Editors Note:
Those who have been reading my newsletter over the past 30 years are well aware that I have made some very controversial but very accurate predictions for major real real estate markets.
Most recently in 2002 I predicted and participated in the bull market in Bali Real Estate caused by new foreign demands.
In 2006 I predicated the world wide collapses ( except Bali) in real estate prices.
Two weeks ago after returning from a week long trip to Sydney I said real estate prices were too high and " I would not be buying ".
After this weeks unanticipated move in Australian interest rates and a rise above par for the Aussie dollar last night I am more convinced than ever that the bubble is about to burst, primarily in four major cities Pert, Melbourne and Sydney, & Brisbane .
"Bubble is about to burst, primarily in four major cities Pert, Melbourne and Sydney, & Brisbane .
Australian Real Estate News:
Don't take my word for it . Read the articles below I found after doing a search for " Sydney Real Estate Demand October 2010"
According to the web site zincip "THE median Sydney house price has more than tripled over the past two decades, but prices in the east and inner west have quadrupled, mirroring and compounding a growing income divide across the city. Overall, Sydney’s median house price rose 233 per cent between the June quarter of 1993 and the June quarter of this year, from $188,050 to $626,444, according to figures from the Fairfax-owned Australian Property Monitors.". From http://zincip.biz/2010/10/08/sydney-property-price-home-price-rises-mirror-the-citys-income-divide/
The problem is rental income is not keeping up with rising prices creating negative cash flows which is when wise real estate investors stop buying and start looking for the exit sign.
According to www.smartcompany.com.au Monday, 11 October 2010 "Auctions market slows in Melbourne as demand falls away:
The Melbourne auctions market is beginning to slow as the Spring selling season heats up, and inner-city Sydney is now becoming one of the best-performing markets in the country, real estate experts say.
The Real Estate Institute of Victoria claims Melbourne recorded a 68% clearance rate this past weekend, with 708 properties on the market. The median auction price for houses was over $700,000, it says, well above RP Data's median for the city at $470,000.The market is continuing to slow. It's not collapsing, but it's a slower market than Sydney. I think house prices in Melbourne have come to a halt, and they have basically been flat for awhile."
"I think house prices in Melbourne have come to a halt"
"The only thing we can all agree on is that listings have increased, jumping up from the football period. I expect listings to increase from this point forward, and we can expect this type of sales activity over the next few months to December." The REIV also notes that increase, saying that, "the current performance of the market is in stark contrast to this time last year when there was 598 auctions and a clearance rate of 82%.""A year ago interest rates were still at record lows which highlights the importance of monetary policy on the real estate market."
"Melbourne isn't doing as well as Sydney," Christopher says. "This type of activity can be expected in Sydney from here until the end of the year. Melbourne isn't as doing as well as Sydney at all, but is doing better than Brisbane. Activity there is deteriorating due to over-supply."
However, activity continues to deteriorate in Brisbane due to oversupply. The city recorded only four sales out of 22, according to APM, with sales reaching just $684,000, while Adelaide recorded a 68% clearance rate, with 19 properties sold, with total sales at $5.1 million. From http://www.smartcompany.com.au/property/20101011-auctions-market-slows-in-melbourne-as-demand-falls-away-experts.html
House prices flatline in September:
From http://www.smartcompany.com.au/Friday, 29 October 2010 11:01
Australia’s housing market continues to tread water, with the latest figures from RP Data and Rismark showing house prices increased just 0.1% in September, meaning house prices have basically not risen since May.
The data shows the national median city house price is $406,500, which is $9500 lower than at the end of the June quarter.
During the month, the best-performed market was Sydney, where prices increased 0.9% during the month, compared to a rise of 0.5% in Melbourne and 0.7% in Brisbane.
Prices in the under-performing Perth market dropped 1.9% in September, while prices in Darwin were down 1.1%, down 0.8% in Adelaide, and down 0.3% in Canberra. Hobart prices were not available.
Rismark managing director Christopher Joye says price are likely to track sideways for the rest of 2010, but warns predictions of further rate rises could put further pressure on prices in the short to medium term.
“Home loan rates will eventually start increasing, with the prospect that the peak mortgage rate could converge to close to 9%, which is more than 1.5% higher than the current average variable mortgage rate of 7.4%.
“Our analysis suggests that a substantial increase in rates would put some downward pressure on dwelling prices. Household balance-sheets will be supported by a strong labour market and robust income growth.
“But let’s be clear: it is now just a matter of time before the RBA and/or the banks raise rates again. New borrowers taking out loans should be prepared to service rates 1.5% higher than what they are currently paying.”
However, lack of price growth does create some opportunities for investors, according to RP Data senior analyst Cameron Kusher.
“Early signs suggest that rental rates are once again improving, listings are at above-average levels, and leading indicators such as time on market and vendor discounting are creeping up,” he says.
“For those active in the market there is increasing scope for price negotiation and less competition among buyers with an above-average number of properties for sale. These conditions are likely to afford opportunities to purchase property at more competitive prices.”
Will property prices keep moving sideways? A SmartCompany Q&A
Tuesday, 02 November 2010 10:34 James Thomson
So prices are now going sideways. Is that likely to continue?
Residex chief Christopher Joye argues house prices have been closely tracking disposable incomes, and says prices are likely to remain flat for at least the rest of the year. That view is supported by recent auction results, which have been solid but not spectacular, and housing finance data, which has been weak for the last six months.
What about into 2011 and beyond?
For Joye, the outlook depends on interest rates. He's telling buyers to be prepared for rates to rise at least 1.5% in the early part of 2011, which he says is likely to put "downwards pressure" on prices.
Price falls?
Probably not. Joye agrees with other analysts such as ANZ's Paul Braddick that a strong labour market and growth in disposable income should help put a floor under house prices. Braddick also suggests the lingering housing shortage – he puts it at 30,000 homes a year – will also help prevent any big price falls.
But how long will the market stagnate?
It's just too hard to say right now. Westpac's Matthew Hassan and Macquarie's Rod Cornish are tipping prices could continue to track sideways for one to two years, as the cooling process continues.
However, this bit of breathing space isn't such a bad thing – it will help dispel any bubble fears, and allow household budgets to strengthen further.
From http://www.smartcompany.com.au/property/20101102-will-property-prices-keep-moving-sideways-a-smartcompany-q-a.html
There you have it from several sources .
As with my past predictions on real estate collapses in Hawaii and world wide I will probably lose some friends and readers by my cautious signal on Australian real estate.
Few will give me credit for being one of the first to predict a slow down or downturn and even fewer will remember I made this predictions in years to come.
So I ask myself should should I stick my neck out once again. The answer is simple I tell it like I see it and I am not always going to be right. I have over a 87 % accuracy this year on my January predictions for most major markets .
Just a few hours ago I was walking down Sanur Beach and ran into a client and prominent Australian real estate broker.
I mentioned the rising Aussie dollar and that I was getting ready to issue a sell signal for Australian cities. He stated " Your right mate. I was just talking to my real estate mate in Sydney and he said " might just as well stay in Bali and go surfing as the market is dead here". Who says there aren't honest Realtors.
What to Do:
Simple if your thinking about buying real estate in the four major Australian cities don't, unless it has positive cash flow. If you own these properties and have a handsome profit, sell and buy where your Aussie dollar is buying more such as Bali where there has not been a bubble. If you own the home you live in in Australia simply hold onto it because even is it does drop 20 % to 40 % it will be more valuable 10 years from now.
At any rate I hope you don't kill the messenger, me.
Cheers,
Lawrence
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