Recall that rather than just looking at dwelling values, I prefer to look to the fineprint of the data to see what’s happening to house prices, given they’re the biggest component of what’s driving property prices.

February 2020

January 2020

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, and ↓ represents a deterioration from the last month’s results.

Interpretation

It’s nearly a sea of green, which can only mean one thing… property prices are up and investors are happy.

Indeed, following on from my comments about debt bubbles, lending across the board is up, including to investors where the decline seems to have well and truly reversed.

The price recovery party should continue for the foreseeable future, notwithstanding extra volatility from the corona virus, because easy finance and low interest rates have the effect of inflating values.

However the time will come when the debt binge of today will need to be repaid. I suspect this will be when unemployment and interest rates start to rise, or if there is panic selling because of other events and people want to dump assets at any price. When that day comes, property prices will fall – hard and fast.

The post Market Update – March 2020 appeared first on PropertyInvesting.com.

Recall that rather than just looking at dwelling values, I prefer to look to the fine print of the data to see what’s happening to house prices, given they’re the biggest component of what’s driving property prices.

December 2019

November 2019

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, and ↓ represents a deterioration from the last month’s results.

Interpretation

Once again Sydney and Melbourne led the pack, although the rate of growth declined in December. That is not surprising though, as real estate usually takes a back seat to Christmas parties and family festivities as December rolls on.

Annually, Sydney was the best performing market, and Darwin the worst. Perth was the worst performing of the major capital cities, although the rate of decline slowed and we might be at, near, or just past the bottom… I’ll be watching the January and February data for Perth with interest.

The economic effect of the bushfires is that there is generally an initial shock, followed by a grieving and planning period, and then a few years later, a substantial boost as roads, houses, schools etc. are rebuilt.

So looking to 2020, the main thrust should again come from Sydney and Melbourne, with moderate gains in Canberra, Brisbane and Adelaide, here or there in Hobart, and declines in Darwin. I hope to offer a more comprehensive market update in March once some 2020 economic data has been released.

The post Market Update – January 2020 appeared first on PropertyInvesting.com.

Here’s the latest summary of price trends around the country based on Core Logic’s latest housing price index data. I’ve also included August as I had missed last month.

Recall that rather than just looking at dwelling values, I prefer to look to the fine print of the data to see what’s happening to house prices, given they’re the biggest component of what’s driving property prices.

Results Summary

Best market for the month: Melbourne
Best market for the quarter: Melbourne
Best market for the year to date: Canberra
Best market for the year to September: Hobart & Canberra

Worst market for the month: Perth
Worst market for the quarter: Perth
Worst market for the year to date: Darwin
Worst market for the year to September: Darwin

Interpretation

A Steveism to remember is “you’ll see it on the street, before you see it in the stats.”

This is because it takes time to collate statistics, whereas the market momentum is dynamic and can be felt a lot quicker.

Looking at the results for October, the ‘stats’ and starting to vindicate the feeling on the ‘street’ – that a significant recovery is now underway in Sydney and Melbourne, rippling out across the country, except for Perth which continues to decline albeit at a slower pace.

We’re on track for the annual result for Sydney, Melbourne, Brisbane and Adelaide to be more or less break even by the end of the year, which is a big improvement on how things looked in August. Only Perth and Darwin look to remain in the doldrums.

With low interest rates set to continue for the foreseeable future, and with lending gradually (and I mean gradually) becoming more fluid and easier to access, there is some enough momentum to carry a positive property sentiment into 2020 meaning that the property market outlook is definitely now ‘a glass half full’.

Stats

October 2019

September 2019

August 2019

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, and ↓ represents a deterioration from the last month’s results.

The post Market Update – November 2019 appeared first on PropertyInvesting.com.

Recall that rather than just looking at dwelling values, I prefer to look to the fine-print of the data to see what’s happening to house prices, given they’re the biggest component of what’s driving property prices.

August 2019

July 2019

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, and ↓ represents a deterioration from the last month’s results.

