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SQM Research Residential Newsletter - Tuesday 3 September 2019
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Property Valuations
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Boom and Bust 2019 Report

Black Dragon's
Words for the Week

"Unless you can watch your stock holding decline by 50% without becoming panic stricken, you should not be in the stock market.” 

Warren Buffett
Real Estate Realities 

Why increasing migration and the population of our capital cities is the answer to congestion

Rapidly increasing the population of our capital cities through migration is the key to solving Australia’s congestion woes, according to a leading urban planner.

A recent Infrastructure Australia report found that our four largest cities - Sydney, Melbourne, Brisbane and Perth - were set to become paralysed by congestion within the next 12 years, citing they were “failing to keep pace with rapid population growth, particularly on the urban fringe”. Congestion was projected to double during that time.

Sydney and Melbourne would feel it the most – the report stated they’d likely shoulder almost two-thirds of the burden.

Despite this, managing director of EG Urban Development Dr Shane Geha said further increasing the population of these cities by encouraging rapid migration was the answer.

“Spending money on infrastructure to make things better is always a truism. The question is where does the dough come from and what is the timing of that payment in terms of the economy? That’s a significant question that must be asked,” he said.

He said while encouraging migration and rapidly increasing the population of our major cities might sound counterproductive to decreasing congestion, it was the most logical way to do it.

Read More...

PROPERTY LISTINGS INCREASED IN AUGUST

by Louis Christopher, CEO

Figures released today by SQM Research reveal national residential property listings increased in August by 2.9%, to 325,693 from 316,391 in July 2019.  Compared to 12 months ago, listings were down by 2.1%.

All states experienced an increase in property sales listings over the month, with Melbourne experiencing the highest increase at 6.7% followed by Sydney with a 5.0% increase. Perth recorded the lowest increase of 1.7% over the month. 

Year-on-year Sydney’s listings declined by 15.3%.  Melbourne also declined but by a smaller margin of 1.9%. Perth and Darwin’s year-on-year listings also saw declines of 4.6% and 3.6% respectively.

All other states recorded increases on their year-on-year listings.  Hobart’s increase was 10.8%, the highest increase in the nation, followed by Canberra with an increase of 10.0%.


Stock on Market Table:



August’s counts in part reflect the annual seasonal rise in listings that occur as we enter into the spring period. It also may represent some return of confidence by vendors especially in the Melbourne and Sydney property markets.

Agents will be pleased to hear the new listings also rose during the month, however, older listings remained fairly stable.

Asking Prices

Capital City asking prices increased marginally by 1.0% for houses but decreased 1.0% for units, over the month to 3 September 2019. Unit asking prices are now $560,500 and houses $928,800.  

Compared to a year ago, the capital city asking prices posted declines of 1.5% for houses and declines of 2.3% for units.

Over the month, Melbourne’s house and unit asking prices both increased by 0.1% and 0.4% respectively.  Hobart also increased its house and unit prices by 0.5% and 4.2% respectively. 

Sydney’s asking prices has increased by 1.7% for houses but declined 1.2% for units.  Other states to post asking price increases was Brisbane with a 0.5% for houses but 0.4% decline for units; Perth recorded a 0.6% increase for houses but a 0.8% decline for units. Canberra also managed an increase of 1.6% for houses but a 0.3% decline for units, whilst Adelaide asking prices was stable for houses but declined 0.4% for units.

 

CHART OF THE WEEK

Melbourne House Prices to Nominal GDP

Last week we posted our preferred measurements of housing market valuation – House prices to Nominal GDP. The chart was on Sydney. This week we are running the chart for Melbourne
 
Like Sydney, we believe the Melbourne housing market  has bottomed out. Many leading indicators now suggest the current September quarter will record about a 1.5 to 2.00% rise in Melbourne dwelling prices and I am expecting a rise of another 3 to 4% for the December Quarter. That should take the full year to about a 1% decline compared to 2018.
 
