Market update – The Property boom continues, median values, rental demand and RBA minutes (Ep. 104)

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

1. Impact of lockdown #4 in Melbourne
Whilst there may be a small lull, we expect activities to pick up where they left off after this small blip. Many auctions have been brought forward or held over zoom. We’re seeing a bit of vendor discomfort in response to the COVID lockdown, but no buyer panic. If anything, buyers seem even more spurred on to compete hard for property. 

2. Internal migrations
The bigger picture is that internal migration to Melbourne could be impacted as there is now stigma around the ability to manage Covid and future outbreaks. This will have a lag effect for a period of time, but will most likely dissipate in the next 1 to 3 years. Development of quarantine facilities outside of the CBD is on the cards and this could have some positive implications for the Melbourne market. 

3. The return of international students
SA and NSW are making efforts to return back to normal, as international education is in the top 3 exports for every Australian state. We hope to see education get back up and running, watch this space.

4. May property Index results are out!
May has returned the 8thconsecutive month of growth for national housing values, reaching 2.2% in May and a stronger result than April’s 1.8%. The Property Planner explains expectations of reaching 15% annual growth in all capitals in the next few months. The poorer months of June, July and August 2020 are still included in the annual growth rate, which are weighting it down even though the market has been booming for the last 6-9 months. Once these levels are reached, there will likely be greater noise in the media and political pressure for intervention against run-away house prices. 

5. Capital cities are up on regionals for the month and the quarter
We’ve had over a year of regional cities outperforming capital cities, due to the pandemic induced sea and tree change. For the second month this year, capital cities have outstripped the regions in monthly growth and as predicted, the tide is starting to turn towards capital cities. Regional areas are still exhibiting strong results, but the capital cities will catch up. 

6. Taking a critical eye to median values
The Property Professor takes you through some data analysis of the ‘Turquiose coast’ in SA, pointing out that median values can be unreliable when looking at the suburb or lower level, because of the smaller number of sales that the data is based on. Incentives can also skew data, such as concessions that have a cap on the value of the property that can be bought. 

7 .Upper and lower quartile analysis
When markets are bullish, the upper quartile (the top 25%) tends to outperform, which is what we’re currently seeing. This is because the people who have more money, spend at a greater level on higher priced properties. Conversely, when there is a downturn, the upper quartile tends to drop the furthest, because there are less buyers as a total proportion of all buyers who are circling the top quartile properties (based on affordability). In particular, at this price level people are more concerned about their level of wealth and hold on to their money. We’re seeing this play out across the combined capitals, where the upper quartile increased by 9.2% over the quarter and the lowest quartile rose 4.2%. 

8. Rentals – supply is dwindling and demand is increasing
With the return of expats to Australia and an increased number of home buyers converting previous investment properties into homes, rental stock on the market has been dwindling. The stock shortage is creating fierce competition within the rental market. Regional cities have exhibited the highest rate of increase, with rent increases of 9.6% over the last year, while capital cities have exhibited increases of 3.3%. It’s important to remember, though that oversupplied, undesirable 1 bedroom apartments in high rise blocks will be skewing this data for some of our cities in particular, (cue Melbourne and Brisbane).

9. Investor activity picks up
The rate of change has been quite dramatic for investor activity in the last few months, which speaks volumes to the strength of the market and low cost of finance. There will be increased pressure on lending restrictions and we expect the jungle drums to start beating when we see the 15% annual growth level hit in the next few months. It’s likely that measures will be applied Australia wide, which is not necessarily a good thing. Darwin for example, is in the midst of a much needed recovery, showing 20% annual growth for the year. Our rental housing shortage is a serious issue for our nation, and one that will only be exacerbated by a tightening of credit for investors.

10. Listings data shows the strength of the market
Although new listings are coming on to the market, the total number of listings is still dropping, showing that older properties on the market that were previously not receiving any interest are now being snapped up. Total property listings fell by 6% in May, while the listings for properties on the market for over 180 days dropped by 9.2%. 

11. RBA update
The RBA holds steady on keeping low rates, however they are more conscious of what’s occurring in the market, particularly with the return on investors. We expect the RBA to make a decision in July on whether they will focus on keeping the 3 year yield curve down at 0.1% and will most likely end the $200B funding facility for banks. This means we’ll probably see an increase for fixed rates, which could slow down the property market.


Gold Nuggets

David Johnston- The Property Planner’s Golden nugget: when you’re actually buying, for most people could be 5 times in your life. You need to understand the micro. Macro data gives you a really interesting picture, some good insights into where the market is going, but at the end of the day, you’ve got to understand the micro, comparable sales, what properties are going for.

Peter Koulizos – The Property Professor’s Golden nugget: we can all look at the data, but there is a data lag, the best way to determine what’s happening in your suburb, is to go out and attend a few auctions. Find out what properties are selling for, are they passing in? That’s how you have your finger on the pulse.

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