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When will Darwin’s housing market boom again?

When will Darwin's housing market boom again?

by John Lindeman

The Darwin housing market is relentlessly continuing its decline, even as recoveries occur elsewhere. John Lindeman explains why, and how to pick this market’s turning point.

The Northern Territory is the most sparsely populated state or territory in Australia and seems much too far away for most investors to get excited about, especially with its house market on a seemingly endless downward spiral. Yet back in 2009 Darwin’s median house price was on a par with that of Sydney as the graph shows and its rental yields were the highest on offer in any capital city.

Syd_Melb_Dar

The dramatic rise in Darwin’s housing prices at the start of the current millennium led many experts to assume that this was connected to the coal and iron ore mining boom which was occurring at the time.

In more recent years, the population of Darwin has been falling and there was a net loss of over 1,000 residents to other States in the last year, but what is behind this exodus? Could it really be due to the end of the mining boom or is this a classic false correlation and there’s actually something else that’s causing people to leave, and leading to a decrease in housing demand?

The Northern Territory economy relies on mining for over 16% of its economic output, but there has not been any decline in demand for its minerals in recent years which would explain Darwin’s fall in population. In fact, demand for the Territory’s non-ferrous and high-technology minerals, fertiliser commodities, gold and uranium have grown in recent years.

Demand for oil and gas has also risen, even though Darwin acts only as a support hub for the offshore oil and gas fields located along our northern coastlines and these operations have little impact on the local housing market.

The secret to Darwin’s housing market performance is that it is the defence capital of Australia, the embarkation point and logistical supply and support centre for virtually all of our overseas military, peacekeeping and border security engagements. Every service person stationed overseas requires the support of ten logistics personnel back in Darwin and so housing demand swells there whenever we have large scale overseas commitments and then it quickly declines again when they end and the personnel leave.

Our successive and significant defence and peacekeeping commitments grew rapidly from 2000 onwards, with 6,000 military and police personnel deployed in East Timor and over 7,000 personnel stationed in the Solomon Islands from 2003.

Thousands of military personnel were also engaged in warfighting operations in Iraq and Afghanistan. These deployments propelled the Darwin housing market upwards as the troops were rotated in and out of Darwin, with support personnel and their families making Darwin a temporary home.

More recently our defence forces have been deployed in the north to combat smuggling and prevent illegal immigration under “Operation Sovereign Borders”. We have participated in international stabilisation efforts in Afghanistan and operations to counter Islamic State, but these commitments have now declined, resulting in the current fall in the city’s population and a decline in Darwin’s housing market.

These high numbers of temporary residents changed the nature of the Darwin housing market for several reasons –

  • The personnel and their families were nearly all renters.
  • Their rents were heavily subsidised, resulting in high rental yields.
  • They left Darwin when their term of duty was over.

Property investors were drawn to Darwin from the early years of the millennium because of the high rents on offer, but with the result that nearly half of all dwellings in Darwin are now investor owned rental properties. When you compare this to the rest of Australia where only one third of dwellings are investor owned, it is easy to see that the high percentage of investor owned properties gives this market its volatility.

While rent demand was rising, rents also increased and investors competed to buy properties. This resulted in high price growth, but when rent demand started falling prices followed, as investors tried to sell their empty properties at the same time.

Only new defence, peace keeping and border security commitments operated in or from Darwin will turn this housing market around, so canny investors will keep an eye on possible changes in our overseas commitments as it is the presence of personnel in Darwin who are associated with our overseas military, peacekeeping and border security activities which underpins demand for housing in the city.

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The pandemic panic and our property markets

The pandemic panic and our property markets

by John Lindeman

The coronavirus outbreak is creating questions, fear and even panic as it spreads and has the potential to affect many of us personally. How will it impact our property markets?

The effects of the coronavirus crisis are proving to be very similar to what took place during the biggest viral outbreak Australia has ever had, the Spanish flu pandemic of 1919.

The similarities are so striking that the outcomes for our property markets are also likely to be the same.