Like Sydney, Melbourne has also bottomed out at an overvalued point. That overvalued point though is at a considerably higher level than Sydney. On our numbers, we believe Melbourne is currently 27% overvalued after being at an unprecedented 52% (Dec Qtr 2007) and 45% this time last year.  BTW apologies to viewers of  Seven’s Sunrise. I did mention 45% this morning as the current number. I got mixed up with June 2018. Feel free to blame dementia!
 
The combination of falling prices and rises in nominal GDP over the last 18 months have helped lower the massive overvaluation of Melbourne dwelling prices. But still, the overvaluation remains unprecedented in that previous corrections have enabled the Melbourne housing market to return to some sense of fair value. Not this time. Valuations remain stretched to say the least.  
 
The overvaluation has been driven by a combination of easy and cheap credit plus overtly strong population growth numbers. Melbourne’s population has been expanding by some 120,000 people each year.  That is about 2.5% per annum – a huge growth rate for any first world city.

 
Our housing market valuation measure is all based on our view that there is a relationship between nominal GDP and housing prices. And when you read this chart I think the evidence is there. Logically there should be a relationship. Housing price rises cannot outpace income growth forever. And the more the gap between the two, the more housing prices have to be supported by cheaper and easier access to credit.
 
Historically, the Melbourne went through an extended phase of undervaluation in the early 90s – a period where the city was in recession and both residential and commercial property prices were hit hard.  As the city recovered from the mid 90s onwards, property prices rose and kept rising until the brief slowdown of 2004, which was triggered by the interest rate rises at the time. The beginning of 2010 recorded what was at that point, a record overvalued market of some 30% which was driven by a surge in first home buyer activity and, once again, lower interest rates as part of the RBA’s emergency measures to combat the GFC. Melbourne property prices had a minor correction between 2010 and 2012 which helped bring valuations back to an extent. However the ongoing rate cuts between later 2011 through to 2016 together with a surge in population growth rates triggered a massive rise in Melbourne housing prices taking our valuation measure to record high levels.
 
In an ideal world, Melbourne, along with Sydney could have done with at least another 10-15% correction in the most recent downturn, which would have brought valuations back to ‘normal’ levels. But this wasn’t to be. The surprise Coalition Federal Election Victory, the cuts in interest rates, the loosening of lending restrictions and the ongoing population increases have all contributed to this new upturn, despite the Melbourne housing market being fundamentally overvalued.
 
Next week we will look at the other capital cities, which at this point are not responding as much to the stimulatory measures.


 
DISTRESSED PROPERTY OF THE WEEK

8 Tilbury Court, Kings Park VIC 3021

This 3 bedroom family home on an approximately 579 sqm block could be a good buy for a first home buyer or investor. The home has a practical floor plan offering 3 good size bedrooms all with built in robes, a spacious lounge on entry, well-equipped kitchen with adjoining meals area, central bathroom, timber floor boards and it is within walking distance to local schools, close to Victoria University St Albans campus, Brimbank Shopping Centre and Keilor Plains train station.  Kings Park is a north west suburb in Melbourne, approximately 20km from the CBD and within the City of Brimbank.
 
The home has been on sale since March 2019 for a price of $539,000, the vendor is now asking for offers between $460,000 and $490,000.  It last sold for $311,000 in March 2011.
 

Asking Price for 3-bedroom houses in this area has increased by 2.1% over the month, after a 2.2% decline over 12 months and a huge 25.4% increase over 3 years.  In comparison, Melbourne region asking prices for 3-bedroom houses has declined 4.1% over the last 12 months and 0.4% decline over the month, after a 3 year increase of 14.5%.  In fact, Melbourne’s north-west region has been one of Melbourne’s strongest growing region over the last 3 years with 34.2% growth for 3 bedroom houses. 
 
A low
Vacancy Rate of 1.3%.for postcode 3021 has also resulted in good growth in Asking Rents for the area which has increased by 2.6% over the month, 2.4% over 12 months and 8.9% over 3 years. Investors can achieve Gross rental yield of 3.3% for houses in this area.
 
This house has now been over 180
days on the market.  Currently there are 317 dwellings listed for sale, 231 houses and 86 units.
 
