Australian real estate makes perfect sense.
by Terry Ryder.
creator of hotspotting.com.au
Introduction: Where do markets sit as we approach the 2015 halfway point?
If mainstream media had been right, the Australian real estate market would have collapsed by now, with bubbles bursting across the country.
Of course nothing like that has taken place, or is likely to, but major newspapers like The Australian and the Sydney Morning Herald made doomsday forecasts about property last year. One headline in theSMH described “the nightmare vision of the 2014 property crash”, while The Australian declared in mid-2014: “Stand back when the housing bubble bursts”.
As intelligent observers will know, there is a stark contrast between media’s view of the property scene and what actually happens.
I recently conducted a research exercise for a client who asked me to examine media claims and predictions about real estate between 2000 and 2015, and compare them with actual outcomes. This revealed that virtually every week over the past 15 years has included articles in major media predicting the collapse of our real estate markets, the death of The Great Australian Dream and the demise of first-home buyers because of a claimed affordability crisis.
Visiting overseas spruikers, at various times in the past five years, have forecast imminent reductions in our property values ranging from 40% to 90%. None of these ridiculous predictions have come to pass.
Sadly, there is an absence of expertise and integrity in media today. Some of what is published as information on real estate amounts to criminal negligence – because if consumers act on the advice contained in those articles, they are likely to buy badly and end up with a financial disaster.
If you’re like most Australians and cannot avoid absorbing media sound bytes, you will have all kinds of misleading impressions about the state of play in real estate.
For analysis of markets nationwide, click on the topics below …
|National Overview||Recognition that there is no national boom.|
|Adelaide & SA||Adelaide has rising momentum but still flying under the radar.|
|Brisbane & QLD||Queensland offers the best and the worst of Australian real estate.|
|Canberra & ACT||The national capital showing first signs of arresting its steady decline.|
|Darwin & NT||Going backwards slowly, amid deceptive figures on sales volumes.|
|Hobart & TAS||Showing signs of life, but still only lukewarm.|
|Melbourne & VIC||Melbourne now has more growth markets than Sydney.|
|Perth & WA||Perth continues its gradual decline, but Mandurah still strong.|
|Sydney & NSW||Still plenty of life in Sydney but a gradual fade has begun, while regions look strong.|
|Conclusion||Everything happening in Australian real estate makes perfect sense.|
Finally, recognition there is no national boom. And that rates aren’t driving things
It has taken a long time for economists, commentators and the media to realise that the much-headlined national property boom does not exist.
It’s an indictment on the people who comment on and write about real estate that we’ve had at least two years of headlines proclaiming a national boom, “rocketing” property prices and the consequent notion of a “bubble”.
Gradually, more and more commentators have woken up to the reality that very few places around Australia have had major price growth. Among the capital cities, only Sydney has hit double-digit price growth. Out in the regions, a small number of key centres in New South Wales and Queensland have had good growth, but most have not experienced booms.
In fact, most markets around Australia have been stagnating or going backwards.
The last time Australia had a genuine national property boom was in the period from 2001 to 2003. In 2002, most capital cities had double-digit growth in median house prices, including three which increased more than 20%, and the average annual rise was 18%. The following year, in 2003, there was a further 19%, with all eight capital cities growing at least 13%, with four cities topping 20% (and Brisbane rising 35%). That’s what a national boom looks like.
By contrast, in the 12 months to the end of March, prices in three capital cities went backwards, three others grew between 1% and 2.5%, Melbourne managed a moderate 5.5% and Sydney remained the only boom city with a 14% rise (based on RP Data figures).
This puts into perspective economists’ claims that Sydney’s boom has been caused by record low interest rates. The question they struggle to answer is this: if low interest rate levels are the prime catalyst, why isn’t there a boom everywhere? Why are Perth, Darwin and Canberra going backwards? Why is there no major price growth in Adelaide and Hobart? Why are the growth rates so moderate in Melbourne and Brisbane? And why are prices falling in regional markets such as Mackay, Gladstone, Karratha, Broome, Port Hedland, Singleton and Muswellbrook?
The Reserve Bank has been cutting interest rates for almost four years, but the vast majority of markets around Australia have nothad property booms – or anything remotely like it.
The answer is that interest rates are not the issue. They are not the prime catalysts of events in residential property (refer to“Conclusion” on the last page of this report for more on this subject).Local issues predominate.
