Thursday, November 03, 2011

Rates drop, so will prices rise??

First let's see what the experts say… RP Data provide advice to the Reserve Bank so they have to be listened to when it comes to their views on the property market. We interviewed RP Data live on Toop.TV Wednesday, and if you are selling or buying, you really need to log on to www.toop.tv and hear their 'post interest rate drop' predictions first hand.

Here are 5 key points from their latest national market report ....
1. "Australian housing market correction slows in September.... capital city home values had their best result in 7 months (down just -0.2 per cent seasonally-adjusted and raw)"

2. "With home buyers budgeting on 2-3 rate hikes in 2011 that never eventuated, the housing market has been weighed down by concerns about family's future finances. The RBA's apparent switch to an "easing bias" ........"housing market has undergone a controlled correction."

3. "Notwithstanding the extraordinary hysteria whipped about house price bubbles and so forth, the fact is that the gross total return of 0.7 per cent generated by Australian housing in 2011 is very reasonable in the scheme of things. Indeed, it looks positively attractive compared to the extreme volatility, and stunning losses, sharemarket investors have had to endure."

4. The number of homes advertised for sale remains high, which RP Data's Tim Lawless suggests is one of the key explanations for the secular softness.

5."We are counting almost 300,000 homes advertised for sale across Australia, which is more than 30 per cent higher than the same time last year.  The large number of properties available for sale implies buyers will continue to hold the balance-of-power at the negotiation table," he said.

These comments are based on a national perspective and South Australia has been consistently tracking mid ground when you drill down in the reports. Yet again South Australia is steady and one of the least volatile markets in the country, which in turn is one of the most stable in the world, we should be very happy.

What is not apparent to those outside the industry is that volumes of transactions in September 2011 were at an 11 year low. This means less people have sold and purchased while stock levels have ballooned. Ironically the weekend Advertiser last week carried just 2000 opens which is down substantially on last year. This is possibly explained by the dynamic of less new stock being released this spring compared to previous years (sellers put off because prices are not as they were previously), and the fact new releases typically have an initial advertising budget for press, while old unsold stock remains without ongoing advertising budgets and seem to get parked on internet portals like realestate.com.au . Many sellers cross their fingers hoping for that miracle buyer who has been in a coma for 12 months.

There are winners and losers in this market.  Winners sell first, then buy. Sellers invariably get caught with optimistic expectations of their own property. This market is sensational for those who sell first. Buying additional property or a first home, you are winners over boom time buyers. When buyers and selling in the same market you are in a neutral position but there are less costs when prices are lower.  

Sellers who understand and adapt to current conditions are getting sales in a short space of time. Buyers are plentiful, they are active and they are buying, but they are ultra discerning.

My predictions based on the rate drop... we will experience an immediate adrenaline rush of activity for a few weeks followed by a progressive return of the first home buyer to the market. Activity and sales volumes will rise for November. Investors will gradually return in search of the relative safety and simplicity of residential property investments.  Lower funding costs and improved rents are attractive. There will be little capital appreciation with possible exceptions such as our underpriced top end and our mining affected markets. The downside risk of SA property has been reduced given our past year's price and volume adjustments. International financial woes will keep sentiment nervous for 2012 while local infrastructure projects will help offset these negative influences in SA.

Steady as we go for an extended period with (what I term) a "boring" market for South Australia, where "boring" will be considered awesome news for the long term property investor.

Invitation... Next Thursday 10th we invite all Golden Grove residents to our community opening of our brand new office. From 5.30pm come along and check out our Historic Golden Grove Homestead at 8 Sandstock Blvd - all GG residents welcome.

Anthony Toop
Follow me on Twitter: @Anthony_Toop

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