Interpretation

There is a little more green, and a little less red this month, revealing that a weak to moderate real estate revival seems to be underway in Sydney, Melbourne, Hobart and Canberra.

A narrative that supports this view is that buyers have been enticed to enter the market buoyed by cheaper interest rates, while sellers are still holding back and waiting for better prices. Hence the lack of stock available for sale is causing buyers to become more aggressive and pushing prices up… for some properties in some suburbs.

Darwin is still in the grips of a severe real estate downturn, while there are still no clear green signs of a market bottom in Perth. Brisbane and Adelaide seem to be losing a little bit of momentum.

The post Property Market Update – 6 September 2019 appeared first on PropertyInvesting.com.

In any event, the Aussie real estate market continues to show signs of improvement in the sense that the decline is slowing in most capital cities. Auction clearance rates in Sydney and Melbourne have firmed, and housing lending is marginally better than it has been (although still underwhelming). Spring is only a few weeks away and everyone is holding their breath to see whether lower interest rates will stimulate some action, or whether global economic uncertainty will cause listing numbers and dwelling prices to remain in a monetary malaise.

I’ve now updated the capital city table based on Core Logics latest housing price index data.

Recall that rather than just looking at dwelling values, I prefer to look to the fineprint of the data to see what’s happening to house prices given they’re the biggest component to what’s driving property prices.

July 2019

June 2019 (base month)

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, ↓ represents a deterioration from the last month.

Interpretation

You can definitely see a little more green in July than was the case in June. Indeed, every capital city recorded an improved result over the previous month, indicating either price growth or a slower price decline.

Sydney, Melbourne and Brisbane (and surprisingly Darwin) recorded an improvement in every period providing some tangible evidence that there has been a market bottom, and a subsequent attempt at a bounce. Only time will tell if it is a temporary or cyclical bottom, or indeed the start of a new rise in values.

Elsewhere looks patchy, with a decline still happening in Perth, but at a slower rate. Meanwhile Hobart looks to be approaching, or at, the top of its price cycle.

Spring, just a few weeks away, is typically peak season for real estate transactions in Australia and will be a major test to see how the real estate market holds up.

The post Property Market Update – 8 August 2019 appeared first on PropertyInvesting.com.

Core Logic have released their June 2019 data series with the headline that “Sydney And Melbourne Housing Values Edge Higher In June, But Values Still Trending Lower On A National Basis”.

Rather than just looking at dwelling values, I prefer to look to the fineprint of the data to see what’s happening to house prices given they’re the biggest component of what’s driving property prices.

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

As you can see above, there’s a lot of red on the grid, and I can’t see it showing any kind of real estate bounce as yet.

Aside from the stats, I’m now hearing stories almost daily of trades slowing down, people in construction being laid off, valuations coming in lower than expected, etc.

Remember that real estate is not like the stockmarket. Whereas the latter can turn around quickly, real estate is like an ocean liner that takes a long time to change direction. Let’s hope it’s not the Titanic!

The post Property Market Update – 3 July 2019 appeared first on PropertyInvesting.com.

[ Click here to download the notes for this Micro Training ]

No, I’m not talking about the advertising jingle of the major supermarket chain, Coles. I’m referencing the latest trend as outlined in Core Logic’s August data series for Aussie residential real estate.

While you can read their summary report here, the highlights include:

• National dwelling values declined for the 11th straight month
  
  
• Values in 5 out of 8 capital cities declined, including the entire eastern seaboard where a reported 85% of Australians live
  
  
• Based on movement for the quarter, Melbourne is now the weakest housing market in the country; and 
  
  
• Hobart looks to have ‘peaked’.

The conclusion: the Indian summer for Aussie property prices seems to have finally ended, less so in the ‘affordable’ entry-level housing market, but much more so in the ‘high spec’ market of upper-class homes, and renovation and development sites.

What Does Losing $1m Sound Like?

A case in point is a property a friend and I have been watching in Melbourne’s leafy eastern suburbs. It is a development site of nearly 1,000m2. It was bought by a “wealthy Asian buyer” in May 2015 for $2.53m as a vacant block, and he went on to have plans and permits approved for two high-class houses to be built on the site.