Sydney’s up-cycle has been driven by a sharp improvement in the New South Wales economy and by a major upturn in infrastructure spending. Perth’s market has gone backwards recently as the impact from the downturn in the mining industry has taken hold. Canberra has stagnated because of the downsizing of the public service. Coastal regional centres like Cairns, the Sunshine Coast and Port Macquarie have started to rise on the back of infrastructure spending and proactive council policies which have broadened their economies.
It is because local issues are paramount that we have so many different situations in real estate across the nation. No two markets are exactly alike. We have some absolute basket cases (but not all for the same reasons), we have others that have declined only moderately, we have some stagnating, some rising a little, a few showing solid growth and a small number with boom markets.
There are some markets with shortages and a far greater number with high vacancies or looming oversupplies.
This is why it’s so important for investors to understand as much as they can about real estate markets. It’s critical to make the right choices, especially on location.
The choices made by investors have to be based on genuine research, not on impressions gained from media sound bytes or on impulses best described as “the herd mentality”.
Investors must be willing to put in the time (or be willing to spend some money) to unearth quality research information to form the basis of good investment decisions. The most successful investors are those willing to spend money on good advice and quality information.
Most investors are not willing to do that – and, sadly, this is why most Australians who attempt property investment have negative outcomes.
Adelaide and South Australia
Adelaide has rising momentum but still flying under the radar
Adelaide remains our most under-rated capital city. A list ranking the eight capital cities on price growth over the past 10 years shows that Adelaide ranks No.4 in the nation – ahead of Sydney, Brisbane and Canberra. It’s a much better property market than most people realise.
Adelaide may not produce the stellar population growth numbers of Perth or Melbourne, but it does have a growing population. And, more importantly, it has a high level of spending on new infrastructure, which is a major catalyst of growth in residential property.
The South Australian Government has been spending on new and improved rail links, plus large sums on new road infrastructure. There is a $9.7 billion program of projects – some recently completed, some under construction and others in planning – to upgrade road links in the city’s north-south transport corridor. A $2 billion hospital is under construction.
And the city offers attractive affordability. Its median dwelling price is $400,000, compared to $732,000 in Sydney and $555,000 in Melbourne. While Sydney has over 100 suburbs with median prices above $1 million, Adelaide has only six millionaire suburbs.
Against that background, the Adelaide market is rising. Sales have been gradually improving for the past year or so. The March Quarter figures show improving markets, particularly in the middle market areas and in some of the bottom end markets. But to date there has been only minor price growth.
Many of the improving middle market areas are in the western suburbs between the CBD and the beaches. Adelaide’s more fancied upmarket areas are immediately east and south of the City, while the western suburbs tend to be less highly rated and less expensive, including bayside suburbs like Glenelg.
Suburbs in the municipalities of Holdfast Bay (including Glenelg, Somerton Park and Brighton), Marion (such as Edwardstown, Mitchell Park and Morphettville) and Charles Sturt (including Seaton, West Lakes and West Beach) are rising markets. They tend to have median house prices in the $500,000s and $600,000s.
The standout areas include downmarket precincts such as Salisbury in the far north and Onkaparinga in the far south. Salisbury has Adelaide’s cheapest real estate, with many suburbs with median house prices in the $200,000s, but it has also good transport infrastructure and proximity to major jobs nodes. The impending closure of the Holden car plant is a looming negative for this market, but unlikely to be the disaster than media is suggesting.
Onkaparinga on Adelaide’s southern outskirts is one location in South Australia with strong population growth. It includes new growth suburbs, as well as seaside villages and a noted wine district. Improvements to road and rail links are catalysts to future growth.
There are few major population centres in the state, outside Adelaide. The state’s second biggest city has around 30,000 residents. But there are some towns with growing property markets, including Mount Gambier and Murray Bridge.
Whyalla has the best long-term capital growth rates in South Australia, but is currently in a down phase, impacted by its reliance on the resources sector.
Brisbane and Queensland
Queensland offers the best and the worst of Australian real estate
Queensland shows why you have to be fussy about the locations you choose. The state represents the best and worst of Australian real estate.
It has one of the nation’s busiest capital city markets and it has three of the four leading growth markets in regional Australia. But it also has most of the country’s worst danger markets.
