An Economists Heartache

Real Estate Information

Written by Paul Kounnas | Wednesday, 22 February 2012

Economists keep telling us how bad things are and how much worse they are going to get. However history shows that economists have been making the wrong forecasts for years.

In today’s instant information age economists have access to the latest data, statistics and all the research they need at the click of a button. Why do they still continue to make the wrong property forecasts year after year?

To be fair, not all economists have been predicting that the property market is in a bubble and about to burst. But a ...

significant number of them have and these are the ones we tend to hear the loudest.

The media loves bad news, so predictions of doom and gloom generate many more sensational headlines, while good news hardly gets a mention.

Here is why I think many economists consistently get the property market wrong.

Economists work with numbers, they analyse statistics and figures, look at past graphs and trends before formulating an opinion based on all this historical data.

Market movements however are not an exact science and no one can predict the future.

The economic fundamentals are easy to understand and analyse but the property market is driven by more than just the fundamentals. Investor psychology and market sentiment play a major role and explains why the market goes through cycles.

Whilst the long term performance of property is driven by the country’s economic fundamentals, its short term performance is influenced by consumer confidence.

I have been in real estate for over 30 years and I have not yet met anyone who can consistently and accurately predict the future. If you stick to a proven investment strategy and buy property that is well located, you should see the value of your investment grow over time.

What Sells A Home

Selling Advice

Written by Paul Kounnas | Wednesday, 15 February 2012

It is every home sellers dream to sell their home quickly and for the best possible price. But how can this outcome be achieved?

The most common mistake many sellers make when selling is they discover the true market value of their home only after they are talked into signing up for an expensive advertising campaign. If the price they want is not reached during the marketing, the seller is locked in. They either sell for less than they had originally hoped to achieve or they pay for an expensive advertising campaign that did ...

not result in a sale.

Understanding some of the factors that affect how quickly and at what price your home may sell can save you from wasting thousands of dollars on a failed advertising campaign:

The location of your home is vitally important and will play a major part in how quickly it sells and the price you receive.

But the most important determining factor whether your home sells is not location, it’s price!

That’s right, the price is the main reason your home sells or not.

Just imagine that you have a well presented home in a sought after area with a price that is more than any other comparable home in the area. Is anyone going to buy it? No, buyers may not even inspect it. You can advertise it on the front page of the Herald Sun if you like and it’s still not going to sell if it’s overpriced.

But if you price the property competitively it will attract genuine interest and will sell. It will sell for a better price than what an overpriced and overexposed property that’s been on the market for months will end up selling for.

Some other factors that can affect the sale of your home are its street appeal and its presentation when buyers step through your front door. Does your home have that WOW factor to win the hearts of buyers? Also renovated bathrooms, and updated kitchens with open living areas that flow to an outdoor entertainment area, can greatly enhance the appeal of your home. But ultimately it will still come down to price.

If you want the best possible price you must be realistic about the true market value of your home in today’s market. The final price you’ll receive will be what a good agent can negotiate from a genuine buyer.

What Will 2012 Hold For Property?

Market Update

Written by Paul Kounnas | Wednesday, 08 February 2012

Confused is the word that best describes the real estate market at the moment – at least as far as the media and many gurus are concerned. There are so many different views on where the market is heading that meaningful analysis seems impossibly hard.

Sure, the market is flat and properties have lost some value in recent months. But that just means there are more buying opportunities.

Despite the worst predictions, in the past year Melbourne dwelling values fell just 5.8% according to the latest RP Data figures. Even though prices ...

may remain flat for a while and some properties could fall further, there’s absolutely no reason to expect a crash as the media would have you believe.

There are only four things that could make our property markets crash: Recession, High Unemployment, High Interest Rates, and Oversupply.

Recession, although a possibility is unlikely in the face of our current resources boom. Rather than high unemployment we are seeing a shortage of skilled labour necessitating an increase in immigration. High interest rates are not going to happen any time soon as we have just had a reduction and may yet see another.

Property oversupply also won’t become a factor as we have a national shortage.

HSBC’s Chief Executive Economist, Paul Bloxham, points out the dwelling price to income ratio has remained stable since 2003 at between 3.5 and 4.5. He is forecasting growth in disposable income per household of around 5% per annum over the next few years on the back of strong employment and wages growth – a pointer house prices will grow at this pace.

The fundamentals for a strong medium and long term market are sound as Australia has a strong economy, full employment, rising wages, affordable interest rates and a growing population.

“Historically property prices go up in small booms, catch their breath and sometimes even drop before moving up again.”

“In reality, potential short term problems only underscore the importance of sticking to the basic rules of property investment. Look for property at the right price, in the right location, with the right rental income.”

“This market provides opportunities below intrinsic value as a hedge against further falls.”

Market Update December Quarter 2011

Market Update

Written by Paul Kounnas | Wednesday, 01 February 2012

Median house prices across Melbourne rose by 1.9% in the December quarter. According to median house data released by the REIV the Melbourne median house price is now $550,000, up $10,000 in the last three months.

The doom and gloom experts who predicted a crash in property values in 2011 got another year wrong. What we experienced instead was a year of controlled price adjustments.

Some experts are predicting that the market may have bottomed out. However the positive data from one quarter is not enough evidence, particularly with median house prices which historically can often swing wildly from quarter to quarter. We have to wait ...

and see what happens with the economy over the next three to six months.

Some believe the property market in 2012 will return small positive gains on the back of the recent interest rate cuts.

The performance of units and apartments during the quarter also had a small increase, mirroring the house market.

The continuing uncertainty about the international economy means our property market will remain subdued. Once the right polices are implemented overseas we’ll see consumer confidence lift and so will property prices.

Home Truths About Advertising

Selling Advice

Written by Peter Lees | Tuesday, 24 January 2012

Open homes, auctions and vendor paid advertising, are a great benefit to real estate agents but of very little benefit to home sellers and buyers. These add ons are part of the up-selling technique, a little like the ‘do you want fries with that?” of the real estate industry.

Take for example, Vendor Paid Advertising. Vendor Paid Advertising is worth millions of dollars to the real estate industry. A look at the profit and loss statement of some real estate companies would show that ‘advertising’ appears as ...

an income item not (as most consumers would believe) as an ‘expense’ item.

When I first started in real estate, the concept of an owner paying the cost of advertising and still paying a commission was to say the least, highly unusual.

Industry trainers however, discovered that if you could convince a seller to go to auction and also convince them that open homes were somehow needed, that maybe you could make an argument that advertising was needed and then - who was to pay? It is interesting to look back on those days.  When agents were paying for newspaper advertising, ads were only a single column and photographs were rare. Now that sellers are paying, ads are HUGE.  Do a larger percentage of these houses get sold? Of course not!

More and more sellers are waking up to the reality that newspaper advertising is unnecessary.  I wonder if we will see many companies that have become reliant on the income for selling advertising rather than their income for selling houses, closing down?

With more than 95% of buyers now using the internet to search for property, print advertising will become like a dinosaur, extinct.

Take this as a prediction:  A home owner paying for advertising in the newspaper and also paying a commission will cease to be common practice in the very near future.