Fast forward to February 2018, and, allowing for closing costs, a couple of year’s interest, and for getting plans and permits for two luxury dwellings scoped and approved, the site would now easily owe him $3m.

However, sensing the market was getting the wobbles, or more likely, given the exodus of even wealthier Asian buyers who might have wanted to pay $2.5m+ for a trophy home, the vendor put the block with plans and permits up for sale via a ‘Boardroom Auction’ (instead of auctioning it on site, the auction is done at the agent’s office with only qualified buyers allowed) with the agent canvassing a sales range of $2.6m to 2.8m+. It didn’t sell.

Just for the record, at that time I emailed my friend and recommended we submit an offer at $2m. We did, and were laughed away and told: “you’re dreaming”.

In the six months that followed, the asking price range has gradually slipped lower and lower. First to $2.4m – $2.6m, then $2.2m – $2.4m, and now $2m – $2.2m. In other words, the vendor is realistically now $1m+ in the hole. One. Million. Dollars. Gone!

So much for not being able to lose money on real estate. If you’re interested, my offer for that property now would be in the vicinity of $1.6m. Who’s laughing now? 

Liquidity & The Smoking Gun

With September arriving, and Spring along with it, the annual real estate ‘selling season’ has begun. However, unlike last year when vendors were salivating and their greed glands secreting, now there is a hint of panic in the air, particularly for those who have an urgent need to exit.

So what has changed over the past year? Our population is still growing. Our economy is still quite strong. Interest rates are still at, or near, historic lows. What’s been the cause of this sudden shift in sentiment?

The answer is liquidity. It has become a lot harder to get the same loan amount, on the same terms, today as what you may have received a year ago. Specifically, the following loans have ‘dried up’:

• Interest-only repayments
• LVRs at greater than 80%
• Low doc and no doc loans
• Loans for construction / development
• Loans to people who struggle to prove serviceability
• Loans to investors

At the same time, lenders have become almost militant about assessing living expenses – down to the equivalent of wanting you to justify your consumption of staples and paperclips! Not long ago, all you had to do was fog up a mirror to get a loan.

And it is forecast to get worse! Once the Royal Commission into dodgy lending practices is handed down, the government coming into an election is going to blame the banks for rampant profiteering and will demand better lending practices. This means two things: higher loan fees because of the extra regulation, and lower loan amounts.

Now, some readers might blame higher interest rates for the negative sentiment stampede. That’s not quite right though. Yes, I concede I’ve been banging on about how households are in so much more debt today than they have ever been before, and how a small rise in interest rates will have a historically disproportionate impact on affordability, but interest rates, at least for homeowners (as opposed to investors) are still at (or very near) all-time lows.

As for investors, if they were so hasty as to buy a property without factoring in the impact of higher interest rates, then the market is sure to teach them a valuable financial lesson about the importance of doing better due diligence in the future.

Someone Say Spring?

Speaking of Spring, it’s timely to recall the important principle of absorption.

If you are unfamiliar with it, then I encourage you to watch this micro-training I recorded on the subject.

In essence, coming off the Winter sales hiatus, Spring (Sept – Nov) heralds the peak selling season for real estate in Australia.

When the market is booming, most new listings are gobbled up by eager buyers, and most of those properties that don’t immediately sell are snapped up (i.e. absorbed) soon thereafter. The few properties that aren’t sold sit for a while, but when sentiment is strong, even the mould looks like gold.

However, when faced with conditions as they are now – downwards price pressure, poor appetite for speculation, and less loan liquidity, – real estate now faces headwinds that we haven’t experienced (at least in Sydney and Melbourne) for some time. Namely, more houses for sale combined with fewer interested buyers.