As we near the halfway point in 2015, Brisbane is poised the challenge the nation’s two biggest cities on price growth. Sydney, now in the third year of good price growth, is showing signs of fading. Melbourne continues to deliver good activity, but is not delivering major price growth. After 18 months of rising activity – and strong price rises in some local sectors – Brisbane is a serious challenger on price growth.
The hotspotting.com.au research for The Price Predictor Indexshows that two affordable areas on the periphery of the metropolitan area are leading the charge. Logan City in the south and the Moreton Bay Region in the far north are the precincts with the most elevated sales activity. When Brisbane first got on its growth path, the precinct I call Brisbane North – the northern suburbs of the Brisbane City Council municipality – led the recovery.
Brisbane North, which is essentially Brisbane’s middle market with typical house prices in the $500,000s and $600,000s, remains solid. But the growth leaders now are Logan City and the Moreton Bay Region.
Both these areas are marked by affordability and are considered to be downmarket. Some people refer to Logan City, rather unkindly, as Bogan City – but that’s an attitude based in real estate snobbery, the kind of blinkered thinking that prevents investors from accessing the best buying opportunities.
Logan City is well located between Brisbane City and the Gold Coast, is has excellent road and rail links, there are lots of jobs nodes, plenty of schools and the biggest concentration of major retail facilities in the metro area, as well as ready access to the Gold Coast’s theme park precinct. There are lots of positives.
Logan City is the No.1 municipality in Australia for growth property markets – i.e. it has more suburbs with rising sales activity than any other precinct in the nation.
Queensland also has three of Australia’s top four regional markets, in terms of rising activity. Those locations are Cairns, the Sunshine Coast and the Gold Coast (the other member of the national top four is the City of Gosford in New South Wales.)
Both Cairns and the Sunshine Coast are transition economies – places that have been hampered in the past because they have been tourism economies, which seldom produce strong price growth long-term. Both locations are changing through infrastructure spending and the proactive policies are progressive local councils.
The Gold Coast is on an upward trajectory, but I continue to urge caution because the region has recently emerged from five down years because of oversupply – and developers are now busily working on creating the new massive surplus, with lots of new high-rise unit buildings which will be sold primarily to Chinese investors. Be afraid, be very afraid.
Other regional markets showing signs of joining the growth party include Townsville and Hervey Bay. Neither has produced major price growth yet, but sales activity is rising.
Toowoomba has been the No.1 market in regional Queensland for the past couple of years but now, while it remains solid, it has passed its peak.
The danger markets I referred to earlier are the towns and regional centres impacted by the resources sector. In most cases, developers built too many new dwellings, without taking into account that most of the resources personnel would be FIFO people staying in temporary workers camps.
Towns like Moranbah, Dysart, Emerald, Chinchilla and Miles have massive vacancies, with rents and prices falling sharply. I get emails every day from people who own investment properties there and are desperately seeking a rescue plan. Sadly, there’s little that can be done, other than sell at a major loss or hang in there until things improve.
It emphasises, once again, how important it is to put time into genuine research and make good locational choices.
Canberra and the ACT
The national capital showing first signs of arresting its steady decline
Canberra has been the worst-performing capital city in the past two years. One of the contradictions of the property scene is that the nation’s capital city and the nation’s largest city, separated only by three hours’ drive, are behaving so differently as property markets.
How could Sydney be booming while Canberra has been stagnating or going backwards (depending on whose figures you believe)? The answer is that local factors are the most influential in determining the fate of property markets, rather than macro factors such as interest rates.
Canberra has suffered a crisis of confidence because of moves by the Federal Government to downsize the public service. Big job cuts, with threats of more to come, can really deflate a property market.
But after two years of under-performance, Canberra may be showing signs of arresting its former decline and even contemplating a recovery.
The latest sales data shows improvement in sales levels in the December 2014 Quarter after 18 months of gradual decline – and the figures for the March 2015 Quarter also looked promising.
Previous editions of this report have assessed the Canberra market in a fairly negative light. A year ago I noted that the Canberra market was “going nowhere – neither up nor down – there is little in the way of meaningful growth, with markets stalled by uncertainty and nervousness resulting from the Federal Government’s plans to make big cuts to the public sector workforce.”
