from rental income, then realising capital gains becomes the only avenue.

            As investors speculate, the debt used for asset purchases inevitably rises as both the cause and response to price increases, creating a positive feedback loop between prices and debt. Put simply, for the residential property market to meet the definition of a bubble, three conditions must be met: increases in real (inflation-adjusted) housing prices and mortgage debt, along with persistent rental income losses.

            Are we there yet? Are we there yet?

            Clowns.

  2. September 25, 2014 @ 9:35 am jane

    Let’s assess whether an overvaluation exists within any particular asset class, or in this case, real estate. States of financing can be described as either hedge, speculative, or Ponzi.

    With hedge financing, asset income flows are sufficient to pay down both principal and interest on the debt used to finance the asset purchase, and prices are based upon fundamental or intrinsic value. The second state is speculative finance, where income flows cover only interest repayments but not principal, requiring debt to be continually rolled over from the current time period to the next.

    The terminal phase is that of Ponzi finance, as income flows cover neither principal nor interest repayments. This leaves owners completely reliant upon escalating asset values to realise substantial capital gains upon sale to meet the cost of debt and expenses. In the case of real estate, if property investors can’t profit from rental income, then realising capital gains becomes the only avenue.

    As investors speculate, the debt used for asset purchases inevitably rises as both the cause and response to price increases, creating a positive feedback loop between prices and debt. Put simply, for the residential property market to meet the definition of a bubble, three conditions must be met: increases in real (inflation-adjusted) housing prices and mortgage debt, along with persistent rental income losses.

    Are we there yet?

    Reply


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