House Prices
Down they go, and possibly for some time too.
After a year and a half of price growth, residential property values are starting to slide.
In our view, prices are likely to continue to slide for much of 2010/11, even if interest rates remain on hold.
If rates rise, then we could see a substantial fall in end values.
We believe the next direction for interest rates is down and not up.
The real economy is quite weak, demand lacklustre and many businesses cannot continue to hoard labour, so unemployment is likely to rise.
On a rolling or moving
quarterly
basis one of the better ways to measure residential price movement values rose just 0.2% in June, down from close to 4% earlier this year.
On a rolling
annual
basis, the most affordable market (cheapest 20% of sales) is now just growing by 2%, down form 10% just three months ago.
The middle-market (60% of sales) and top-end of the market (most expensive 20 % of sales) are both growing around 12%.
Again, this measure is on an
annual
basis.
The top-end was growing by close to 20% per annum three months ago and the middle-market by nearly 15%.
In short, house price growth is slowing down fast and all markets are affected.
The table overleaf outlines house growth figures from three of the larger Australian data providers Australian Property Monitors; RPData-Rismark and the Australian Bureau of Statistcis.
As usual, their results differ, and in some cases significantly, which is somewhat of a pain as they are supposed to essentially measure the same thing.
Values apparently rose 18% according to the ABS over the last twelve months.
Yet APM believe values rose 16% and RPData-Rismark think they went up just 10%.
More telling are the June quarter figures, which rose 3.1% using the ABS figures; 2.4% when consulting APM and fell 0.3% according to RPData.
The results for price movements for individual cities are even more assorted.
They, however, all agree that
Yet, these three cannot even agree as to wheat the median property value is in each of our capitol cities, with values ranging by $50,000 nationally and up to $100,000 in the case of
So which data set is the most reliable?
We used to use the ABS results, but in recent years RPData have improved their method of analysis.
So RPData it is.
Why?
They use a hedonic progression methodology which attempts to overcome compositional bias associated with more traditional median price measures.
In simple terms, their index is calculated using recent sales data cross-referenced against individual property attributes such as land area, location, number of bedrooms and so on.
In a nutshell, the PRData-Rismark material provides the more accurate representation of capitol gains or losses in residential property values.
Our final note here is that investing in property is about buying time and not about picking hot spots or a position in the property cycle.
In the current market conditions, buyers need to buy long. Trading short is increasingly risky business.
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Established house prices
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Annual change
¹
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Qtrly change
²
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Median price ($000)
³
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Capital city
|
APM
|
RPData
|
ABS
|
APM
|
RPData
|
ABS
|
APM
|
RPData
|
APM
|
|
|
13.0%
|
10.2%
|
21.4%
|
2.3%
|
0.5%
|
4.9%
|
$625
|
$589
|
$595
|
|
|
27.9%
|
16.1%
|
24.3%
|
4.4%
|
0.4%
|
3.6%
|
$578
|
$500
|
$480
|
|
|
7.3%
|
3.8%
|
8.5%
|
0.6%
|
-1.9%
|
0.3%
|
$458
|
$470
|
$455
|
|
|
11.6%
|
9.7%
|
11.6%
|
1.8%
|
0.9%
|
3.2%
|
$456
|
$409
|
$398
|
|
|
9.3%
|
4.5%
|
13.0%
|
0.6%
|
-2.8%
|
0.4%
|
$526
|
$495
|
$505
|
|
|
n/a
|
n/a
|
10.8%
|
-1.9%
|
n/a
|
0.1%
|
$308
|
$338
|
$350
|
|
|
n/a
|
13.8%
|
14.6%
|
-0.7%
|
0.3%
|
2.8%
|
$581
|
$538
|
$520
|
|
|
16.5%
|
10.9%
|
19.6%
|
1.9%
|
-0.6%
|
2.1%
|
$568
|
$550
|
$525
|
|
Australia/Capital cities
|
15.6%
|
10.2%
|
18.4%
|
2.4%
|
-0.3%
|
3.1%
|
$559
|
$495
|
$500
|
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Matusik Property Insights
, August 2010. APM, RPData-Rismark and ABS
¹
Year ending June qtr 2010
.
²
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