Jan 2013 Housing market update courtesy of L J GILLAND REAL ESTATE PTY LTD – http://wp.me/p1bR1G-hz

by John Edwards
Consultant to and Founder of Residex Pty Ltd.

The Brisbane house and land market was the best performer for the month of January. Growth was strong at 1.98%. If this were to continue each month throughout the coming year, the outcome to January 2014 would be an outstanding 26.5%. However, it is not rational to suggest this growth will continue at this rate for the balance of the year.

The trend for Brisbane houses is presented in Graph 1.

Graph 1

Residex data indicates that there is a stock shortage in Queensland. However, research leads us to believe that people who desire a house and land package will not necessarily alter their preference when affordability issues present. They will instead put off a purchase and rent until they can afford what they want. They do not move to purchase the affordable alternative (a unit) easily. This seems to be a reasonable decision as home purchasing is a very long process that generates financial risk and often hardship. Hence, the difficulties are generally only accepted when the person is happy that the property purchase meets their desires.

My above point probably explains why the Brisbane unit market is performing poorly in contrast to the house and land market. The unit market will be where there is surplus stock, but it is not where the current demand is generally.

Graph 2 presents the position of the Brisbane unit market up to the end of January.

Graph 2

Rental increases are occurring in both market segments in Brisbane, providing confirmation that my above statement is correct. The weekly rent for houses increased by 10.8% to the year ending January 2013, while units rose 18.32% during the same time period. There is clearly rental competition for both types of dwellings but only house and land stock presented capital growth. Further, the unit market is the main domain of the tenant. As expected, this market presented the most demand and the highest increase in dollar weekly rentals.

Table 1 presents the outcome for all capital cities and country areas in each state.

Table 1

The most disappointing result is Perth. The quarterly growth rate was negative and it would appear that this market is reacting to the much publicised slowing in resource projects more quickly than expected.

The unit market is a small component of the overall housing market in Perth, so its small nature means that it may not be a good indicator of what is happening. Graph 3 provides the trend for Perth Houses.

Graph 3

The Melbourne market is reacting as expected. Residex estimates indicate that this market is in a surplus stock position (approximately 13,000 dwellings), which is most likely to be found in the unit market. It is reasonable to expect that this market will correct with this level of stock overhang.

The adjustment in the Melbourne market was -2.52% for units in the last quarter and -0.25% for houses.Investor activity is unlikely to assist this market as rental yields are the lowest in the nation at 3.9% for houses and 4.7% for units.

Graph 4 presents the Melbourne trends.

Graph 4

Given the stock overhang and the recent price adjustments, the Melbourne market is expected to hover around the zero growth position until the overhang has been absorbed and rental yields increase.

Overall, housing markets did not perform as I expected in January, or how many industry commentators indicated. Interest rate adjustments are having some impact and can perhaps be said to be the cause of recent growth experienced in many markets. However, further interest rate adjustments will need to occur before markets present real growth on an Australia wide basis. I remain hopeful that the next RBA adjustment will be significant (more than 0.25%) and that it will be sufficient enough to make it the last cut in this cycle.

The early announcement of the Federal Election date was not what we needed as it causes those who are more cautious to “sit on their hands” and await the outcome, even though the election outcome seems fairly clear.

On a positive note, there is better news on the global front. This will assist in generating positive sentiment in the community, which may in turn help drive house prices. There has been less negative press in both traditional and new age media.

The Italian election coming up next week (24 – 25 February) is important. There seems to be a chance that former Prime Minister Silvio Berlusconi will return to power. Should this happen, the European Union could again become a financial market flash point for global markets.

Given all of the above, markets that are currently showing the most promise are northern Australian markets and Sydney housing. I continue to recommend renovation opportunities in these markets. In the Sydney market, older style units will be under some price pressure and offer renovation opportunity.

In my last market update I stated that I would look at consumer sentiment and its relationship to house price growth. You’ll have to forgive me as I have decided to leave this until next month, when consumer sentiment numbers for February are released and finance figures also become available. I am hopeful that the consumer sentiment index improvement we have seen in January will continue into February and that we have a pointer to a much better year than last year.

Where can you buy a house or unit under $400,000 across the capital cities and major regional markets?

by T Lawless on February 15, 2013

The issue of housing affordability always strikes a nerve here in Australia, and there is no doubt that homes across Australia’s largest capital cities are expensive by international standards. There are plenty of studies around that aim to investigate how affordable or unaffordable Australian housing is, however I found the recent Reserve Bank of Australia article (pages 13 to 22 in the December quarter RBA Bulletin) on housing affordability to be one of the most informative studies (http:/www.rba.gov.au/publications/bulletin/2012/dec/pdf/bu-1212.pdf). The RBA point out some of the differences in methods for calculating housing affordability, particularly around the house price to income ratio and why results can be significantly and fundamentally different depending on what data and figures are being used.

