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In this week’s episode, Dave, Cate and Pete take you through:

  1. The February results are in! Summer might be coming to an end, but the property market is getting hotter by the minute. National property values are up 2.1% just for the month of February, the highest jump in 17 years! It’s a very impressive growth rate for a 28 day period. Annualised that’s a whopping 25.2% growth.
  2. Why we think property value growth is greater than the data suggests! Firstly, we are seeing actual sales prices at the point of purchase and well before settlement and the prices people are paying verses recent comparable sales. Secondly, in an upwards moving market, we’re seeing upgraders and downsizers choose to purchase first with a long settlement date, allowing them to comfortably sell after signing the purchase contract. This delay between purchase and settlement is skewing the property data even further, as many sales aren’t officially recognised until they settle. Finally, the complex algorithm that determines the property values in the CoreLogic index would not allow for rapid jumps, because that rightly could risk value estimates being overly sensitive to market movement up or down.
  3. The perfect storm for a property run. Beyond low interest rates, we have had in 2020 less people taking time off to go on holidays because they couldn’t go anywhere, the highest savings and borrowing capacity on record and a seasonal stock shortage in January has created a whirlpool of demand outstripping the supply. Even though more stock is coming onto the market in 2021 compared to 2020, it’s not enough to soak up the demand so far.
  4. What’s behind the property feeding frenzy? We all know that we have the lowest interest rates on record, but what is not as well known, is the nuances behind the unemployment data. Employment is lower by 3.3% for those aged between 15 to 34. However, for people who are aged 35 plus, which is most property buyers, employment has actually increased by 1.2%.
  5. The update for regional areas. Regional areas are still performing at a great pace, with interest from investors, local home owners and tree/sea changers pushing prices up. Rents do not move as fast as capital growth, so the outcome is a reduction in yield. The Property Buyer shares with you how to tell if a market is heated, by looking at rental yields.
  6. Capital cities v regionals – neck and neck. Rents have started stabilising in Melbourne and Sydney and even in the apartment market, which was one of the segments that were hardest hit. Combined capital city growth is catching up to the regional markets, with 2.0% recorded in February v 2.1% in regionals.
  7. The story behind capital city performance. Sydney and Melbourne make up close to 50% of the properties in Australia, so if these markets drag the chain, it brings down the combined capital city data with it. Other capital cities recorded strong growth for the last 12 months, whilst Melbourne and Sydney were the most impacted by Covid. You could almost have 3 data sets: Melbourne & Sydney, other capital cities and regional areas. This separation would tell a better story over 2020 and generally, as these locations tend to be more cyclically aligned.
  8. Predictions for 2021. The Property Planner and Buyer update their predictions for 2021, in light of the February data. Cate and Dave debate how and when they think regulators are likely to step in to cool the market. Watch this space.
  9. Early market indicators. The trio share with you how to get your hands on the critical data to inform your property purchase.
  10. Painting the picture with lending data. Investors could be muscling their way back into the property market, with investment lending jumping by 9.4% according to the ABS, the fastest rate of growth since 2016. Lending commitments to investors have risen every month for the last 5 months, while loans to upgraders are up by 11.3%.
  11. And of course, our “gold nuggets”!

Resources:

Show notes:

  • National market property values are up 2.1%, the highest jump in 17 years – annualised is 25.2%. 
  • Confirming what we’ve been talking about since September last year. 
  • Data lag 
  • A sale is not officially recognised until it settles – there are things that could go wrong before settlement, which is why.  
  • The data is recorded when it goes through the SRO 
  • Upgraders and downsizers – do you buy or sell first? 
  • If you sell first, you could get caught in an upwards moving market and be priced out. 
  • A lot of people buying now, long settlement date and then selling the property. Because the market is hot, they’re confident that they will sell in time.  
  • The long settlement dates are causing a greater degree of data lag 
  • Property is not considered a financial product, unlike the share market, every purchase and sale doesn’t need to be recorded. It means there’s no requirement for data on property values to be up to date. The companies are doing the best they can do, but there’s no law that says that they have to. And that means that we have a lag of property data. 
  • The algorithm is not going to move as quickly as the market. The median of every sale for the previous six months to every sale – 13 mins 
  • Perfect storm 
  • People not going on holiday, highest savings on record, stock shortage in January (seasonal). 
  • That’s created a run.  
  • Now we have a bit more stock on the market, but not enough to soak up the demand.  
  • We’re still seeing multiple bidders at auction. People who are stretching over the appraised value 
  • Why is this? 
  • Low interest rates 
  • We have over the last 12 months, in the age bracket of 15 to 34 – employment is lower by 3.3%. In the age bracket of 35 plus, which is most property buyers, employment has actually increased by 1.2%. It’s become even more competitive in the space that most property buyers operate. 
  • Even though unemployment is really high, the group who are in the market to buy property, is a different story.  
  • Regional areas 
  • Investor interest, local home owners and tree changes and sea changes have pushed up property values. But that doesn’t mean the rent will go up just as quickly. So what we’re seeing is a reduction in yield.  
  • If the rental yield is around 4%, it means that the market’s had a good run. If 5% and above, perhaps the market isn’t doing so well yet.  
  • Tight days on market – less properties going to auction in regional areas.  
  • Price tag is advertised.  
  • The agent will say we’ve got an offer of x, you need to submit an offer by 5pm to beat it.  
  • It’s hard to keep up with. 
  • Rents are stabilising in Melbourne and Sydney and even in the apartment market. 
  • Once yield starts reducing, money will come back into the capital cities.  
  • The gap is closing between regionals and capital cities, regions still a margin ahead, but we may start to see capital cities go past the regional centres.  
  • Why are capital cities not doing as well? 
  • Sydney and Melbourne dominate the capital city data – they make up close to 50% of the properties of the combined capital cities. Melbourne in particular was hit pretty hard with the lockdown and they also rely on overseas students and immigration. 
  • The other capital city property values did really well for the last 12 months who were up at 9%. 
  • In the Feb results, Melbourne and Sydney are back at the top and that could be a portent for what’s to come. The baton could be handed over. 
  • Cate put on the line that Melbourne would have the best returns, Pete and Dave thought it would be Perth. It wouldn’t surprise us if Melbourne and Sydney took the mantel again. 
  • Early market indicators – tells you about listing volumes 
  • It records CMA reports. Where we see an uptake in report generation, that correlates to listings coming in. We can see a huge number of reports generated compared with this time last year.  
  • International boarders 
  • Vic and SA – education is our biggest export, in the country it is No.2.  
  • If international borders open up this year, APRA will have to step in this year – 50/50 
  • 15% or 20% growth in 2021 
  • If property price growth enhances the wealth effect and stimulates spending, they haven’t got a problem with that. What they don’t want, is investors stealing opportunities from home buyers.  
  • Political and media pressure, properties are too highly prices for the average buyer and first time buyers – there will be a resounding chorus by August, September, October.  
  • Lending growth 
  • New housing lending is up 44.3% year on year. 
  • Loans to investor jumped 9.4% according to the ABS and they grew month on month at the fastest rate since 2016. There lending commitments have risen every month for the last 5 months. The investors could be trying to muscle their way back in. 
  • New loans to upgraders was up 11.3%. 
  • The mantra of the Reserve Banks is that they will over-stimulate and that they didn’t do enough of that during the GFC, but it will be interesting to see what happens.

David Johnston- The Property Planner’s Golden nugget: Phillip Coorey Political Editor from the AFR reports Labor has left the door open to not abolishing negative gearing and reducing the 50% CGT cut for investment held over one year. He says that they would both be tweaked to be more palatable. For example not banning negative gearing. An alternative could be to limit gearing to two properties and this would be mean most investors are not impacted as most own one or two, and only those with three or more would be. 

Another update from our Treasurer Josh Frydenberg: 

  • Household cash savings having increased by $126 billion over the last year to record levels  
  • Business cash holdings increased by $112 billion.  
  • There is still around $100 billion of the $251 billion of committed Morrison Government stimulus support still to be delivered to support the recovery. 

Just shows how much cash is sloshing around and ready to be deployed and people will be gearing it as well.  

Cate Bakos – The Property Buyer’s Golden nugget: getting hold of the data is great, but look at your own data and don’t undervalue that. Get your auction clearances rates and go through what’s going on, see what properties are selling for, they results should be on the internet by Monday, pick up the phone and ask the agent. Do your research and be current.

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