Friday, January 30, 2009

2009 off to a steady start

2009 off to a steady start With the first month of 2009 behind us, how is the market looking and what can we expect from the property market in the coming months? Here are my thoughts.

The big ‘R’
Given the level of focus from the media around the Access Economics’ forecast this week, it seems inevitable that we will get the big R happening. Forecasters seem hell bent on making certain it happens so they can all be right….so where does that leave property owners in South Australia?

According to all the latest reports South Australia seems to have dodged the main line of fire in regards to its economic performance to date, and in one report was even described as the “Hidden Performer”. We seem to be quietly operating under the radar. When it comes to business we are a tough State and in property we have a history of resilience and consistency, avoiding the extreme highs and lows of the other States’ boom/bust markets. Transaction numbers were 35% down in the latter part of 07 verses 08 which may have helped the stabilisation of prices. Rather than meeting the market, a number of property owners in South Australia are simply opting to withdraw from sale and rent out their properties.

What we are experiencing is real!
From what I see, there will be a dip in our median price soon as the results of Spring ’08 work through the system. I have gone on record saying we have seen a 10 to 15% softening in the market (some areas have done much better, some worse) and this is exactly what most of the people in the know and agents are reporting.

Toop&Toop have a reputation of achieving top outcomes for our clients so we continue to monitor the market closely to ensure this remains the case. Given we are achieving sales when others can’t, we are confident what we are experiencing is real. We have not seen any panic selling yet but we saw some pressure situations late last year, there seems to be good underlying demand as soon as the price aligns with the market. Auctions are still working in most cases, but not necessarily selling under the hammer, often within a few days.

I can’t see any headline deterioration in prices this year, maybe another 10% in some segments of the market. Another interest rate drop will be extremely useful and we are watching those unemployment figures.

Three key factors
Three key factors continue to positively impact our market. Firstly we have not yet seen the massive surge in unemployment in South Australia, (this is the most critical factor to watch in coming months). The second is that we have record low interest rates which are still falling. Thirdly the rental returns for residential property is improving with the current tight rental market. Many property owners with secure jobs have essentially had a win with lower costs all around, including travel and leisure.

Other factors positively impacting us include the drop in the cost of petrol, the lack of alternate safe investment options, the arrival of the 7th Battalion with 1100 Soldiers this year, the success of the Governments’ International Education initiatives and immigration providing added stimulus to population growth. The upshot is that property activity is down, prices according to the statistics are holding and South Australia is well placed to weather the International financial and property storm.

Fairer prices
Take advantage of a secure job and adopt a long term view, trust in history and keep in mind we believe current buying is better than we have seen for over 18 months, understand that stats lag reality and take advantage of that. Do not expect a bargain basement in South Australian property but do enjoy the fairer prices and lower costs right now. This is the market to buy and sell - transacting in the same market is best under these conditions but sell first, buy second and be in a position to offer unconditional.

This is a GREAT time to be moving up - a GREAT time to be buying investments.

Anthony Toop, Managing Director <>

© Toop Real Estate Group


HiredGoon said...

It seems it's always a good time to give an agent a commission. How accurate was his predictions in 2008? "if those interest rates drop and they're predicting maybe in February if they drop hang onto your hats cos I think we could be in for a great ride". Where is the talk of the mining boom that justified the gains of 2007? It is obvious that was speculative mania and easy credit. I have been predicting a global deflationary depression from a generation long credit binge and housing bubble, funny that people aren't laughing as much now. Adelaide currently has a median price of ~7 times wages, which is higher than New York City. The Yanks have weak beer and a weak housing bubble compared to us. I expect prices to fall 40-70% as the delusion disappears that you can get rich quick from borrowing money and sitting in bricks.

Anthony Toop said...