Panic

Unlike shares, which react quickly and violently to such scares, the property market is far less volatile – it takes months before sale prices move in response to changes in demand. We are already seeing a decline in new coronavirus cases reported in China, and by the time any local property market shift is apparent, the worst of the outbreak will probably be behind us. 

The demand for housing will continue to outstrip supply

Housing investors have nothing to fear for one simple reason – housing demand is closely linked to population growth and in that regard, we have one of the fastest growing population rates in the western world. This leaves our largest capital cities in a more or less permanent state of housing undersupply, so that if fewer people can afford to buy, more have to rent.

To find out what the coronavirus outbreak is likely to cause locally we need only look at what took place during the worst pandemic ever to strike our shores.

This was the Spanish flu of 1919, which was brought here by soldiers returning from the First World War and then quickly spread through our major cities.

The current outbreak compared to the Spanish Flu Pandemic

The events which unfolded in response to the Spanish flu are strikingly similar to what is occurring right now. As the media whipped up fear and hysteria with alarmist headlines, people grabbed anything that they thought might protect them.

Overseas arrivals were quarantined, public events were cancelled, people wore facemasks and those infected were isolated and the worst cases hospitalised. By the end of 1919 forty per cent of the population had caught the Spanish flu but only 15,000 people had died.

Housing demand totally overwhelmed the effects of the flu

Despite expectations, capital city housing prices didn’t fall at all, as the graph shows. They actually boomed in 1919 and then continued to rise by more than ten per cent each year until 1921.

Clearly, buyer demand was rising to such an extent that it completely overshadowed the effects of the Spanish flu.  

The reason for this growth in housing demand was a huge rise in our population, as the green line in the graph shows. During 1919 our population grew by over 100,000 people, despite the fact that the Spanish flu had taken 15,000. The increase was caused by soldiers returning home after years away during the war who were joined by thousands of refugees and immigrants fleeing a war-ravaged Europe to start new lives in Australia.

Housing demand is always closely linked to population growth

Our population grew by more than 100,000 each year during the first post war decade and resulted in severe housing shortages in our biggest cities. Housing prices rose for several years and this was followed by rent increases as housing demand grew from those who couldn’t afford to buy.

The similarities to the present are obvious – we have one of the highest population growth rates in the western world as the graph shows.

Our current growth rate is similar to the post First World War period and it is driven largely by permanent overseas arrivals who need immediate housing.

 

Australia is once again set to become the lucky country

As a result of its location, abundant natural resources, vibrant culture and positive outlook, Australia became known as the lucky country. We continue to be seen as a safe haven during times of international strife or recession and the Spanish flu experience shows us that our population growth rates are likely to rise rather than fall once the panic is over and borders are opened again.

There are other significant similarities to the Spanish flu outbreak and the current pandemic as well, such as falling interest rates and plunging share prices. In 1919 Investors abandoned savings and shares and flocked to the safe haven of property. There is every indication that they will do the same again.

Taken together, all these indicators suggest that property prices will continue to rise in our major capital cities despite the pandemic, and that they could rise strongly once coronavirus has become old news.

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The property investment puzzle solved

The property investment puzzle solved

by John Lindeman

The housing market is like a huge jigsaw puzzle, with more than ten million properties spread over 15,000 suburbs. Your outcomes as a property investor will largely be determined by where, when and what you buy, so finding properties with the best potential to meet your goals is essential.

While most areas and properties will deliver rental income and some price growth over time, really good results are never guaranteed. Investors must solve the property investment puzzle to find investment properties which will deliver the best cash flow or highest imminent growth.

Although it may seem impossible, with so many properties and suburbs to choose from, it can be achieved by sorting all the suburbs in Australia into groups with similar risks, opportunities and potential. I have done this for you by creating four groups of suburbs called Cash Cows, Shooting Stars, Sleepers and Long Shots. To estimate the likely performance of any suburb, all you need to know is which group it belongs to.

CASH COWS, SHOOTING STARS, SLEEPERS AND LONG SHOTS

Each group contains all those suburbs which have certain characteristics in common, such as their locations, buy price ranges and types of properties, types of renters and potential buyers.

