Here’s my market update of the real estate news items of the previous week.
3 minutes of reading and you can enjoy your long weekend…
1. Interest rates didn’t fall – but they should have – and, for mine, they will fall at least once this side of the Federal election. I have called for a 2 per cent cash rate; others are starting to do similar.
This will mean that property values, in due course, should improve. It has happened in previous cycles.
2. The property market follows a set cycle.
There are five phases of the property cycle – trough, upswing, peak, downturn & recovery.
[sam id=36 codes=’true’]Now, several have asked us, given this week’s Missive about better investment buying, to explain an apparent discrepancy about the length of the property cycle, as reported here. I am actually touched that so many go that deeply into what we write. You seriously need to get lives!
Anyhow, when we examine the official records – which started in 1887 in Australia, but with a gap of no records between 1899 and 1920 – we find that since the late 1800s there have been ten cycles in Australia, which have averaged eight years in length from trough to trough or peak to peak.
So the 13-odd year average – being ten cycles from 1887 to 2013 as many have pointed out to us – does not apply.
The real average is eight years.
Many residential markets across Australia are in the recovery phase of the property cycle. Most of these, it would appear, have paused for the moment. This reflects our slowing economy.
Until we see the baton change from mining & iron-ore revenue shift to a more domestic focus i.e. residential construction, coupled with a much lower Australian dollar, then, for mine, Australia’s housing recovery will remain a stop-start affair.
For more on this topic go here.
3. The good news is that housing affordability has improved by 0.5 percentage points in the first three months of the year, with the proportion of income required to meet loan repayments decreasing to 29.9 per cent.
It was the seventh successive quarterly improvement in housing affordability, as measured by the REIA in partnership with Adelaide Bank.
A year ago, the proportion of income required to meet loan repayments was 32.7 per cent.
Housing affordability woes peaked at a ratio of family income to average loan repayments of close to 40 per cent in March 2007, just before the start of the GFC, when the cash rate hit 7.25 per cent. Today, the cash rate is 2.75 per cent. It will go lower & with it, a continuing improvement in housing affordability.
4. In support, with regard to the slowing recovery, this week’s RPData figures show a second month of price decline across most Australian markets. This reflects what has happened during April & May.
My reading of the market is that things have improved a bit in the last two/three weeks. But it is very hit & miss.
It seems to me that many now see the federal election as a ‘done deal’ & that there really is no excuse to continue putting off things.
There is much talk about the impact of elections on property sales. My experience & the research I have done in the past 25 years, shows that the core market – i.e. those who actually buy assets & not just kick the tyres, so to speak – are not fazed by political events.
Whilst the traffic/enquiry has dropped – in some instances substantially – the core volume hasn’t (won’t) change much.
In other words, if we go back over the sales figures for calendar 2013 in a year’s time, for example, we won’t be able to see an ‘election’ effect.
This also means that well priced & presented property will sell. But anything off the mark will linger. It is still very much a buyer’s market.
5. Next week. ABS lending finance & labour force figures will be released.
I suspect, given they cover April & May respectively, that they will show a continuation of current trends – little improvement in lending finance, maybe a slight increase vis-à-vis owner-resident loans, and a slight rise (0.1 or 0.2 per cent) in unemployment & some in part-time work.
And for those readers who are really nerds at heart, stats about film, television and digital games in Australia come out on the 18th June. I cannot wait.
Enjoy your Queen’s Birthday long weekend.
PS The Queen was actually born on April 21, 1926 – but the Queen’s official birthday is celebrated in Australia (except in WA) on the second Monday in June. Confused? Well let’s add a little more oddity to the mix: in New Zealand it is celebrated on the first Monday in June; in the UK on either the first, second or third Saturday in June and in Canada, the Monday on or before May 24.
Really… the Queen’s Birthday still rates a public holiday? I mean, really? It is like we have made zero progress on so many levels. At least honour it when The Queen was actually born. And as for having a day off work…hmmm, I don’t think we can continue affording such luxuries.
This Matusik Missive, like all of them, is commentary & not advice. Readers should seek their own professional advice on the subject being discussed.
Michael is the director of independent property advisory Matusik Property Insights and writes the Matusik Missive which is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
NEED HELP LISTENING TO MICHAEL YARDNEY'S PODCAST FROM YOUR PHONE OR TABLET?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.