The Australian media seems willing to publish any commentator who uses the words “Australia”, “housing” and “bubble” in a sentence, so this weekend I thought I’d devote my regular Saturday summary to commentaries on the housing bubble I’ve read during the week.
Enjoy your weekend…and please forward to your friends by clicking a social link buttons on the left.
A few home truths to quash the property bubble hysterics – Stephen Koukoulos
In Business Spectator Stephen Koukoulos writes rather that fret about a property bubble, have a cup of tea and a good lie down.
The house price debate is rapidly running off the rails and throwing up all manner of furphies, melodrama and misconceptions.
The current lift in house prices would barely be registering on the Reserve Bank’s wall of worry, despite the quite extraordinary beat in some parts of the commentariat.
Let’s set out a few home truths.
Even though house price growth is reasonably solid at the moment, with prices up around 5.6 per cent over the past year, at least according to the RPData series, all that is happening is a catch-up from the house price falls that were evident between 2010 to early 2012. It is no more than this.
In other words, the level of house prices now is roughly the same as three years ago.
The quarterly ABS house price series shows a similar trend to that shown by RPData, with the weighted average of eight capital city house prices up just 0.5 per cent between the June quarter 2010 and the June quarter 2013. That is an average annual increase of 0.1 per cent!
Bubble? Trouble? Hardly.
He gives many more arguments in his article but concludes:
It would be absurd to think that if there was an unwelcome and unsustainable house price acceleration that Glenn Stevens would not step in with interest rate hikes as the no-brainer policy response. This would be the case even if it meant the Australian dollar was a bit too high or that other interest rate sensitive parts of the economy copped some fallout in a scenario of monetary policy tightening.
Of course, excessive house price growth is undesirable, particularly when it is driven by speculation and leverage, but for now, there is scant evidence that this is behind the rise in house prices over the past 18 months or so.
One highlight of this week’s RBA Financial Stability Review was that credit growth was so weak, not strong, that banks would relax their lending standards to try to boost market share. Rather than a bubble, there is an ongoing slump in housing credit.
If, and it’s a big if, we see house prices up 20 per cent in two years’ time, you can bet the granny flat that interest rates will be significantly higher than now and that prices growth will be about to be on a path lower.
For now, rest easy – house prices have recorded no net growth in the last three years, the recent rise is fundamentally based and will not get out of hand given the likely pragmatic approach from the RBA.
How to find areas that will outperform | Avoid bad property advice
Another great Real Estate Talk show produced by Kevin Turner. If you don’t already subscribe to this excellent weekly Internet based radio show.
Details of this week’s show
Louis Christopher from SQM Research gives us an insight into how he finds areas that are ripe for capital growth
Damian Collins from Momentum Wealth takes us through an exercise that indicates an area’s potential for investment
Rob Balanda shares how he made almost every mistake with his first property purchase
Don Burke from the popular TV series Burke’s Backyard tells us about where he lives now and shares some nice memories
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.
Housing bubbles in Google
In Yahoo Finance Peter Switzer Bell Potter’s Charlie Aitken’s take on the problem.
“With the Australian press seemingly willing to publish on the front page any commentator who uses the words “Australia”, “housing” and “bubble” in a sentence, I thought I would Google those three words and see what came up. Yes, just 2.5 million articles on the subject, starting back in 1989!
Enough said.”[sam id=38 codes=’true’]
He then quotes CommSec chief economist Craig James who did the number crunching on how bubbly house prices are right now and this is what he found:
Sydney dwelling prices are up 8.3% for the year to September.
But these prices rose only by 1.2% last year and actually fell 2.4% in 2011!
Boomtown Perth’s house prices were up 7.9% this year but fell 0.5% in the month of September, so it’s losing bubbles.
Melbourne was up 5.4% while the Brisbane-Gold Coast region put on a bubble-less 1.8% — let’s call it flat!
Switzer concluded – maybe it’s time for a realty reality check.
Housing bubble overstated: ANZ
Another view that housing bubble concerns are overstated was given by ANZ Bank chief Phil Chronican.
Bloomberg reports Mr Chronican told an American Chamber of Commerce in Australia lunch weak jobs growth and buyer caution will temper house price gains.
He expects house prices to lift about five per cent in the next 12 months and the shortfall of dwellings to increase from 270,000 to 370,000 by 2015 as rising costs and regulation limit the number of new homes. Mr Chronican said,
“The increase in prices recently has reignited speculation of a potential house price bubble.
“I do think this concern is overstated. At least part of the recent strength has simply been a rebound after a period of quite soft prices.”
Sydney risking the slippery slope into oversupply: Terry Ryder
In Property Observer veteran property columnist Terry Ryder warns inner city Sydney shows every sign of following the bad example of Melbourne down a slippery slope to oversupply. He says:
Sydney’s situation may end up as crazy as Melbourne’s – and for similar reasons. Developers continue to bring on new projects around inner Melbourne despite big vacancies, because they’re able to flog their apartments to ill-informed offshore investors at high prices.
Sydney developers clearly want a piece of that action.
And, in keeping the careless manner in which they report real estate issues, newspapers are characterizing the looming construction frenzy as a renaissance in city living leading to an exciting boom time.
This is a clear and present danger for Australian buyers. Developers don’t care who buys their units as long as someone does, nor are they concerned if their buyers later find themselves unable to tenant their units or sell without taking a capital loss.
But it is a concern for the market and for real estate consumers.
So I urge investors to stay away from the inner city Sydney apartment market. There are many other, better places to buy around Australia.
Weekend fun video
In 1978, a very nervous 23-year-old Steve Jobs (sporting some magnificent facial hair) was interviewed on KGO-TV San Francisco. Though footage of the interview itself has (probably) been lost, the prep from 30 minutes before still exists. This is billed as Steve’s first TV appearance, and it certainly seems that’s true.
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: