Market Update September Quarter 2011

Written by Paul Kounnas | Wednesday, 26 October 2011

As anticipated, house prices across Melbourne fell in the September quarter. According to the latest figures by the REIV, the median price for a house is now $551,000, down from the revised June figure of $567,000. This represents an average drop across Melbourne of 2.8%.

While the global economic uncertainty persists, consumer confidence will remain low, so I would expect the housing market to generally continue with its current weakness. Some sections of the market may fall further in value while others may rise yet many will just remain flat.

This latest release of housing data does not represent a collapse of our ...

housing market as the headlines over the last few months would have you believe. The market, in many but not all areas, is simply going through a correction.

According to the latest figures many outer suburbs of Melbourne, particularly those with average prices below the Melbourne median, recorded positive growth. Most of the expensive inner suburbs however recorded negative growth, with the exception of just a few suburbs such a Hawthorn and Balwyn which recorded positive gains.

In our area only Bulleen and Doncaster East had a positive result for the quarter while Donvale and Warrandyte recorded the biggest negative swing in prices.

Market Update June Quarter 2011

Written by Paul Kounnas | Thursday, 04 August 2011

According to the REIV the Melbourne median house price for the June quarter has jumped to $590,000. Despite all the doom and gloom in the media the market has not crashed but increased by 5.4% over the quarter recording an overall price growth of 5.6% over the last 12 months.

Don’t look at median house prices in isolation as they never tell the whole story, just like auctions don’t represent the market. Everyone looks at the poor auction results and thinks that is what’s happening in the market in general.

But auctions only represent a small portion ...

of the market, about 20% Australia wide, so they don’t reflect the whole market. Most vendors sell by private sale and these figures are not readily available like the auction results.

As for the figures for Manningham, don’t read too much into the quarterly changes,they do not reflect the actual market. The annual change in prices for the area is a better indication of how the Manningham market has performed over the last twelve months (ignore the increase shown for Donvale and Warrandyte).

The Australian Housing Market Won't Crash

Written by Paul Kounnas | Thursday, 07 July 2011

On my return from the International Real Estate Conference in Cyprus, I was overwhelmed by the negativity surrounding our property market.

Nothing had changed while I was away except, as one property expert puts it, a ‘psychological illusion’ caused by sensationalist media reports, obsessed with an impending property crash.

Talk of a housing market collapse is just media hype. Yes, there are short term corrections in many parts of our market but this is a typical market ...

fluctuation, following the strong growth in prices we recently had.

Let’s look at the factors that can cause the market to collapse:

1. 1. An oversupply of properties.
2. 2. A recession/depression.
3. 3. Unemployment levels so high that many borrowers could not afford to keep their homes and are forced to sell.
4. 4. Interest rates rising to levels that would force home owners to default on their mortgages.

The reasons why we are not likely to see big falls in housing prices are:

1. 1) We have a shortage of houses not an oversupply. We are not building enough homes to keep up with our ever increasing population growth and demand.
2. 2) We have a healthy economy which is the envy of most of the western world. A recession is not likely in the foreseeable future.
3. 3) Our economy is expected to continue to perform at healthy levels,resulting in record levels of employment.
4. 4) Our interest rates are reasonable. Hopefully the RBA won’t push rates to a level where it would cause homeowners to default.

In addition, the tight lending practices by our banks make it difficult to get finance for developments. This adds to the shortage of housing as well as increasing the cost.

The reality is that housing prices have weakened, but strong fundamentals still underpin Australia’s housing market.

As I have said in a previous article, the market is going through a transition period where some properties will remain stagnant, others will fall and some will rise.

Australian House Prices – Are they overvalued?

Written by Paul Kounnas | Thursday, 05 May 2011

The international Demographia Housing Affordability survey ranks Australian housing as one of the most unaffordable in the world. But according to Glenn Stevens, Chief of the Reserve Bank of Australia, Australian house prices are not overvalued compared to the rest of the world.

Speaking at a business luncheon in London recently, Glenn Stevens was not overly concerned by the ratio of income to house prices in Australia because he does not think the real ratio is terribly high by world standards.

Mr. Stevens said that quite often the ratio quoted for income to price of houses for Australia was wrong. “If ...

you get the broadest measures countrywide prices and country-wide measure of income, the ratio is about four and a half, and it has not moved much either way for ten years. It is actually not exceptional by global standards”.

The ratio quoted by International Demographia, which is more than seven, is flawed because their numbers are based on Australian city prices only.

When you calculate the ratio of house prices right across the whole country as Glenn Stevens suggests, Australian house prices are not overvalued by world standards. RP Data-Rismark has the house price to household disposable income ratio at 4.4 times.

There is another important point that is not taken into account by most research groups, and that’s the high quality housing we have in Australia – compared to the rest of the world we have larger houses on bigger blocks of land, 600m2 – 800m2 – so our houses cost more to construct than a typical 70m2 apartment in another country. We generally get more for our money.

I believe our housing market is behaving rationally and don’t expect any sudden changes in 2011.

Glenn Stevens also said that following the global crisis, householders were more careful about running up debt. “They are saving more than at any time for twenty years or more”.