If everything goes to ‘script’, this Spring fewer houses will sell at first attempt (i.e. at auction or within 14 days of listing for private sale), and those not sold immediately will be shunted onto the unwanted pile. Such homes will have a relatively short exposure-time, because the following week there will be a fresh tide of ‘new’ properties that buyers can choose from. This won’t be a problem if all vendors can hold their breath, and their nerve, until a buyer emerges willing to pay their desired price. Sadly, this isn’t a safe, nor even a reasonable, assumption in a down market.

In real estate, people don’t have to buy (because they can rent), but some people have to sell (such as those in a credit squeeze, change of job or family circumstances, etc.). As such, unfortunate vendors experience an increase in motivation (and often desperation), and so too increases their willingness (or necessity) to accept a price discount, in order to attract the buyer’s attention away from the other ‘new’ listings.

A property can become ‘stale’ very quickly in a soft market and languish unloved and unwanted as buyers assume the reason that the property hasn’t sold sooner must be because there is something wrong with it.

Chasing Down The Market

Let’s return to that example of the property for sale in Melbourne’s leafy east to explain a situation I call ‘chasing down the market’. Remember that the vendor had his first chance to impress the market and ‘catch’ a buyer, but failed to do so, at a price of $2.6m – $2.8m.

It took a while, but the vendor finally came to grips with the notion of accepting less, and so dropped the price to $2.4m – $2.6m. This price might have attracted a buyer when the property was first taken to market, but prices have since retreated further.

The same thing happened when the price shifted to $2.2m – $2.4m, and is poised to happen again at $2m – $2.2m.

In the vendor’s mind, he is offering up a bargain at an $800k price decrease. Yet in the market’s mind, the price paid for the property in 2015, and its possible value back in February, is not relevant. All that matters is the property’s value today, which is based on what other similar vendors are willing to sell for.

Can you see how the vendor has been ‘chasing the market down’? In order to ‘catch it’, and assuming he really does want to sell, he really needs to drop the price to some amount that ‘wows’ the market and attracts its attention away from the plethora of newer listings, enticing a buyer to overlook the potential stench of it being so stale.

Normally, when a property can’t sell after a prolonged sales period, it might be worthwhile taking it off the market for 3 to 6 months, and relisting it with a fresh marketing campaign and with a different agent.  Such a strategy, however, is risky in a down market, as the price might slip significantly further in the meantime.

What Do We Learn?

How long have I been saying that you need to prepare for times such as these by selling any underperforming properties while you could? To cash up in preparation for great deals, as those who bought badly were forced to sell badly?

If you listened, well done. Now, be patient.

The downside risk for further price slips is real, especially given loan liquidity is unlikely to improve this year, and things might even get a whole lot worse once the findings from the Royal Commission are released.

Labor looks almost certain to win the next Federal election, and, if it does, their tax and real estate policies are likely to add further downward pressure to real estate prices (after a possible short-term rally – but more detail on this subject at another time).

Don’t be in a hurry to use your purchasing power. Sure, if a good deal comes your way, snap it up, but it needs to be very good. Otherwise, watch what happens in September, and know that your best opportunity to negotiate is on properties that have been for sale for longer than 60 days and are becoming increasingly more and more stale.

Until next time, remember that success comes from doing things differently 

– Steve McKnight

If you have any comments or questions on this article, then please post them below.

The post Down. Down. Prices Are Down. appeared first on PropertyInvesting.com.

Australian Property Market Update 
4th September, 2018 

The Auction Market

Saturday marked the first day of the Spring selling season, but someone apparently forgot to let both the buyers and sellers know.

The nationwide preliminary clearance rate of 58.2 percent was essentially on par with (only slightly higher than) the previous week’s preliminary result. Auction volume was 8.5 percent lower, with only 1,752 homes presented at auction.

When the clearance rate remains essentially the same and auction volume (supply) falls, it points to a decrease in demand, or fewer buyers in the market.

Expect the final clearance rate for this week (released Thursday after all results are tallied) to be about three basis points lower, in the mid-50s. This time last year, just before home prices began to fall, the nationwide auction clearance rate was near the mid-60s.