“It seems it's always a good time to give an agent a commission” You are right, it is seemingly always a good time to buy when you talk to a real estate agent, so is this all hot air and self interest for the commission?? It would be naive to think anyone who depends on property sales to make a living would be anti real estate and the Industry basically comprises a group of people who to survive must see the positives in not only the houses we sell, but also the market we operate in. Those who have a glass half empty attitude are only ever in the business for a fleeting time while the Glass half full people have survived booms and busts over many years. Also, good agents believe in property. We have seen property save families from financial ruin, and of course, we have seen property contribute to it as well. For the average mum and dad, who are in property for their own home, long term shelter the family, it is by far the norm that their greatest asset over time is the very place they live in. Given there is a cost of not owning their home, that is you have to pay someone else rent, home ownership is really at the core of our community.

There are a lot of people who have taken extraordinary risks relative to their financial position and there will be issues for some of those people. The market has slowed and I believe prices are already off their peak by around 15%, but we are seeing increased affordability. Combine already lower prices with record low interest rates along with a rental market that is seeing rents rapidly rise…I think irrespective of what occurs with the economy, in the longer term property buyers at the moment will be the winners. Way back as far as you want to go in history I believe the owners of property seem to do better than those who do not have it.

As far as whether prices will fall in Adelaide, “I expect prices to fall 40-70% “, well that is always a possibility, but there is an amazing underlying demand and it appears at this stage that is not likely. The reality is that those who believe there will be a further 25% to 55% drop should back themselves in and sell now, and buy back in at the bottom. What an opportunity!

To finish up on here is a quick story that sums this situation up for me. Greg Hocking is a well known Real Estate agent from Melbourne, he sold one of the largest Franchise and most successful real estate businesses in Australia recently for an undisclosed sum, but it was a lot of money. He was a key note speaker at a national conference and I asked him this question….”what is your biggest regret in business??”. His reply went something like this, “that I didn’t take my own advice and buy a lot more property” he went on to explain “I constantly got people to buy and upgrade their properties and talked others into building a property portfolio yet for me it was always the wrong time….in the boom I had missed my opportunity and wasn’t going to pay too much so did nothing, in the bust as hard as I tried I could never pick the bottom, so I did nothing. I have made others $millions by having them just get on with it so my biggest regret is that I should have taken more of my own advice.”

So I guess history will be our judge. Life is short. It is quite an amazing feeling to own some dirt of your own. The price really is not only what buying now is about. To me it is about not putting your whole life on hold in fear if you are lucky enough to have a choice and if the choice is to continue to enjoy the wonders of what Adelaide and this country have to offer! So I recon, buy now!

Regards Anthony

Over Valued said...

I have to agree with HiredGoon here. I sold the house I had last March and there is no way I'd buy again at the moment. We are still a long way from the bottom and Adelaide hasn't woken up to this fact yet.

HiredGoon said...

That perspective is from the top of a generation long bubble! In 2000 everyone regretted not buying as many .com stocks as they could. In 2007 they regretted not buying as many mining shares! For a long term perspective, there have been 3 credit bubbles in Australia during the last 150 years. The 3rd largest was 1920s and the great depression, the 2nd largest was in 1890 where if you bought a house you would wait 60 years and a tripling of Australia's population for house prices to achieve the same value in real terms. The biggest bubble is today.

Anthony Toop said...

It was a tough September through to November but December livened up after the rate drop and it will be very interesting to see how we go this month if the rates come down again, this is historic times all around. If you have a secure job you are in an amazing position with positive cash flow now possible from residential purchase, now that will start to interest pure investors I am sure!

The last bust had double digit unemployment and 20% interest rates!!! We have low unemployment and record low interest rates...this will be an interesting time. The statistics still even this week show a solid market but we know the spring market saw 10 to 15% come off the peak. It appears it may hold now based on the past six weeks or so....especially if we get another 1% drop next week. The cost of holding property will be very low, and Adelaide vendors are proving resilient, and buyer numbers are holding well so far. We will soon see!


Anthony Toop said...

HiredGoon: What is so amazing at the moment is that we are living in historic times. Nobody knows, but when in doubt I go back to basics. Consider that property is in finite supply, and we need shelter. I think that bricks and mortar on a piece of your own land is of value irrespective of its price. Unlike shares, a property never simply disappears. Houses offer shelter, pretty useful irrespective of the price, as long as the Government do not tax the life out of it.

Anthony Toop