Urgent Australian Property Update

Urgent Australian Property Update

Several Money Morning readers have brought your editor’s attention to an extraordinary article from News Ltd over the weekend:

“Auction rates fudged by failed campaigns”

I’ll get on to that in a moment.  First, in yesterday’s The Age, James Kirby writes:

“Don’t believe the reports on Australian house values”

He explains:

“It’s quite a call – our house prices are more overvalued than anywhere you’d like to name – Shanghai, Sweden or Switzerland.  According to The Economist Australia’s home prices are 56.4 per cent overvalued.  And that’s comfortably above the second-highest figure of 53.7 per cent in Hong Kong.”

Mr. Kirby then goes on to knock out the usual Aussie housing clichés: “one of the best economies in the developed world…”, “…exceptional tax shelter encased in the family home…”, “…concentration of our population in four cities”, “…localised exceptions.”

Blah, blah… It all adds up to one thing – Australia is different.

But what of The Economist’s claims?  Is Australian housing really overvalued by 56.4%?

The Economist states:

“Hong Kong’s price rises are the steepest in our index but it is not the most overvalued housing market.  That honour remains with Australia, which is overvalued by about 56%…

“In Australia the market is at least inching closer to fair value.  Home prices in Australia’s eight state capitals rose by only 1.2% in the year to January, according to the RP Data-Rismark index.  Compared with the month before, prices fell by 1.6%.”

The Economist provides the following handy table for comparison:

Source: The Economist

Are Australia’s houses overvalued?

To the extent The Economist claims, no.

That answer may surprise you given our commentary on house prices since 2008.

But the reason is simple.  The article from News Ltd confirms everything we’d thought.  That auction and house price numbers are being fudged.

And it quotes a property expert rare among property experts – a non-spruiker.  Louis Christopher, director of SQM Research told News Ltd:

“We are having a very high percentage of auction campaigns going unreported to the reporting bodies, and we strongly believe those unreported auctions are actually failed campaigns.”

And it’s not just Mr. Christopher saying it.  The article also quotes Damian Cooley from “Sydney’s largest independent auction house” Cooley Auctions.

He said:

“In the vast majority of cases, the results that don’t get reported were either withdrawn or passed in, and the agents don’t want those results reported the next day.

“Ours [auction clearance rate] is 100 per cent accurate as we represented 12.2 per cent of the market on that day, so I find it hard to believe there’s a 14 per cent difference across the market.”

Mr. Cooley was referring to the Australian Property Monitors’ clearance rate of 65 per cent for the weekend before last.  Cooley Auctions had just a 51 per cent clearance rate.

In other words, it doesn’t make sense that there would be such a large discrepancy between the clearance numbers.

And it’s not just in Sydney where there’s rampant under-reporting.

Last week Domain.com.au ran an article titled, “Results good but not great”  The article rounded off with, “There are 975 auctions scheduled next weekend.”

Remember that number.  Because this week the Real Estate Institute of Victoria announced the past weekend’s auction results:

“This weekend looks like a carbon copy of last with a total of 565 homes from the 852 auctions selling resulting in a clearance rate of 66 per cent compared to last weekends 65 per cent.”

No mention of what happened to the other 123 scheduled auctions.  Our tip is they were cancelled, passed in, or sold below the advertised price.

But whatever the outcome, the real estate agents don’t want to reveal the results.  And it’s possible the real clearance rate is closer to 58%.  That’s a big difference.

It shows you the extent the spruikers will go to hide what’s really happening to house prices.

Even now, CommSec’s economists are claiming Australia’s house prices are going up:

“It is important to highlight that while the housing sector is cooling it is not about to collapse in a heap.  Overall CommSec expects house prices to consolidate over the next few months, but for the year as a whole we would expect prices to lift by 5 per cent.”

It’s almost embarrassing to see them still carrying on.  Too late dudes, prices are down and heading further south.

But still the property gurus want you to think it’s still a good time to buy.

Look, I’ll take anecdotal evidence and real stories from people trying to sell their houses, plus what I can see happening in the market, over anything some dodgy house price index tells me.

A few months ago I warned you the housing bubble had already started to burst.  It was just that the dodgy indices hadn’t shown it yet.

At that time the spruikers were still claiming house prices were rising and that we’d see “normal” growth of between 5-10% this year – CommSec are still flogging that horse.

As usual, they and the mainstream press were lagging what was really happening.

The fact is, while the spruikers keep trying to talk-up Aussie house prices, prices have already fallen.  All the myths given by spruikers to justify why Aussie house prices can’t fall are proving to be no more truthful than [look away kids] unicorns and fairies.

Expect the Aussie housing market to get much, much worse before it improves.

