Saturday Summary – The most interesting property investment articles I’ve read this week (2013/02/09)

There are more property investment articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Each Saturday morning I like to share some of the interesting ones I’ve read during the week.

Enjoy your weekend…and please forward to your friends by clicking a social link buttons on the left.

The RBA guide to housing prices

While many experts are simply speculating what’s going to happen to our real estate markets, when the RBA Governor speaks his mind it’s worth listening as he actually has the power to achieve the outcome he desires.

Michael Pascoe summarizes a recent interview by The Australian Financial Review with Governor Glenn Stevens saying:

As usual with the governor, his views are balanced and cautious with plenty of perspective: yes, Australian housing prices are high, but they’re not grossly overpriced or due for a crash; there indeed should be a move by investors out of cash into housing and the stock market following the interest rate cuts; the RBA will be happy to see the fall in housing prices reversed but there will be no return to the bad-old-good-old days of double digit annual rises.

By implication and adding the thinking expressed in other RBA statements in recent months, it looks like our central bank wants to see housing prices rising modestly again.

But don’t take my word for this interpretation; get it from the horse’s (or governor’s) mouth by reading the article in Yahoo Finance. Amongst other things Stevens says:

My position as you know on the level of housing prices has been they are high.

I think that when you put it fully into international perspective – that is, don’t just compare with the US, compare with a whole range of countries – it’s actually a lot harder to make the case that they’re grossly overpriced and due for a crash. After all, we’ve been around this level of house prices/income for 10 years – [it’s] taking a long time to burst if it is a bubble.

So I’m not so much concerned about a crash, but as I have said also before, it’s seems to me we would be flirting with danger were we to see a very big run-up from these present levels.

Now, we have seen some gain in house prices over the past year or so that’s reversing a little bit of an earlier decline.

That doesn’t trouble me, I think that’s probably part of [the] cyclical transmission mechanism working.

But it would be, I think, troubling if you saw a return to very strong 10 to 20 per cent per year persistent rates of growth of housing prices, especially if that was accompanied by a return of rising leverage.

I think that would be a very dangerous thing to do and we would be imprudent in the extreme to preside over that.

I don’t think that’s what’s going to happen by the way – I don’t think that is what is happening and I don’t think it’s that likely because I think the household sector has worked out.”

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Our experts reveal their favourite property investment strategy.

Another great Real Estate Talk show  produced by Kevin Turner. If you don’t already subscribe to this excellent weekly Internet based radio show.

Here are a few of this weeks guests:
Cherie Barber- from Channel Ten’s ‘The Living Room’
Gavin Taylor- from Metropole Property Strategists
Chris Gray- from Sky TV’s ‘Your Money Your Call’

You should definitely subscribe to this weekly audio program. Click Here It’s free and you can listen on the go on your smartphone, iPad etc.

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Does money really make the world go around?

They tell us that it makes the world go round, and maybe it does for all I know about solar physics, but how often do we stop to think what money actually is?

Regular Property Update blogger Peter Wargent gives property investors  primer on what money really is and it’s role in our economy of his recent blogs.

Since money plays a key role in our lives and to some extent whether or not we find our lives to be enjoyable and fulfilling, I recommend you read this blog.

In it Pete explains that:

Behavioural economists have noted that people act differently when money is involved in a decision – by making something free of charge people often feel inclined to take less of it than when there is a charge.

Which is odd because the traditional laws of supply and demand suggest that they should take as much of the free item as they can!

Strange what money does sometimes…

Read the rest of Pete’s here.

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Property Observer navigates the muddling median maze

What’s really happening in the Melbourne property market?

The REIV reported a 7.8% gain in the Melbourne median house price over the final three months of the year to $555,000, with units up 4.2% to a median value of $456,000.

However the December quarter figures released by RP Data-Rismark based on its daily updated index suggest the Melbourne property market continues to undergo a correction, with house prices falling by 1.5% over the quarter and units down 2.7%.

Australian Property Monitors  reports a more modest 2.4% gain in Melbourne house prices and a 1% gain unit prices of the December quarter, with both markets essentially treading water over the past 12 months.

So what is really going on? Larry Schlesinger explains it well in Property Observer:

The differences can be partly explained by the different median calculation methods used and in the case of the REIV, by the quality of the data used to calculate its December results.

The REIV bases its figures on the median price – that is it ranks all sales from high to low recorded over the quarter and plucks out the middle or 50th percentile observation.

Australian Property Monitors (APM) and RP Data use what some would consider more sophisticated measures of median property price changes.

APM uses a stratified median price method, which controls for changes in the composition of properties sold by separating the total sample of properties into a number of sub-samples. It also issues revised figures based on better available data.

RP Data-Rismark uses a daily hedonic index, which measures home price movements on a “like-for-like” basis according to their key attributes, such as location, land size, number of bedrooms and bathrooms, and is the only provider that does not revise its figures.

The gains reported by the REIV suggest there is a trend of improving property values, but readers should keep in mind a number of issues which may have impacted on the stronger-than-expected results.

Firstly, they follow significant downward revisions to September quarter figures, which increased the gap between REIV figures quoted for the December and September quarters.

The September quarter median for Melbourne houses was revised down from $530,000 to $515,000, while units were revised down from $442,000 to $437,500.

As a result of the revisions the December quarter gains were much greater.

The stronger REIV results in the December quarter were also impacted by a lack of sales in nearly two-thirds of suburbs, which would also have skewed the data.

Schlesinger suggests:

Readers could of course consider taking an average of the three data providers (as Melbourne property market analyst Monique Sassoon Wakelin suggested investors do in her ABC radio program last year), which thereby confirms that any conclusion of a dramatic December quarter recovery may be premature.

Averaging out the three data providers’ results, house prices rose 0.8% over the quarter while units are up 0.3%, indicating something of upward trend, but no major rebound.

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10 Reasons the Residential Market will be 5-10% Higher by the end of 2013

In a recent Facebook Post leading Sydney estate agent John McGrath gave 10 reasons he feels confident our property markets will pick up this year

  1. The Australian share market is recovering quickly & this will generate (& replenish) great wealth for many Australian
  2. China is on the surge with an 8% anticipated growth rate this year (and beyond) & we will benefit more than any other country
  3. We have record low interest rates with existing & new borrowers reaping the benefits making property more affordable
  4.  We have a nationwide housing shortage & will for some time, so demand will outstrip supply in an improving sellers market
  5.  Cash & term deposits are becoming far less attractive & many people will see the time is right to switch from cash into growth assets
  6.  Rents will continue to climb in the face of the housing shortage providing investors increasing yields over the next few years
  7.  Self-managed super funds (SMSF) investing directly in residential property is the biggest change I’ve seen in the last 12 months
  8. Luxury homes are back by 20%-40% in value & will provide great buying for the recovering professional market buyers (read Palm Beach weekenders are about to become mega popular again!)
  9. Most experts are tipping a landslide change in Federal Government which will give great confidence to the business community
  10. As all the above happens in our connected community we’ll see a surge of confidence & FOMO which will stimulate continued investment over the next 3-5 year cycle.

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Blogs you may have missed this week:

If you didn’t have a chance to read my daily blog, here’s a list of the blogs you missed this week:

ABS confirms housing prices are moving forward

The 10 most important life lessons of a property investor

What are the banks going to do with interest rates now?

How will an election year affect our property investment markets?

 

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About

Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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