Here’s the latest preliminary auction data for our capital cities, as reported by CoreLogic:

Source: CoreLogic

Home Prices Still Trending Down

Home prices have now fallen for eleven consecutive months, bringing the year on year aggregate decline to just over 2 percent. Sydney has led the way, with dwelling values there falling by 5.64 percent, followed by Darwin at 4.02 percent and Perth at 2.05 percent.

Of our five largest capitals, only Adelaide saw prices rise in August.

Here is all of CoreLogic’s latest median house price data:

 Source: CoreLogic 

As traders like to say, “the trend is your friend,” so odds are the 5 capital city aggregate decline will continue, with Melbourne and Sydney leading the way. 

The Spring Headwinds

As we get deeper into Spring, sellers will be hoping that with warm weather will come more buyers. Unfortunately, there are some headwinds that will continue to put a damper on demand.

Tight Credit

What began over the past few years with APRA lifting bank capital requirements and capping lending to investors turned this year into a full inquisition into bank lending practices. Unless you’ve been living under a rock, you know that banks have now significantly raised the bar for property investors (and owner-occupiers for that matter) trying to borrow money.

The following chart shows the total numbers of loans rejected over the past year:

 Source: Digital Finance Analytics

When you dig a little deeper into the numbers, you learn that only 60 percent of refinance applications are now being approved. That figure was 95 percent this time last year. That means that people who once qualified for a loan to buy their property no longer meet the standard under the new criteria, to borrow for the exact same asset.

That seems to indicate that 35 percent of the population has a loan that they can’t really afford to pay back. They’ve borrowed too much relative to their income, and if interest rates rise or the economy hits some turbulence, these loans could unwind in a not-so-orderly fashion.

Referring back to the chart above, the upward trend of rejections remains steep and doesn’t appear to be levelling off. Many would-be-buyers who would like to get a loan to purchase a property this Spring will not qualify, which will lead to disappointment for quite a few sellers.

Increasing Supply

We tend to think about supply of properties primarily in terms of auction volume and new listings. Spring is generally the time of year when many sellers present their properties in the market, so supply usually increases through September and October. With the warmer months have also come in years past a slew of new buyers.

But there’s another factor that leads to increasing supply, which Steve McKnight will be highlighting in his article scheduled to post tomorrow. With fewer people able to qualify for loans (fewer buyers), homes tend to stay on the market for longer. With every new home listed for sale, if a large percentage of last month’s properties are not selling, then the overall supply in the market begins to increase each month at an exponential rate.

According to CoreLogic, the level of advertised supply is already 7.6 percent higher than it was this time last year. As more properties are listed for sale later this month and next, expect the downward trends in Melbourne and Sydney to continue, leading to further price falls as a growing number of sellers compete for a limited number of buyers.   

Rising Mortgage Rates

Although the RBA decided today to leave the cash rate on hold today (for a record 25 consecutive months), banks have started raising rates out-of-cycle.

I’ve been beating the drum for the last few years that the RBA has a much smaller impact on mortgage rates than we might think. The greater influence is global bond yields. The reason is that banks must borrow from overseas wholesale money markets. This where they get most of their capital to lend to out to homebuyers. Bank deposits are not an adequate source of capital to meet demand, nor to hit bank profitability targets.

As the Federal Reserve is raising rates in the United States, bond yields are rising, which means it becomes more expensive for our banks to borrow money. In order to continue propping up their share prices, banks must pass their higher borrowing costs on to consumers.

Westpac just announced a 0.14 percent increase in its variable interest rates for both owner-occupier and investor loans. Suncorp sooned followed with a 0.17 percent hike. Word on the street is ANZ, Commonwealth and NAB aren’t far behind.

Where mortgage interest rates go from here is mostly out of our control. The RBA may be able to provide short-term relief through further cash rate cuts, but factors overseas will have the greatest impact. Because households have chosen to increase our collective debt-to-discretionary-income level to over 200 percent, the financial destiny of anyone carrying debt is in the hands of bankers overseas.

A few practical tips…

So what does all of this mean for investors?

If you’re a buyer, be selective and manage your risk. In some places around Australia home prices are likely to continue falling.

