The Rumblings Of Discontent Continue

Here’s a great article from Steve KcKnight.

The Aussie property market seems to be running out of steam at an increasing rate, evidenced by key property statistics, consumer confidence, and interesting commentary appearing in unusual places (see the recommended reading link below).

Property Statistics

RP Data (now known as Core Data) have just released their November Data Home Value Index and it declined by 0.3%, evidencing a slowing in the growth rate across the country as a whole.

Over November dwelling values appreciated in Sydney (+1.0%), Brisbane (+0.4%), Perth (+0.9%) & Hobart (0.2%), and declined in Melbourne (-2.6%), Adelaide (-0.3%), Darwin (-0.8%) and Canberra (-0.5%).

As can be seen in the image below, there appears to be a declining ‘top’ in regards to percentage growth for the last three market peaks.


Furthermore, judging by the shape of the graph below, we seem to have reached a market peak with a classic ‘head’ shape emerging.


If the past is any indicator of the future, the previous two ‘head’ formations have preceded stagnate and negative growth periods of between 1 to 3 years.

Rental yields are remain precariously low, with the 8 Capital City yield being 3.7% pa for houses and 4.5% pa for units. Given interest rates are circa 5% pa, this means that every median house in every Aussie capital city would be negatively geared.

The Economy As A Whole

GDP numbers released yesterday failed to impress, missing expectations and leaving economists wondering where future growth in the Aussie economy is going to come from given the mining boom has ended and commodity prices are in decline. Journalists are calling it an income recession, as real net national disposable income was negative for two consecutive quarters.

The Aussie Dollar hasn’t got too many friends right now, dropping to fresh four year lows against the USD. Bad news for anyone planning a visit to Disneyland this Christmas!

Consumer confidence remains in the red, and I suspect we shall remain in pessimistic territory for a while yet.

The only bright spot has been the collapse in the oil price putting a smile on the face of anyone driving a V8 (or any petrol car, for that matter). Did you read my recent blog about oil prices? If not then you can read it here.

But just be careful about the joy you feel watching the petrol price fall. There are some good articles pointing to recessions for significant world economies; in particular Russia (and beware a World Superpower in financial trouble!)

Steve’s Summary

Low interest rates have certainly fuelled a property price revival. But it’s been patchy. Sydney and Melbourne have done really well, Brissie less so, and pretty much the rest of Australia has been stagnant.

Yet even the kick along from low home loan interest rates is fading.

September mortgage statistics revealed that for the first time ever, investors made up more than half of all new loans. This is a significant warning sign, as a market dominated by speculators will often exhibit significant volatility.

Overall, while home loan interest rates remain low (and might even go lower in 2015!), it’s getting harder and harder to mount an argument for strong house price growth in the first half of next year.

The message for the moment is: remain alert, not alarmed but fasten your fiscal seatbelts, just in case of unexpected economic turbulence.

All the best,

– Steve

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