Seasoned property investors know that the media doesn’t provide an accurate representation of the market, nor does it provide a good guide on where to invest.
They comment on short term price movement and sensationalise the often minor change in demand or variation in price. Having said that, no-one wants to hear a story about property prices going up 1%, boring doesn’t sell, nor is it newsworthy. The Monthly Noise will be quite different to other property updates as we are only going to comment on the fundamentals of the market.
We will only look at the indicators that guide the advice that we provide to our clients internally. These fundamentals provide a shining light on where property investors should be putting their money, and just as importantly, where we shouldn’t be investing.
If you are thinking about investing you need to remember that in most cases you are going to place between 5 and 8 times your annual income into a single asset within a market. Like all financial markets, values can, and will, go up and down, and property doesn’t always rise in value despite what you may have heard. In fact, 10% – 20% of property investors lose money through neglectful decisions.
Most mistakes are made because of a lack of understanding. Rather than making a blanket statement that all Australian media report inaccurate information regarding real estate – it’s simply the wrong information for property investors to be basing their decisions on when deciding where to invest. Combine this lack of proper advice with inexperience and misguidance, and that gives you the recipe for property investors to lose money and/or buy under-performing investments.
Each time you invest 8 times your annual income, we want that decision to be the best decision possible. We want you to do it in way that minimises your risk and produces outcomes that are conducive to improving your wealth and lifestyle, both in the long and short terms.
Best of luck.
In this edition of the Monthly Noise we are going to focus on Stock Levels.
Why are stock levels so important?
> Falling stock levels can lead to rising prices
> Rising stock levels can lead to falling prices
> High stock levels can lead to market volatility
> Low stock levels can make for difficult buying conditions and strong price rises
Source: SQM Research
This couldn’t be more true in Sydney at the moment with stock levels running at approx. 25,000 according to SQM research. In 2008 there was nearly twice as much stock on the market and over the last few years the average stock on market has floated around the 30,000 mark. The falling stock levels have contributed to sharp price rises in 2013, and with stock levels well below their long term averages, it’s likely that buying conditions will remain difficult for some time.
As rents have struggled to rise this year in certain pockets, we will see the smart investor money leave Sydney and let the more emotional homebuyers take over. Cheap money and low stock levels should see this frenzy last another good twelve months.
Brisbane stock levels are currently running at around 26,000 down from 35,000 in 2008 and slightly lower than their long term average. Month-on-month we are starting to see the stock levels reduce slightly and this is beginning to have an impact on the average days a property spends on the market in Brisbane, 30% – 40% lower over the past twelve months. Prices in Brisbane are starting to head upwards, and with rents tipped to rise further, certain pockets of Brisbane will present excellent buying opportunities.
Melbourne stock levels are higher than average and have been high for the last two years. In 2008 stock was running around the 24,000 and now stock levels are running at 45,000. Mainstream media would have you believe that the Melbourne market is staging a strong recovery but a combination of stock levels well above long term averages, the lowest yields in the country and soft rental vacancy, it appears the recent rise in price and auction clearance rates are largely sentiment driven.
Sentiment on a national scale has improved due to low interest rates but until rents rise in Melbourne, that market will not have a fundamental upwards shift in values. In our view, Melbourne is not experiencing a fundamental recovery and investors need to be very cautious.
Statistics should never be relied upon in isolation, and we form these views in conjunction with a range of other indicators from internal and external sources. To find out exactly where the smart investor money is going next, contact David McMillan – david@performanceproperty.com.au