This not only makes them easy to find, but also reveals the likely results you will receive from each of them as an investor.

This knowledge gives you a much better chance of buying in an area with the best potential to meet your goals. So, what are the opportunities and risks of the suburbs in each of the groups?

SLEEPERS OFFER LOW RISK, BUT AVERAGE PERFORMANCE

Most of our 15,000 suburbs are located in established areas of our capital cities and regional towns. They are the sleepers, where property pices and rents move in tune with the overall ebb and flow of the market. Because there are so many sleepers, they actually “make the market” and it is their rent, price and yield performance that generates the city and regional median house and unit data we read about.

This means that if you invest in a typical property in an established city suburb, you can expect to obtain average performance over time – no better, and no worse.

CASH COWS OFFER HIGH RENTAL YIELD WITH SECURITY

Cash cow suburbs are the holy grail of investors who look for positive cash flow because they provide high rental yield driven by genuine rent demand.

You will find them in areas with high renter numbers, such as the older, well established but ungentrified suburbs in our cities and regional areas where overseas arrivals tend to rent. Ex Housing Commission precincts and rural towns also have pools of permanent renters whose local ties are too strong to encourage them to leave.

Cash cows are also located in high density inner urban precincts with excellent facilties and recreational services where young households and professional couples on high disposable incomes seek well appointed low maintenance unit rentals.

LONG SHOTS PROMISE HIGH RETURNS BUT WITH HIGH RISKS

The hope of buying in a town or suburb just before it bursts into spectacular growth is something that appeals to us all. It would be like winning the property lottery and indeed the similarity is striking, because only very few people who invest in long shots ever hit the jackpot.

Most of these investments are based on pure speculation about an imminent housing boom, rather than actual evidence. They start with attention grabbing news headlines or trending social media posts about a huge new mining venture, port expansion, railway line or other intrastructure project that has everyone buzzing with excitement, and the fear of missing out. 

Because so many of these big ticket projects are delayed, altered, abandoned or don’t even start, the initial boom often ends along with the enthusiasm of speculators who rushed in to buy properties. Their disappointment turns to panic as property prices crash and no one wants to buy. Long shots are strictly for those who can bear the risk of recurring losses in the hope of an occasional huge payoff.

SHOOTING STARS PROVIDE BOTH HIGH RENT AND PRICE GROWTH

Hidden quietly amonst the sleepers, cash cows and long shots are the shooting stars, those suburbs with the potential for buyer or renter demand to rise dramatically, generating high price and rent growth in the process.

Sleeper suburbs can turn into shooting stars with a sudden rise in first home buyers, pushing up prices in outer suburban areas, or when retirees decide to downsize, creating booms at the top end of the market. Cash cows boom if a dramatic lift in rental demand from overseas arrivals, tourists or construction workers sends rental yields upwards and investors start competing to buy properties.

Long shots transform into shooting stars when work on a new mine or infrastructure project actually begins and rental demand from construction workers sends rents shooting upwards. Prices often also rise as investors rush in to buy properties.

On completion, some projects such as highway duplications and new railways can cause a second and more sustained boom in buyer demand and prices as nearby areas become safer, easier and quicker to access.

The secret to success is to locate areas where a sudden rise in buyer or renter demand is imminent, and then buying the right type of property just before the growth kicks in.

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John Lindeman’s Property Market Predictions for 2020

Some experts are forecasting doom and gloom for our property markets in 2020, while others expect moderate growth, and a few are even predicting booms. Property market analyst John Lindeman gives us his take on what lies ahead for our housing markets.

Past performance does not accurately predict the future, because history never repeats itself. The past can however, give us some useful insights into how the property market works and what causes prices and rents to change.

This is because the performance of our property markets has been anything but consistent over the first two decades of the current millennium, even though we have experienced regular economic and population growth over the same time.

We experienced a decade of property market speculation during 2000 to 2009 followed by ten years of property hesitation from 2010 to 2019. Knowing the causes of those changes can help us predict where our property markets are heading in the new era of property market regulation.