Since then I have noted on a number of occasions that the situation has got worse, though it has been a case of gradual deterioration rather than rapid disintegration – which is why there has been no dramatic decrease in median prices.
So Canberra has been stagnating and lacking spark. But the new research figures suggest some improvement. There are now some areas with improved sales rates and others with consistent market activity.
The housing market made particular progress in the December Quarter, with the highest number of sales since 2012, and encouraging figures also in the March Quarter. The apartment market, which has shown the biggest decline in the past two years, improved in the December Quarter but remains well below the sales levels of 2012-13. Over-supply has been an issue.
Of the markets showing signs of growth in activity, most are some distance from central Canberra and are at the affordable end of the price ranges.
The Far South precinct has three Rising Steadily suburbs and fourConsistency markets, while the Far North precinct has two Rising Steadily suburbs and eight Consistency markets. Typical of the growth markets are Ngunnawal houses (median price $415,000, up 2% in the past year) and Belconnen apartments (median price $405,000, up 2% in the past year), both in the north of the city.
Darwin and the Northern Territory
Going backwards slowly, amid deceptive figures on sales volumes
Darwin is now one of the weakest capital city markets, even though sales levels appear to be healthy. The median prices for both houses and apartments fell in the 12 months to the end of April, though not by much.
Darwin has the highest vacancy rate among the capital cities, currently hovering around 3.5%, according to SQM Research. The Northern Territory is the only state or territory with declining building activity and it has failed to match national trends on loans to property investors.
This market had a price growth spurt in 2011/2012, boosted by major resources projects such as the $30 billion Inpex gas project. That impetus has now faded.
Residential sales in the Darwin City LGA rose in the March 2015 Quarter to their highest levels since 2012 – but that is misleading. Sales activity figures in the city often have aberrations caused by new land releases or large apartment projects – these can distort the figures because Darwin is a small city.
In the housing market, sales numbers were boosted by a release in the developing suburb of Muirhead (which is partly being created to accommodate Defence personnel), where there were 110 house sales recorded in the March 2015 Quarter.
This is a common aberration in the Darwin market, where the development of new suburbs produces spikes in sales when a new release is made. For example, total residential sales in Muirhead have been 44, 16, 22, 152, 9, 4, 32 and 131 in consecutive quarters over the past two years.
In the City of Palmerston, which captures of lot of the new growth in the Greater Darwin area, overall residential sales increased markedly in the December 2014 Quarter and reached similar levels in the March 2015 Quarter.
Similar to the situation with the City of Darwin, new releases in the development suburbs create spikes in sales in Palmerston. Quarterly sales in one of the new suburbs, Zuccoli, have been 65, 3, 23, 9, 52, 4, 52 and 67 over the past two years – with the larger numbers created by new marketing releases.
Sales of apartments in Palmerston over the past five consecutive quarters have been 27, 44, 33, 29 and 162. The spike in the March 2015 Quarter was caused by sales in the new suburbs, including 20 in Zuccoli, 16 in Johnston, 23 in Durack and 29 in Yarrawonga.
The only major Northern Territory markets outside the Darwin/Palmerston metropolitan area are Katherine and Alice Springs. Both continue to present solid property markets, with a recent uplift in sales activity in both towns.
Hobart and Tasmania
Showing signs of life, but still only lukewarm
The Hobart market is typical of capital city Australia, excluding Sydney. Hobart’s market is really going nowhere in terms of price movements.
According to the latest figures from RP Data, the city’s median house price rose marginally in 12 months, while the median apartment price fell slightly. There are similar results in six of the eight capital cities.
But better things can be expected. Gradually, sales activity is improving. The slow pick-up we detected previously in Tasmanian markets is continuing. There are now growing numbers of rising markets in both Hobart and Launceston. Across Tasmania, growth markets outnumber consistency markets, which is unusual – and a positive sign for the market.
Tasmania’s market has been on a slow but steady rise for the past two years, notwithstanding a brief pause in the September 2014 Quarter. The recovery from that hiccup, which we saw in the December 2014 Quarter, continued in the March 2015 Quarter.
Putting that together with anecdotal evidence out of Tasmania, I feel confident in predicting price growth in Hobart and Launceston as the year progresses. But I don’t expect anything dramatic.
In the Hobart metropolitan area (covering the municipalities of Hobart, Glenorchy, Clarence and Kingborough) there has been that same pattern of steady increases, beginning late in 2012 and continuing until mid-2014.