Buyers appear to be attracted to this region due to its affordability and the ability to buy larger blocks of land compared to the south and south east areas of Melbourne.  Now may be a good time to buy as it looks like Melbourne has already reached the bottom of the market and is now rebounding.

The SQM website features free property data that is now more interactive, easier to navigate and user-friendly, so keep monitoring this market’s growth at SQM Research’s 
free property data. Also consider the Property Valuation product for more in-depth data and property price estimator.

 

SQM RATINGS NEWSLETTER

Did you know that SQM Research doesn’t only provide residential property data, we also provide research on all asset classes.  We have data and analytics on over 10,000 funds in Australia.  To find out more and to subscribe to our Fund Data tool click here.

If you would like to subscribe to our Ratings Newsletter, click here.  The newsletter provides regular updates on all funds including ratings changes and media releases, and valuable Insights into the point of view of our analysts on a variety of ratings research related topics.  And it’s completely free!
 

SQM RESEARCH HOUSING INDEXES
 
SQM Research Weekly Asking Prices Index
Week ending: 3 Sep 2019 Asking Price Chg on
prev wk   
 Rolling month
% chg
  12 month
% chg
Sydney All Houses 1,280.3 6.0  1.7%  -3.2% 
All Units 692.7 -2.8  -1.2%  -3.3% 
Melbourne All Houses 940.0 1.4  0.1%  -3.3% 
All Units 540.5 0.4  0.4%  -0.9% 
Brisbane All Houses 619.5 0.5  0.5%  1.0% 
All Units 370.1 -0.9  -0.4%  -2.8% 
Perth All Houses 653.0 7.5  0.6%  -0.4% 
All Units 378.9 -2.7  -0.8%  -3.0% 
Adelaide All Houses 513.4 0.4  0.0%  2.1% 
All Units 298.4 0.2  -0.4%  -1.1% 
Canberra All Houses 819.7 2.9  1.6%  2.6% 
All Units 431.2 -3.3  -0.3%  4.6% 
Darwin All Houses 593.5 1.5  0.1%  1.2% 
All Units 352.3 -1.5  -0.6%  -3.7% 
Hobart All Houses 517.0 5.3  0.5%  6.1% 
All Units 318.8 3.2  4.2%  8.0% 
National All Houses 576.9 3.5  1.9%  -7.3% 
All Units 387.9 7.0  2.8%  -2.1% 
Cap City Average All Houses 928.8 6.2  1.0%  -1.5% 
All Units 560.5 -3.7  -1.0%  -2.3% 
Next update: 10 Sep 2019
 
SQM Research Weekly Rents Index
Week ending: 28 Aug 2019   Rent    Chg on 
prev wk
Rolling month
% chg 
12 month
% chg
Sydney All Houses 679.3 -2.3  -0.8%  -3.6% 
All Units 497.8 -0.8  -0.7%  -3.1% 
Melbourne All Houses 525.9 0.1  -0.8%  0.4% 
All Units 419.6 -1.6  -0.7%  2.3% 
Brisbane All Houses 465.6 0.4  0.5%  3.2% 
All Units 375.9 0.1  0.3%  1.2% 
Perth All Houses 437.7 2.3  1.6%  2.7% 
All Units 338.6 0.4  -0.6%  4.9% 
Adelaide All Houses 399.7 0.3  0.2%  4.0% 
All Units 310.4 -1.4  -0.2%  3.9% 
Canberra All Houses 605.6 2.4  -2.2%  -3.3% 
All Units 457.8 0.2  -0.6%  4.3% 
Darwin All Houses 507.3 -5.3  -3.4%  -0.7% 
All Units 376.0 -1.0  1.5%  -6.8% 
Hobart All Houses 443.5 -6.5  -2.2%  9.0% 
All Units 396.4 9.6  -1.9%  10.6% 
National All Houses 438.0 -2.0  0.0% 0.7% 
All Units 365.0 -1.0  -1.4%  2.0% 
Cap City Average All Houses 545.0 0.0 0.0% -0.7% 
All Units 437.0 -2.0  -0.9%  -0.7% 
Next update: 4 Sep 2019
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