A decade of property market speculation

Back in 2000 investors greeted the new millennium with optimism and speculative property investing quickly became all the rage. With high price growth dramatically moving from one area to the next, it seemed that all investors had to do was guess which market would be next to boom, as the graph shows

Sydney’s house price doubled in just a few years, while Hobart’s increased by 50% in one year alone. As Australia’s housing prices doubled from 2000 to 2009, leading experts confidently explained that this was how the market always performed. Theories such as the housing market cycle, the property clock and the ripple effect were born in those heady days, trotted out to explain why growth would always continue.

It all came to a sudden halt when the GFC arrived and the mining boom ended, taking many speculative investments down with them. Prices crashed in many formerly booming markets, and when property investors returned to the market after 2009, they did so with caution and carefully avoided areas that had been tainted by the mining boom years.

A decade of property market hesitation

Investors turned their attention to secure and reliable property markets, such as our biggest two cities and as growth returned to these areas, they were joined by more local and overseas investors, so that during 2014/15, over 60% of all properties purchased in Sydney and Melbourne were bought by investors.

As prices soared, APRA intervened by placing limits on investment housing finance. which stopped the investor market dead in its tracks and housing prices in Sydney and Melbourne started falling until the controls were removed again.

On the other hand, cities not effected by either mining or investor booms, such as Hobart and Canberra have experienced moderate but consistent price growth over the last decade. The graph shows how property prices have moved in each of our capital city markets over the last ten years, with the Sydney and Melbourne investor created price bubble and correction being quite prominent.

It seemed that no one quite knew what the results of their actions would be, and so the decade was marked by hesitation. Investors hesitated before deciding to buy only in Sydney and Melbourne, the government hesitated in holding a Banking Royal Commission, APRA hesitated in enforcing its powers to reduce property investor borrowings. However, these events are now behind us and we have entered a new era – one controlled by the regulators.

A decade of property market regulation

What lies ahead for our property markets? Firstly, we can be sure that there will be greater regulation. The Sydney and Melbourne experience demonstrated to APRA that investors can cause housing market booms, and that APRA can control such booms. If APRA uses the same investor trip wires that it did in 2014, the following events will launch them into corrective action:

  • The percentage of investors buying property exceeds 50% of all purchasers.
  • Annual double-digit housing price growth lasting longer than two years.

We do know that having flexed its powers once, APRA may do so again more quickly in future and so the years of really big investor generated housing booms are probably all behind us.

APRA is not alone, because State Governments have fiddled with stamp duty to try and discourage foreign property investors while encouraging first home buyers, and the Federal Government has yet to enact the various recommendations made by the Banking Royal Commission.

We can sure of greater regulation as a result. Governments and regulators are excellent at protecting us from the last disaster we have experienced, so how these interventions and controls will work in future is anyone’s guess. Hopefully, property market performance will be more regular and reliable.

In any event, borrowing conditions for property investors are now back to where they were in 2017, so the losses suffered in the Sydney and Melbourne markets since then will be fully recovered during 2020.

The recent bush fire disasters will impact tourism and holiday destinations for some time, and also convince many downsizing retirees to relocate to well-appointed and located units in their own cities rather than move to sea and tree change retirement destinations. The result will be good price growth in top end medium and high-density urban unit markets.

Housing demand will continue to grow in the big three cites, with overseas migration being the biggest source of new households. This will create more rental demand for high density inner urban units and first house buyer demand in outer suburban areas.

The possibility of recession

The wild card is the possibility of a recession. Many things will change if the country slips into recession during 2020, but the demand for housing won’t alter, because we all need a place to live. What might change is the nature of the demand, with more aspiring first home buyers forced to rent and buyer demand slowing. Because our population is always increasing, this means that rents will increase rather than prices and rental yields will start to rise.

The government will pull out all stops to prevent a recession, and one way they can do this is by massively increasing spending on infrastructure such as roads, railways, water supplies and renewable energy projects. The really successful property investors of the next decade will be those who have purchased properties in areas about to enjoy the benefits of such projects, as these areas will be largely protected from any economic downturns.

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Why past performance is no guide to the future

Why past performance is no guide to the future

by John Lindeman

A racing horse’s “form”, or past performance is often used as a guide to predict its future performance. When it comes to the property market, many experts assure us that it’s the same. But if we actually look at how they use past performance to make their forecasts, we immediately come across a huge contradiction.

Only buy in areas that have stood the test of time

One group of experts claim that we should only buy properties in suburbs that have “stood the test of time”.

They say that their high performance in the past offers us not only the greatest level of security, but the best prospects of continued price growth into the future. This is based purely on the expectation that high past performance predicts future performance. 

Seems logical, except that there are many suburbs and towns where housing markets have boomed for years, only to crash without warning. In fact, every boom has ended at some time, even if prices haven’t crashed. The expectation that growth will continue in the future in some suburbs purely because it has in the past ignores the continual changes in population, purchasing power and affordability that occur in our all housing markets. High past performance is a good result for property owners in such areas, but is no guide to their future performance.    

Only buy in areas that are overdue for growth 

The other group of “past performance” experts use past performance in the opposite way. They rely on the absence of past performance to pinpoint areas that are “overdue for growth”. They identify suburbs, towns and even cities where prices have not risen for years and then claim that such markets are due for a catch up to those locations where high growth has occurred.

This ignores the fact that demand may have dropped in such areas, or that there have been huge housing developments causing oversupplies and that either or both situations keep prices subdued. We have seen such experts predicting the imminent boom of Brisbane’s housing market every year from 2013 onwards, based purely on the fact that growth hasn’t occurred.   

The issue for us is that while both experts use past performance to justify their predictions, one group looks for areas with high past performance to find potential boom markets, while the other searches for areas with little or no past performance to do exactly the same.

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How spruikers use stats that suit them

How spruikers misuse past performance stats

It’s human nature for us to exaggerate when talking up our achievements. We tend to embroider facts about our relationships, families, work and homes, placing them in the best possible light while we push any uncomfortable truths which don’t fit our picture of perfection into the background.

Sales people do exactly the same, but we often don’t realise what they are doing because we want to believe the best about something we are about to buy. This is why project marketers, sellers’ agents and property spruikers will dress up their potential property investments to look their absolute best and why they get away with it.

This suburb has enjoyed Impressive past performance

When talking up an area’s past price performance, they will look for the stats that suit and ignore those that don’t. As this table shows, a spruiker selling property in Moranbah would tell you that house prices there have boomed by nearly 20% in the last year, not that they are still nearly 40% lower than they were five years ago.

A sellers’ agent trying to push property in Springvale South, however would show you that house prices have shot up by 50% in the last five years and ignore the fact that they have fallen by over 10% in the last year.

The area’s population is about to increase dramatically

Another commonly misused stat is projected population growth, trotted out to show you that an area is about to experience a substantial rise in population and therefore in housing demand. The stats used may relate to an entire region, such as South-East Queensland, and may have no effect on demand in already established suburbs.

It is also critical that any population projection indicates what types of households will be arriving, the types of housing they will prefer and their expected length of stay.  For example, the predicted rise in population may be for retirees, which would have no effect on first home buyer locations, or construction workers whose need for housing will be short term rentals.

These stats can be twisted to tell almost any story and mislead prospective investors. Even more important is the fact that while more households create more demand for housing, this will only lead to price growth if the supply of new houses falls behind the demand for them.

This infrastructure project will cause a massive rise in housing demand

Perhaps the sneakiest claim of all is the use of “infrastructure” in the spruiker’s bag of tricks to predict a housing market boom for areas where they are selling property. The project could be a new hospital, university, shopping centre, railway line, highway, airport or mine, and is often used to support their claims that housing demand will shoot up as a result.

The facts are that most infrastructure projects do not increase housing demand at all – they create demand which is directly related to their purpose – hospitals for sick people, universities for students, shopping centres for shoppers. Even railway line expansions, highway duplications and new mines may employ fly-in-fly-out construction workers on family friendly rosters, which means that any rise in housing demand will be where the construction worker families live and nowhere near where the project is located. Even more importantly, many infrastructure projects are altered, cut back, delayed or even abandoned altogether before they even start.

Check everything that they say – and then look for what they left out

Always be wary of any stats boasting impressive past price performance results, high population growth projections or claims that a rise in housing demand will be driven by new infrastructure projects. One good method to evaluate any spruiker’s claims about a potential property investment area is to check the origins of their stats – is this information sourced from reliable, independent and recognised data providers? Then check what they have left out and why: 

  • Will new households really be moving into the area?
  • What types of housing  will they prefer?
  • Will the new housing developments in the area lead to an oversupply?

It’s only natural for project marketers to talk up the benefits of investing in their new property developments, so it’s essential that you do your due diligence in establishing the accuracy of their claims.

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The interest rate riddle

The interest rate riddle 

Some pundits are claiming that our current historically low interest rates are good for the housing market, but this could be far from the truth.

The RBA has been reducing its official cash rate in an effort to keep the economy in growth, not to generate more housing buyer demand. This is basic economics at work, with the RBA realising that our economy is sluggish and in danger of sliding into recession. By lowering interest rates, they hope to encourage consumers to spend more and stimulate the economy in the process.

The RBA does the opposite when the economy is in danger of overheating, as higher interest rates reduce our spending capacity and slow the economy down. In theory therefore, the lower interest rates fall, the better for prospective property buyers, because their repayments become more affordable. Speaking at a recent event to mortgage brokers, the federal Treasurer, Josh Frydenberg noted that the current low interest rate environment “augurs well” for the housing market.

In theory, theory and practice are the same, but in practice, they are not¹.

So much for theory – the practical issues with really low interest rates are that they also oblige the banks to offer lower returns on savings. The current standard variable rate on savings accounts now sits somewhere between 1.3 per cent and just 0.11 per cent, so any further interest rate cuts will start to push these into negative territory. This means that you will pay the bank for the privilege of looking after your money.

This is when investors start seriously looking elsewhere for better returns and it’s not hard to find them. Many shares currently offer yields over 5% and gold has increased in price by over 10% in the last few months. As investors withdraw their savings and invest in other assets, the banks are left with less money to lend.

At such times banks do the same as investors, selecting products which offer them the best returns. You will soon see banks promoting personal loans and credit cards rather than housing finance, as they cut back their funds for property loans in favour of more rewarding products.

The result is that the total amount available for housing finance falls when interest rates reach critically low levels, resulting in fewer new or refinanced housing loans. This in turn encourages existing home owners to stay put, rather than upgrade, and forces more aspiring first home buyers to continue renting until things change.

While housing prices tend to steady or fall slightly at such times, asking rents rise, because our population keeps growing and increasing numbers of new households are forced to remain renters.

This is exactly what happened the last times we experienced such low interest rates such as during the Federation Recession which occurred immediately after Federation in 1901, the Great Depression in the 1930’s and the Menzies Credit Squeeze in the 1960s.

The left side of the table reveals those three periods in our past when interest rates were at their lowest, which is also when economic growth stalled and we went into recession. Even though interest rates were low, house prices barely moved or even fell, as housing finance was difficult to obtain. Because our capital city populations have always been growing, the demand for housing by new households was turned into rental demand, so that asking rents rose substantially.

The right side of the table shows what took place when the recessions ended and interest rates started rising again. The demand from housing buyers increased, and prices went up as well, even doubling in just a few years during the postwar population boom. The table also shows you that asking rents stopped their growth and even fell.

Why did house prices rise while interest rates were increasing?

There were several reasons for this explosion in buyer demand when interest rates started rising again. Firstly, interest rates are adjusted in response to current economic conditions and rising rates are a sign that the economy is thriving, that unemployment rates are low and wages and salaries are increasing. When housing prices also rise, it means that the borrowing power of property buyers is going up more than the interest rate resets.

Secondly, higher interest rates give the banks more money to lend because saving becomes a comparatively more attractive investment option, and higher rates also make housing finance more profitable for the bank, so the total amount available for housing finance actually increases.

History shows us that really low interest rates are a sign of economic stagnation or even recession, and nothing to be aiming for. In fact, the government is making desperate attempts to keep our economy in growth with income tax return handouts and massive infrastructure projects.