If you’re a seller, be realistic and meet the market, unless of course you don’t really need to sell and can hold out and hope for a higher price.

If you’re on the sidelines, cash up, focus on your education, and figure out how to get returns on your cash that exceed the loss in buying power you will face while you wait.

Anything else you would add?

What are your practical tips for investors in light of the current market conditions?

The post Spring Headwinds a Threat to Sellers appeared first on PropertyInvesting.com.

With the exception of Hobart, where property prices continue on their bull run, elsewhere around Australia, and in Melbourne and Sydney in particular, real estate has an unpleasant stink about it at the moment.

Depending on how pessimistic you are, and from where you get your news, we are either in the early stages of a mild property hiccup, and feeling the effects of an inevitable correction, or at the dawn of a cataclysmic crash.

My own opinion, for what it’s worth, is that the property market is like a volcano. For much of the time, it can be happily climbed and the view from the top is spectacular. However, infrequently there can be an eruption, and when that happens, you don’t want to be anywhere near it.

Keeping the analogy going, after a long period of calm and peace, the Aussie property volcano has recently ‘come alive’ and can now be seen venting a plume of ash, steam, and a fair bit of rotten egg gas – hence the stink.

It’s presently no cause for panic, but it might be if things get worse.

A Dose Of Reality

Unless you paid a silly price for something recently, I wouldn’t call what we’re experiencing in the property market right now as anything other than mild and normal turbulence.

Take Sydney for example, where median house prices in March 2018 (latest data available from the REIA) have retreated a little over 4% from their peak in June 2017.

Sure, that’s unpleasant, but when you take into account that between September 2016 and March 2017 (nine months) Sydney house values rose by 11.2%, it follows that giving back just over a third of the recent gain isn’t cause for alarm.

And even if there were a property crash and values across the board declined by a substantial 25%, which is enough to mean that any 80% LVR loan taken out recently would be against a property that is now in negative equity, the table below reveals how many years of growth we would be ‘giving up’ by indicating the approximate date that property values were last at that price:

Source: REIA, PropertyInvesting.com

For Melbourne, Sydney and Hobart, the price retreat would just be handing back the recent round of appreciation. It would be more severe in other cities that did not experience a price boom in the past three or so years.

Even a 50% decrease would see us return to values as they were more or less a decade ago, and hardly affordable in the sense of property prices pre-2000 (when the median house in Sydney was around $300,000 – which was considered expensive in its day!).

Rumbles

Can anyone predict what the property volcano will do next with complete certainty? No. Like volcanoes, in real estate, there is a fair amount of theory about what should happen, but no one knows for sure because mother nature (or the herd mentality) cannot be tamed.

That said, I’m seeing some signs that have me feeling like there is more downside risk of further price falls, as opposed to upside optimism that prices will quickly recover, including:

Falling Rents

I saw a report in the Financial Review last weekend indicating that rents are now falling in Sydney. If rents fall, prices will eventually follow because real estate will become less affordable and the amount purchasers can borrow will decrease.

Since so much of the nation’s media is based in Sydney, journalists tend to report what is happening there as if it is happening everywhere, and so the Sydney prices sniffles can mean other areas catch a property cold.

Less Liquidity

It’s getting a lot harder to borrow as much money as even a few months ago, with valuations being squeezed to the low side, and at the same time lenders now want to know whether or not you had sauce on your pie at lunch, and if you did, how did you pay for it?

Okay, perhaps that’s a bit dramatic, but it is not far off the level of inquisition some borrowers are enduring today, where previously there was none. Don’t expect things to get better anytime soon. As the Royal Commission winds up, I predict it will take even longer to get a loan, and harder to borrow as much money as before.

Fewer borrowers with less cash at their disposal will put downward pressure on property prices.

Increasing Interest Rates

Even though the RBA is sitting pat on their benchmark cash rate, and despite some lenders actually reducing their headline interest rates to attract customers, the general trend is now set for interest rates to increase because the cost of borrowing on world markets has risen. Faced with a choice of lower profits or higher interest rates, it’s no surprise that more and more lenders (starting with the smaller ones) are choosing the latter option.