In 2012, quarterly sales were generally between 850 and 900. Consecutive quarters since September 2013 recorded dwelling sales totalling 996, 1,022, 1,048 and 1,102 (June 2014). Sales numbers dropped to 924 in the September 2014 Quarter, then rose again to 1,040 in the December 2014 Quarter and to similar levels in the March 2015 Quarter.
In the City of Hobart LGA, inner suburbs such as Sandy Bay, Battery Point, West Hobart, South Hobart and North Hobart have rising markets.
The City of Glenorchy, which encompasses a range of cheaper suburbs north of the Hobart CBD, has steady momentum, with good sales in the December 2014 and March 2015 Quarters. Four of the Glenorchy LGA suburbs are ranked as rising markets, including Moonah, Claremont, Glenorchy and Lutana.
Launceston has a steady market, with four Rising Steadily suburbs and six Consistency markets. Neighbouring West Tamar has threeRising Steadily locations, including Riverside, Trevallyn and and Legana. The City of Launceston has recorded between 400 and 500 dwelling sales in each of the past eight quarters.
The exception to this general story of steady recovery in the West Coast region of Tasmania, where the towns of Queenstown, Rosebery and Zeehan remain in decline.
Melbourne and Victoria
Melbourne now has more growth markets than Sydney
The relativity between Melbourne and Sydney demonstrates why sales volumes are more important than median prices in judging markets. Sydney is well ahead on median price growth, but this speaks to the recent past. Melbourne is well ahead in terms of suburbs with growing sales activity, which provides a guide to price growth in the near future.
Media continues to obsess over Sydney’s price growth of the recent past, but the real story is that sales activity is starting to wane in Sydney while there remains considerable momentum in Melbourne.
Melbourne now has almost double the number of growth suburbs as Sydney. Melbourne has 134 suburbs classified as rising markets, compared to 72 in Sydney.
Melbourne continues to produce upwardly-mobile markets across the metro area. It now has more growth markets than three months ago and also more steady markets with consistent sales. This represents a general strengthening of the Melbourne residential sector.
Two things stand out in the latest analysis: “middle Melbourne” is still strong and new areas are emerging with strong markets, especially locations on the outskirts of the metropolitan area.
The Whitehorse LGA, east of the Melbourne CBD, remains the No.1 precinct. It has 12 suburbs rated as Rising Steadily. They include Nunawading (median price $700,000), Burwood East ($800,000) and Blackburn South ($800,000).
Another middle market area of prominence is Monash City with oneRising Fast suburb and seven Rising Steadily ones. The Kingston LGA, which includes Cheltenham ($695,000) and Parkdale ($750,000), continues to emerge with six Rising Steadily markets and fourConsistency markets.
But increasingly strong markets are popping up on the periphery of Greater Melbourne. The charge is being led by the Frankston and Mornington Peninsula LGAs in the far south: Frankston’s eight ranked suburbs include five Rising Steadily and three Consistency markets, while the Mornington Peninsula has two Rising Fast, five Rising Steadily and six Consistency markets. Rosebud sales have risen from 117 to 134 to 175 per quarter, while Rye has improved from 91 to 120 to 155.
The Casey LGA in the south-east has two Rising Fast suburbs, five that are Rising Steadily and seven that are ranked as Consistencymarkets.
Whittlesea in the north remains a serious contender: it has twoRising Fast suburbs and four Rising Steadily markets. Epping sales have been 77, 113, 107 and 130 in the past four quarters. Also in the affordable north, the Hume LGA is a new challenger, with six Rising Steadily markets.
The Brimbank LGA in the western suburbs is a regular standout in this report. It has now has nine Rising Steadily suburbs and sixConsistency markets, a marked improvement on three months ago. Wyndham City in the far south-west is another of the big improvers. And Yarra Ranges in the far eastern suburbs, which has not featured previously, now has eight ranked suburbs.
Upmarket areas such as the Boroondara LGA and the Glen Eira LGA feature, each with six or seven Rising Steadily markets, but most of the standouts are middle market and bottom end suburbs.
Regional Victoria has not caught Melbourne’s growth wave. There is life in some of the key regional centres but their property markets are not pumping – not the way regional markets are in New South Wales and parts of Queensland.