A small but steady rise in interest rates is something we should look forward to because it will indicate that the economy is growing and that the banks will be able to make more finance available for housing investors, renovators, upgraders and first home buyers.

As long as any increases in future interest rates are at a lower rate and slower pace than the associated rise in the borrowing power and purchasing ability of property buyers, the housing market is certain to thrive once again.

¹ Quote attributed to Albert Einstein

Attribution: Image of The Joker by Leopoldo Aurioles

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The missing listings mystery

The missing listings mystery

We all love a good mystery, but don’t usually expect to find one lurking in our property markets. What is the mystery all about? The riddle is about the number of listings, or rather the lack of them in our largest property markets.

Listings are properties that are for sale, and when buyer demand falls, as has been the case since the end of the Sydney and Melbourne housing booms, listings tend to rise because more owners are trying to sell their properties but fewer properties are being sold.

The laws of supply and demand dictate that prices decline when demand falls and supply rises, but here we have an enigma that is befuddling property market analysts, because as the graph shows, the number of new house and unit listings has been falling in both Sydney and Melbourne since the middle of 2017.

While fewer people are buying property, the number who are trying to sell is falling as well. The only possible explanation for this conundrum is that potential sellers believe that the housing market is about to turn around.

Owners appear to be waiting for some signs that the market has passed its low point and that buyer demand is about to rise.

Are there signs that we have passed the low point

These indicators might be a rise in auction clearance rates, an increase in sales, interest rate cuts, rising yields, falling vacancy rates, growth in housing finance approvals or even an actual rise in median sale prices.

But what do you suppose will happen if some of these signs occur and they encourage more owners to try and sell? The number of properties listed for sale will start to rise, and the recovery could be short lived – which is what economists call a dead cat bounce.

This is created when potential sellers hold off because they think that prices have hit the bottom and the market is about to recover. The fall in supply causes a slight rise in prices to take place.

The bounce quickly ends when owners realise that the market is going to get worse after all, and they decide it’s time to cut their losses. Listings then rise as they try to get out before prices fall further.

Once this rise in supply starts it often escalates, because more and more owners decide to try and sell before conditions deteriorate any more. On the other hand, potential buyers will do the opposite and wait for prices to fall further before deciding to buy.

Luckily, three-quarters of houses are owned or being paid off by owner-occupiers and are more or less crash proof, because they are held for long periods of time. First home buyers typically hold their homes for at least four years, and then only sell to upgrade. Existing home owners stay put much longer while they raise their families in family homes.

Property owners are playing the long game

This is the reason that property, especially houses, offer such long-term stability to investors – most of the owners are playing the long game on our behalf. Rent demand, rental yields and rental vacancy rates mean nothing to these households, who have no incentive to sell their homes just because prices are rising or falling.

The property is their home, and when it’s time to upgrade to a bigger house or a better location, any movement that has occurred in the sale price of their current property will be reflected in the buy price of their new dwelling.

Don’t expect a property market boom anytime time soon

The missing listings mystery is warning us not to expect a boom anytime soon, in fact, I predict that median housing prices in many locations may keep falling for some time. The outcomes for property owners, sellers and buyers will, however, be very different.

Investors in off the plan units are likely to find that their investments will be worth less than they expected, and that their new properties will be harder to sell while listings keep rising.

On the other hand, aspiring first home buyers will gain the benefit of lower asking prices, and existing home owners wishing to move won’t experience any effect either way. It may take longer to sell their current home with more listings on the market, but they will also have more choices and bargaining power for their next purchase.

Source – Quarterly percentage change in new listings graph data: Published CoreLogic Macquarie Research, data to July 2019
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Beware of the modern day property prophets

Beware of the modern day property prophets

Thousands of years ago, we relied on wise men called druids or shamans to interpret the meaning of signs and predict the future. For example, when our forebears saw a solar eclipse, they thought that the sun was being devoured by some huge invisible monster as they stared upwards in horror.

They were unable to comprehend why this was happening, but the wise men knew all about eclipses and could even predict when they would occur.