Regards,

Kris Sayce
for Money Morning Australia

Kris Sayce

Kris Sayce

Publisher and Investment Director at Port Phillip Publishing
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Tactical Wealth, and Microcap Trader — where he reveals the best opportunities he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays.
Kris Sayce is the Publisher and Investment Director of Australia’s biggest circulation daily financial email, Money Morning Australia.Kris is a fully accredited advisor in shares, options, warrants and foreign-exchange investments. Kris has close to twenty years’ experience in analysing stocks. He began his career in the biggest wasp’s nest in the financial world — the city of London — as a finance broker back in 1995.
It’s there where he got his ‘baptism of fire’ into the financial markets, specialising in small-cap stock analysis on London’s Alternative Investment Market. This covered everything from Kazakhstani gold miners to toy train companies.After moving to Australia, Kris spent several years at a leading Australian wealth-management company. However he began to realise the finance and brokerage industry was more interested in lining its own pockets with fat fees, commissions and perks —rather than genuinely helping out the private investors they were supposed to be ‘working’ for. So in 2005 Kris started writing for Port Phillip Publishing — a company which was more attuned to his investment outlook. Initially he began writing for the Daily Reckoning Australia— but eventually, took over Money Morning. It’s now read by over 55,000 subscribers each day. Kris will take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money! Whether you agree with him or not, you’ll find his common-sense, thought-provoking arguments well worth a read. To have his investment insights delivered straight to your inbox each day, take out a free subscription to Money Morning here. Kris is also the editor of Tactical Wealth and Microcap Trader where he reveals the best opportunities he’s discovered in the markets that you could profit from. If you’d like to learn about the latest opportunity Kris has uncovered, take a 30-day trial of Tactical Wealth here or Microcap Trader here. Official websites and financial e-letters Kris writes for:

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63 Comments on "Urgent Australian Property Update"

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Chris
Guest

Well said Kris,

The average lazy Australian just skims through the results and only wants to see the clearance %… Too stupid to do the math and figure out that number fudging is rife in the industry.

Went to several auctions on the weekend…all passed in on vendor bids.

Bring on the allmightly Australian Property crash, I have no sympathy for anyone anymore – if they were too stupid not to see what was coming, then so-be-it.

Hopefully there will be politicians and real estate agenst swinging from lamp posts after this, god knows they deserve to be.

Nick
Guest

And did anyone see that ridiculous article in the Saturday Herald Sun about when your property will be worth a million dollars! Apparently it was done by some AMP analyst. I can’t believe the papers print this crap.

Drew
Guest

This was the funniest part of the second article you mentioned:

“But hold it one second … what exactly did The Economist measure? The ratio of home prices to rents in 20 economies. It’s a single measure – and a leaky one at that. You could simply say Australia tops The Economist list because our average rents are too low.”

So we just need a rent bubble and problem solved!

Greg
Guest

There is little doubt that house prices are being kept aloft via a ponzi of other asset sales, tax breaks etc, because there is no way that prices bear any relation to incomes. Rents, however, do. Rent must be paid, from income. So the fact that property prices are sky-high relative to rent says it all. Rent is the real indicator of a sustanable price. When I can rent a $1.8M house for $700 per week, the maths is pretty compelling. This is why the bubble has to pop.

michael francis
Guest

The Real Estate Market has reached a point where the supply of Real Estate Agents is greater than the money to be made. (Increasing properties for sale and fewer buyers means decreasing returns on fees.)

This is where the fun starts when agents cannibalise each other like a plague of starving rats on an island running out of food.

bb
Guest

MF @4. Please consider that comparing desperate real estate agents behaviour to starving rats could be considered as both victimisation and discrimanatory – to any self respecting rats.

michael francis
Guest

bb

Your right. My apologies to all rats.

Peter Fraser
Guest

A couple of points;

1. Louis Christopher is indeed a well respected property expert, and a hell of a nice guy.

2. The tendency for Real Estate agents to not bother putting in the data for failed auction campaigns gets debated on other blogs every week. For Louis to make a statement, then perhaps he feels that it has become more prevalent lately, but he hasn’t said that to my knowledge. If it has got worse then that will skew the trend, if not it has no effect on the trend, and it is the trend that counts.

JB
Guest

PF
You’re sounding increasingly desperate.
Just give it a bone will ya!!

Drew
Guest
PF, correct me if I’m wrong, but it sounds like you are saying there is no problem with them manipulating the data – as long as they do it consistently. Surely to make decisions, one needs reliable data. For example, the REIV use the clearance results to claim that the market is healthy. However, subtract 10% and they may not be able to get away with such a claim. But the point is, we shouldn’t have to worry about whether the distortion of data is getting better, worse or staying constant – there should be no distorting of data –… Read more »
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