As I’ve written not long ago, interest rates won’t have to rise too much for there to be a profound impact on Australian households. We’re so hocked up to the eyeballs in debt, just a half-to-one percent increase is going to tip a considerable number of mortgage holders into mortgage stress. As more people have to sell, there will be even more downward pressure on property prices.

Contagion

When (not if) interest rates increase by that half-to-one per cent, households will have less discretionary money to spend on everyday goods – from coffee to holidays, and the economy will increasingly groan under the weight of our debt burden.

Dare I say it? At that time we will enter the recession that will be the inevitable consequence of so much debt-fuelled consumption. It will be the late 1980’s all over again, except that interest rates at circa 7 to 8% today will have the same impact as interest rates at 17 to 18% did back then (because we have so much more debt today).

What Am I Doing?

Well, exactly what I’ve been telling you to do for quite a while now.

• I’ve sold some property I don’t think is helpful to own in less optimistic times.
  
  
• I’m critically analysing my property portfolio to ensure it is being managed well
  
  
• I’m making offers on good deals if I see them come up (there aren’t many, but they are starting to be more prevalent), and otherwise, I’m being patient and boosting my cash reserves.
  
  
• I’m actually not holding any ‘net debt’ right now because the name of the game is to maintain my borrowing ability so that I can jump on the next great deal.

Takeaways

Wrapping up, here is a summary in the form of five takeaways:

1. The possibility of financial loss is increasing, and that means investment risk is increasing too. The correct response is to be more prudent, cautious and diligent. Now is not the time for wild, or super speculative, property investing.
   
   
2. Debt is getting harder to get. In my case, even though it is a little more expensive than the headline interest rates being advertised, I’m happy to hang on to an existing debt facility that was written under more favourable conditions than what might be offered today.
   
   
3. It doesn’t quite carry the same punch as the Game Of Thrones catchcry, but Spring is coming, and with it, the peak time to sell. If supply increases without demand picking up, expect prices to fall.
   
   
4. A little price slippage isn’t panic stations. Property prices would have to fall by more than 10 to 15% off their peaks to get me nervous, and we are a long way away from that just yet. Still, if a price fall of that magnitude would cause financial heartburn for you, then maybe you should consider cutting your losses so you can live to fight another day. Don’t assume you will get today’s price tomorrow, in a soft or down market.
   
   
5. Better and better deals are coming on the market, but vendors are still hoping for more or less top dollar. Presently it is development and renovation opportunities that have become more prolific, but often these are still being marketed at inflated prices by vendors who have just realised they won’t make their expected profit, or can’t get the finance to proceed with construction. Be patient. Give it time.

That’s it from me. See you in September.

Until then, remember that success comes from doing things differently.

– Steve

P.S. If you’re interested in watching one of the development projects in my USA Property Fund get built then check out the webcam feed at the bottom of the left-hand menu at www.PassiveIncomeFund.com

Have a comment, thought or question about this article? Post it below.

The post The Property Volcano appeared first on PropertyInvesting.com.

Australian Property Market Update 
7th August, 2018 

Housing Supply and Demand

Over the past month, the nationwide auction clearance rate has continued to hover around the low-to-mid-50s. These are the lowest consistent results recorded since 2012. The total number of auctions held across the country over the past month has also remained quite low, with auction volume in the 1200 to 1500 range.

Looking at last week’s preliminary data, which posted yesterday, results are still on par with the July range, however, both demand and supply seem to have declined from the previous week. Typically, when auction volume is lower, the clearance rate should rise if demand remains the same. But the falling clearance rate on declining volume highlights a further weakening of demand.

Melbourne continues to outperform Sydney, but by a much narrower margin than previous weeks. Adelaide appears to be the strongest auction market, with a success rate of 73.2 percent across 56 auctions.