Rather than impart this reassuring knowledge to the people, they told them something quite different.

‘Yes,’ they said, “a huge heavenly monster is eating the sun and only we, your protectors can save you – but this will be for a price.’ When the people had paid up, the druids assured them that they were scaring the monster away, and that the sun would soon return to its former glory, which of course, it soon did.

We still rely on modern day druids and shamans

Home owners, investors and potential buyers all want to know what’s in store; whether to buy, where to buy, what to buy, whether to hold or sell, and because most of us don’t know how to interpret the meaning of all those figures, stats, indicators and dynamics out there, you may have to rely on modern day druids or shamans to do this for you.

Whether they’re called property theorists, strategists, advocates, agents, advisors, educators or mentors these days, most of them will still only reveal the future if you pay them, just like the shamans of old.  

This is where it really gets complicated, because each of your advisors or educators may give you a different spin, depending on their own perspective and even personal interest. Who should you listen to and who should you avoid?

One expert is urging you to invest in Brisbane, another says buy in Perth, still another warns you that Brisbane’s housing market is about to crash, yet another urges you that Darwin is about to go gang busters. Who is right?

How to check their motivation, credibility and past accuracy

Well, there’s an easy way to test them. The internet makes this easy. You can check the motivation of any so-called expert by checking their website – do they claim to have “acquisition experts” on their team, or do they have access to “unlisted” or “off market” properties?

This code language means that they are probably seller’s agents or project marketers who will be getting paid a commission, finder’s fee or kick back for pushing a property on to you. In other words, the property you purchase will certainly be in their best interests, but may not be in yours. 

You can also check to see what others are saying about these experts. Google the person’s name, together with words such as “housing market” or “property expert” and see what pops up. You might be surprised!

You can also easily test their past accuracy. Using Google, go back in time and compare what they said some years ago about the property market to what actually happened.

Of course, not everyone can be right all the time, but at least by testing the accuracy of the those who claim to be experts, you’ll be better informed than our forebears were when they thought that the sun was being eaten.

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Tips and traps of buying overseas

Tips and traps of buying overseas

At some stage in our lives, many of us dream of owning a cottage in the south of France or a hacienda on the Spanish Riviera, maybe even a log cabin up in the Swiss mountains. Others may be tempted to buy an overseas investment property, particularly when our own housing market is stagnant and there’s no growth potential.

Buy a property in Spain and receive an honorary residency permit

Some countries enthusiastically welcome overseas property buyers, with Spain and Portugal even offering residency permit enticements to foreigners who buy a property worth over €500,000.

This is because housing demand in many European and Asian countries is flat as their populations decline. Not only are fewer babies being born, young people are emigrating.

While the demand for aged care accommodation is growing, the declining populations in many countries is creating a growing surplus of family homes. Hence the Spanish government offers incentives for families to move there and buy a home.

You can’t buy a property in Switzerland unless you are a resident

The opposite applies in Switzerland, where the government is charged with discouraging foreign immigration and restricts property ownership to those people who already have residency permits. But before you jump into foreign home ownership, it is also important for you to know the tax and legal systems that apply, as they could be very different from ours.

Beware of wealth, property, value added and inheritance taxes

For example, if you rent out the property during your absence, both the local country and Australia may tax your income from rent, unless Australia has an arrangement with the other country which takes the tax you have paid overseas on rental income into account. 

Most countries have a capital gains tax, plus an ongoing property tax similar to our state-based land taxes, but some also have property related taxes that do not exist in Australia.

These include value added tax, which is applied to improvements made by the owner, wealth tax applied to properties worth more than certain amounts and inheritance tax which kicks in when the property passes to beneficiaries.

In some countries, inheritance tax is low or non-existent when properties are left to spouses or children, but become onerous when estates are left to others, or if immediate family are bypassed in a will.

And on the subject of inheritance, it is worth noting that some countries oblige you to leave your property to your next of kin in accordance with the established practice of the country.

This means that your lover or mistress, if you have one in France, is entitled to a share of your French estate when you pass away. Could be quite a shock to the family back home!