We are finding plenty of steady markets with consistent sales, but relatively few growth markets. Throughout regional Victoria, there are only 18 growth suburbs – but 60 suburbs marked by steady, consistent sales.
Geelong remains the standout growth market in regional Victoria – but it’s a story of steadiness rather than the strong growth in activity being experienced in many parts of Melbourne.
Bendigo and Ballarat continue to have steady markets, each with eight ranked suburbs, but most are Consistency markets.
There is promise that things may improve as the year progresses. There are signs of forward momentum in a number of regional centres across Victoria. Warrnambool stands out as a strong regional city which is now starting to deliver steady increases in sales, with quarterly sales totalling 131, 155, 155, 161 and 171 in the past five consecutive quarters.
Perth and Western Australia
Perth continues its gradual decline, but Mandurah still strong
Mandurah is now the No.1 growth market in Western Australia. It is the clear standout in regional WA but, with few areas in Perth delivering growth, it is also the leading precinct in the state.
I rank five Mandurah suburbs as Rising Steadily and six others asConsistency markets. This is an eye-catching performance at a time when property markets across the state have subsided or declined, undermined by the downturn in the iron ore industry and the general condition of the state’s finances.
It is no doubt a temporary phenomenon, but WA is no longer the nation’s growth leader and that has impacted property markets throughout the state.
Resources-impacted towns continue to have declining markets, including Port Hedland, Newman and Kambalda. These locations all have high vacancies and sales rates have diminished markedly, leading to price reductions.
Against that background, Mandurah is defying the general trend. Dudley Park is an example of the Mandurah markets with forward momentum: sales in the past four quarters have been 50, 55, 56 and 65, while quarterly sales in Erskine have risen from 30 to 35 to 55 over the past year.
Perth has been on a slow but steady downward trajectory since the middle of 2013, undermined by increasingly negative news about the state economy and the State Government’s Budget dilemmas.
There are now few growth suburbs in Perth. In Hotspotting’s Price Predictor Index report in February, our ranking system found 21Rising Steadily suburbs and 127 Consistency markets. We now find only 15 Rising Steadily suburbs and 104 Consistency markets.
Western Australian dwelling sales, with the bulk of them in Perth, peaked in the March Quarter 2013 with 16,740 sales. The number of sales has been gradually declining since then, to just over 15,000 in the December 2013 Quarter and down further in the December 2014 Quarter to slightly under 13,000 sales. There was further decline in the March 2015 Quarter.
Only two Local Government Areas (LGAs) in Perth have maintained their ranking levels compared to three months earlier: the Wanneroo LGA in the far north and the Stirling LGA in the inner northern suburbs.
Stirling is the No.1 precinct in Perth. The growth markets include Doubleview, Carine and Innaloo.
Wanneroo has three growth suburbs – Butler, Tapping and Yanchep – and many steady markets.
Most of the standout precincts now are those with a high number ofConsistency markets – suburbs that are maintaining steady sales rates and resisting the general pattern of decline.
The leading area in this regard is the Joondalup LGA in the north of Perth. It has 14 suchmarkets. An example is the suburb of Hilarys, where sales in the past seven quarters have been 61, 60, 55, 51, 58, 54 and 55.
Sydney and New South Wales
Still plenty of life in Sydney but a gradual fade has begun, while regions look strong
Regional New South Wales is one of Australia’s leading growth stories. While the media has been obsessing over Sydney, other parts of NSW have been delivering growth but largely going ignored. That means the best opportunities to buy affordably with superior rental returns and great prospects for capital gains are being missed.
Economists think Sydney is over the top with 14-15% annual growth in house prices, but the City of Gosford on the Central Coast is out-performing its big brother. Most Gosford suburbs have delivered median house price growth between 15% and 20% in the past year and some of the unit markets are up by 20%-plus.
Kariong and Wyoming have risen 19%. North Gosford is up 17%, Narara 18% and East Gosford 17%. Terrigal and Wamberal have risen 15% and Umina Beach is up 16%.
This has come on the back of big rises in sales activity which I’ve been tracking for the past 2-3 years. A dozen suburbs in the City of Gosford still have rising trajectories in terms of sales volumes, so the price growth isn’t over, but the best time to buy there has passed.