Here are all the latest preliminary auction numbers, as reported by CoreLogic:

Source: CoreLogic

Recent Changes in Home Prices

The annual decline in house prices around Sydney is now over 5 percent. In Melbourne, house prices have only fallen 1.4 percent in the past year, but the vast majority of that decline has come in the past month alone. That could mean that the price falls in the Victorian capital have only just begun.  

In Brisbane, Darwin and Canberra, prices rose in the month of July. Hobart was flat.

Here is all of CoreLogic’s latest median house price data:

 Source: CoreLogic 

Where to From Here?

“The Only Way Is Up”

If you ask former Domain senior economist Andrew Wilson, “the only way is up.”

Sydney Auction Market Lifts Over July – The Only Way Is Up Now

Sydney’s mid-winter auction market has predictably bottomed out over June and July with lower clearance rates and listings reflectingthe mid-winter holiday…..https://t.co/jOdlMrRaWC#auctionresults #houseprices pic.twitter.com/vGMxR4fQr5

— Andrew Wilson (@DocAndrewWilson) August 1, 2018

Spring is certainly a season for optimism, but with all the new sellers coming to market, we’ll need to see a significant boost in demand to more than absorb the new supply and lift auction clearance rates. 

“The Only Way… Is Down”

Louis Christopher over at SQM Research has a different take. He claims, “The only way clearance rates can go from here is down,” and expects a seller success rate nearer to the low 40 percent range.

We could see a short term reprieve bounce back.  However our view is trend to continue down for many months.

— Louis Christopher (@LouiChristopher) July 31, 2018

Or if you’re looking for something a little gloomier… A recent post over at realestate.com.au is referring to some mysterious “experts” forecasting clearance rates to plummet into the mid-30 percent range. That doomsday scenario would take us all the way back in time to 1989 when auction clearance rates hit 35 percent, interest rates rose to 18 percent and dwelling prices fell off a cliff.

The Interest Rate Outlook

Speaking of interest rates, the RBA decided today to leave the cash rate on hold yet again for a record 24 consecutive months. That’s right; it’s been two years since the RBA adjusted interest rates from our record lows, and nearly that long since Philip Lowe took over as Governor. What a cushy job. Sign me up!

If you’re wondering where interest rates may go from here, take note that the RBA has never in the history of its existence raised interest rates when house prices were falling. Besides, the Fed across the Pacific made it nearly 10 years without a rate rise from near 0 percent. Add to that our wage growth struggling to keep pace with inflation, an Aussie dollar at the mercy of the Fed and a heap of unknowns around Trump’s trade wars, the only way for the RBA’s cash rate to go is down.

Of course, Philip Lowe will need to repent for declaring “the next move will be up.” But I expect he’d rather eat crow than allow us to have the recession we need to have.

The Recession We Need to Have

Every economy since the beginning of time has had its ebbs and flows – times of expansion followed by times of contraction. It’s the contractionary times – also known as recessions – when the economy has an opportunity to catch its breath and reset.

Those who got a little too greedy and took on too much debt pay the price for their folly and learn the hard way that “the borrower is the slave to the lender.” The absurdity of malinvestment (badly allocated business investments due to artificially low interest rates and unsustainable increases in the money supply) is revealed and the boom turns to bust as the greater fools get caught swimming naked (holding highly leveraged, inflated assets).

It’s my belief that before we can have healthy sustainable economic growth in Australia again, we need this malinvestment to unwind. But somehow, we have come to believe that Australia – the Lucky Country – is immune to economic recessions. 

Who can blame us? It’s been 27 years since “the recession we had to have.”

We also have regulators who think it’s their job to prevent recessions at all cost and stimulate (think Viagra) us into a perpetual state of economic growth. 

But if history is our guide, “the recession we need to have” is just around the corner. If however Philip Lowe cuts rates and kicks the can a little further down the road, then our recession will be just around the corner after that.

Either way, a recession is coming, and it’s nothing to fear. It’s a necessary (although painful for some) step toward the next season of growth. It’s the winter before the Spring and Summer.

Just be sure to rug up.

What do you think? Is a long-overdue recession just around the corner?

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