For example, on the housing side of the equation, using an ‘average’ (mean) price rather than a ‘median’ will result in a higher estimate of housing prices; so too will focussing on just capital cities rather than all of Australia. Another factor is whether the analysis is based solely on ‘house’ prices rather than ‘dwelling’ prices which include attached and semi-attached homes.

On the income side of the equation, it really depends on where the income data is being sourced from, with the typical options being either survey’s such as the Census or from the national accounts data, both of which are sourced from the Australian Bureau of Statistics. Survey data typically only includes cash income such as salaries and wages, while the national accounts income data includes additional income sources such as superannuation payments.

The difference between using medians and averages is clearly demonstrated in the below graph which show the dwelling price to income ratio to be around 4.1 times based on averages and about 6.6 times using medians.

On the topic of housing affordability, and in line with an ABC World News discussion I was involved with today, I thought it would be interesting to update our analysis about where to find Australia’s most affordable housing.

Across the capital cities and based on all sales recorded over the 2012 calendar year, 31% of house sales and 46% of unit sales were transacted at a price below $400,000. Aggregating the figures together for dwellings shows that about 34% of all capital city homes sold for less than $400,000 over 2012. As you can see in the table below though, the largest proportion of these sales was in Hobart where 67.6% of all house sales and 82.5% of all unit sales were priced under $400,000. Similarly, Adelaide recorded 49.7% of all house sales and 70.7% of all unit sales with a sale price lower than $400,000. Maybe not so coincidentally, not only are these Australia’s most affordable capital cities, but Tasmania and South Australia are also showing the highest rates of unemployment.

At the other end of the spectrum is Canberra where only 8.6% of house sales were priced lower than $400,000. Detached house sales under $400,000 were also comparatively rare in Darwin (23.0%) and Sydney (24.7%).

The city with the largest premium (ie $2 million plus) is Sydney where 3.0% of all house sales were priced at $2 million or higher and just shy of 1% of Sydney units were at this price or higher.

Outside of the capital cities, housing prices are typically much lower. Take Newcastle, one of Australia’s largest regional cities, as a case in point. The median house price at Newcastle is $395,000 compared to Sydney’s $660,000 and the median unit price is $340,000 compared to $489,000 in Sydney. 51% of houses sold over the past year were at price points below $400,000 and 68% of unit sales were priced lower than $400,000.

As far as housing affordability goes, the vast majority of regional cities provide a substantial saving on the cost of housing compared to the capital cities. The drawback to many of these areas though is that job opportunities are often scarce. If we saw more Government and private sector businesses choosing to locate their headquarters in regional locations, the labour market conditions would an improve and it would be easier to attract new residents.

The tables below provide a comparison point against the capital city data for key regional markets around the country:

The series of thematic maps below provide some geographic context to the above table. Areas shaded in the red have recorded at least 80% of house or unit sales at a price below $400,000 over the 2012 calendar year. The concentric circles mark the 10km, 20km and 50km points from the capital city GPO. The white space on the maps is typically areas where the number house or unit sales are either very low or non-existent.

The spatial trends are pretty clear and should come as no surprise. The vast majority of affordable sales are generally located in the outer fringes, with very few suburbs showing a high proportion of house sales lower than $400,000 within 20km of the city. This trend is particularly the case in the larger capitals, although there are a few exceptions. The proportion of unit sales priced under the $400,000 mark show an improvement in proximity, demonstrating the more affordable price points that medium and high density housing options provide.

Best regards,

Linda J. & Carlos Debello, LJ Gilland Real Estate Pty Ltdhttp://www.ljgrealestate.com.au/index.php?lan=ch

Tel: (07) 3263 6085 | Mobile: 0409 995 578 & 0400 833 800 http://www.ljgrealestate.com.au

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About ljgrealestate 据联大

Removing the Hassle from Sales and Rentals across South East Queensland. Aim to Empower other like minded Property Investors. L J Gilland Real Estate is a prestigious boutique agency specializing in Property Investment Management Services and the Sales of Investment Properties with tenants in place. Comprised of a top performing group of handpicked specialists, our Agents proudly serve Property Investors in Queensland. Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. Carlos and Linda Debello offer property investor's the confidence to sell and lease in any market. We provide comprehensive market appraisals, exclusive multimedia marketing campaigns, and knowledgeable, highly personalized counsel on all aspects of real estate. Our Property Management Team is equally considerate, offering investors with in-depth advise, well-researched rental valuations, and highly professional rental management services. http://goanimate.com/movie/0M4bvcZzgIbI?utm_source=linkshare&uid=0u6RGtWsmlVc Carlos’ direct mobiles are 0400 833 800 & 0413560808. Linda’s mobiles are 0409995578 & 0414978700 (prefer email contact for Linda). Office 07 3263 6085. http://www.ljgrealestate.com.au http://www.yellowpages.com.au/qld/aspley/lj-gilland-real-estate-pty-ltd-14091356-listing.html http://au.linkedin.com/in/lindajanedebello http://twitter.com/GillandDebello http://www.facebook.com/pages/ljgrealestate
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