The global real estate market

Written by Paul Kounnas | Monday, 09 July 2007

Having just returned from a world real estate conference in Barcelona it’s evident that there is a growing demand for residential property in most countries around the world, which in turn is fuelling price growth. According to world reports there are a number of factors which is driving this demand;

• There is an excess of liquid funds worldwide. There is about five times more equity floating around looking for an investment than there was a few years ago.
• Inflation rates in most Western counties are low and this has led to a general feeling of low risk.
• World interest rates are generally low. ...

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  Most of Europe is around 4%, the US around 5% and, wait for this, in Japan it’s less than 1%! Australian interest rates are actually high compared to many western countries and according to many forecasters are set to rise even further in the very near future.

In Australia there is another factor that is fuelling demand for property and that is our higher levels of employment.

The impact of increased interest rates has the effect of slowing down demand and hence price growth.

According to BIS Shrapnel most of Australia’s east coast, except for Sydney, would experience price growth until 2010. Although a rate increase might put the brakes on price growth any impact would be offset by a strong underlying demand for new housing.

Brisbane is expected to experience the strongest price growth according to the BIS report.

Another interesting statistic that came up in the conference was that Australia is not alone in the area of high home ownership. In Europe, Spain leads the way with 81% of home ownership followed by greece with 80% and italy with 79%.

Magic Melbourne

Written by Paul Kounnas | Monday, 11 June 2007

Melbourne is one of the best cities to live and invest in.

According to the latest figures from the Australian Bureau of Statistics, Melbourne, Australia’s second largest city, has had the largest population growth compared to the other cities in Australia.

The figures show that Melbourne’s population grew by almost 50,000 in 2006, reaching 3.68million people. over the last few years Melbourne has averaged population growth of 43,000 a year, well ahead of it’s closest rivals, brisbane with 38,000 and Sydney with 33,000.

Interestingly enough, of all the capital cities Melbourne also has the highest level of ...

home ownership.

Given all this, it does not make sense that house prices in Melbourne are cheaper than four other capital cities, Sydney, Perth, Canberra & Darwin. This makes Melbourne one of the cheapest capital cities and in line for a greater price growth in the next few years.

The Melbourne market has started the year with some incredible buyer demand. Affordability however is still a major concern in real estate and any well priced and affordable suburbs will do well in the next few years.

On a global scale our major Australian cities continue to rank favourably against other cities from around the world. These are judged on the quality of living, from the perspective of what they offer in the way of a selection of restaurants, recreational facilities, a well established transport infrastructure and whether they provide a wonderful environment in which to raise a family.

On another positive note, apart from Manningham being rated as the most livable municipality in Melbourne statistics show that there are more people in Manningham owning their homes than any other municipality.

Market update

Written by Paul Kounnas | Monday, 28 May 2007

Residential sale prices this year confirm the market in most Melbourne suburbs are experiencing solid growth. The Manningham area is no exception. Rise in demand for this area has driven property prices up considerably.

There has been a shortage of houses on the market, both new and established, and this has been the key driver behind this market surge. It simply comes down to supply and demand.

Figures published by the REIV show that Melbourne’s median house price for the March quarter fell by 3.3% to $360,000. As the table shows the overall change for Melbourne from March 2006 to March 2007 ...

is 7%. Our own statistics indicate that the market in our area has performed better than the overall figures indicate. Some of you may recall my article about the unreliability of the median house price reports. This article can be found on our website www.hudsonbond.com.au by clicking on Real estate articles and look up “Don’t Trust Median House Price Reports”.

Home loan affordability however is now at its lowest point for many years. Home loan affordability is calculated as the ratio of the average home loan repayment to the average family income. In Victoria, the proportion of family income required to pay the average home loan is currently about 35%. This is extremely high, compared to the more comfortable levels of around 20-25% a few years ago.

Because of affordability I expect price growth from here on will be more moderate. If prices continue to rise at the current rate than it is inevitable that we will end up with a correction in the market place. This initial rush to buy may calm down once an election date is called, if not, perhaps another interest rate increase may be inevitable.

Don’t trust median house price reports

Written by Paul Kounnas | Monday, 12 February 2007

The median price which is often quoted for house prices can be a very inaccurate measure for change in house prices.

The median price is calculated by picking the middle sale from all the sales in a particular suburb. To understand this lets look at a simple example; If 5 sales are recorded in a suburb and arranged in order from the lowest to the highest price, the third sale becomes the median price.

The median house price should only be used in conjunction with other information. The reason being that it may not accurately reflect the reality within each suburb, particularly in a municipality like Manningham which has a ...

huge diversity of properties and prices. To clarify this look at these two examples.

As you can see from the two examples the average price in each case is $480,000, yet the median price differs by a huge $100,000. This would be reported as a 25% increase in prices.

The latest quarterly figures recently released for our area show Doncaster’s quarterly price change was up 16.1%, Doncaster east’s down 2.8%. The market did not increase by 16% in Doncaster, and drop by 2.8% in Doncaster east. Similarly Templestowe had a 10.1% drop and Lower Templestowe a 1.4% gain. The best example of the inaccuracy of the median price is the figures for Warrandyte, 27.7% drop in prices for the quarter and worse still 57.3% fall in the last 12 months. This is clearly not correct as prices in Warrandyte did not fall. What has happened is more inexpensive homes sold than expensive acre homes, making the median price a lower figure.

The median price is not even a rough guide in some of these examples so please do not be alarmed by variations in the median price. Furthermore, don’t use the median price as a valuation tool.