There are many other upwardly-mobile regional markets in the state. The City of Wyong is another big improver – I count eight suburbs with rising markets and another 10 with consistent sales.
The City of Newcastle and neighbouring LGAs like Lake Macquarie and Port Stephens are all going well. Port Stephens is showing life after a decade of poor performance. The Hunter Valley, weighed down by over-supply for the past 2-3 years, looks to be recovering. The municipality of Maitland in particular is starting to produce growth markets and so too is Cessnock.
Port Macquarie, which has shown little growth over 10 years, is now pumping. Dwelling sales in the past seven consecutive quarters have been 358, 378, 388, 369, 335, 360 and 390. It’s amazing what some serious spending on infrastructure can do to a property market.
The Blue Mountains has plenty of growth suburbs and south of Sydney there’s momentum in a number of municipalities, including Wollongong, Shellharbour, Kiama and Shoalhaven.
Further afield, Dubbo continues to be one of the strongest regional economies and property markets in the nation, and there is plenty of life also in Goulburn, Orange, Tamworth, Wagga Wagga, Albury and Coffs Harbour. In the far north at the Queensland border, the Tweed area is going well.
Meanwhile, Sydney’s momentum has weakened a little but the market overall remains strong. There continue to be growth suburbs right across the metropolitan area – just not as many as three months ago.
Some of the suburbs that were previously growing have now tapered off and are ranked as Consistency markets.
The diversity of strength in Sydney is illustrated by the identity of the leading growth precincts: two of the top five are inner-city while the other three are right out on the outskirts of the metro area. In between is a range of markets that are showing growth or strength in consistency.
The No.1 LGA in the latest research is the City of Sydney, where strong buying of inner-city apartments has created eight growth suburbs and eight others marked by steady sales rates. In Darlinghurst, sales per quarter have been 76, 85, 92, 106 and 110 in the past five quarters. Investors need to be careful, however, as Sydney may follow Melbourne and Brisbane down the road to over-supply in the next 2-3 years.
No.3 is Penrith City in the far west, with five growth suburbs and seven marked by consistency. Emu Plains, where sales have risen from 31-34-52-45-55 in consecutive quarters, is an example of the growth markets.
The No.2 and No.4 ranked municipalities are Camden and Campbelltown in the far south-west. If we take these two neighbouring LGAs as one precinct – the far south-west – this is Sydney’s leading area for growth markets. Affordability and infrastructure spending are the key drivers here.
The fifth of our top five LGAs for growth markets is upmarket Woollahra, where Rose Bay, Vaucluse, Woollahra, Double Bay and Darling Point continue to have good momentum.
There are many other precincts doing well in various parts of Greater Sydney. The Sutherland LGA in Sydney’s south has shown up for the first time with a series of solid markets, headed by Caringbah, Caringbah South and Illawong.
Two affordable areas which have been to the fore over the past year or so, the Liverpool and Blacktown LGAs, continue to feature but more with Consistency markets than growth markets. Several of the suburbs which previously had rising sales levels have not tapered off at those higher levels and are now delivering steady sales rates.
Other areas with high levels of consistent suburbs include the Bankstown, Fairfield, Parramatta and Ryde municipalities.
Everything happening in Australian real estate makes perfect sense
The Reserve Bank has been cutting interest rates for almost four years, but the vast majority of markets around Australia have not had a property boom – or anything remotely like it.
This contradicts the general rhetoric from economists and mainstream media. A common theme from Australia’s under-class of chattering economists is that interest rate cuts cause property prices to rise. Lots of interest rate cuts would therefore inevitably mean significant price rises around the nation.
But Sydney is the only capital city which has experienced a price boom. The latest research indicates that six of the eight capital cities, in the past 12 months, have had house prices either falling, stagnating or rising only marginally.
What does this tell us about economists and their theories? It tells us that they’re bunkum. If you chart it going back 20 or 30 years, there is no correlation between falling interest rates and rising prices – nor between rising interest rates and falling prices.
The reality is that interest rate movements are not the prime catalysts of events in residential property.
It makes perfect sense that markets would not be pumping at a time of record low interest rates. The Reserve Bank has been cutting interest rates since 2011 – and they’re doing that because the economy is weak, investment has fallen away, unemployment is rising and consumer sentiment is patchy.
At times like these, more people are worried about their jobs – and this is a time when Australians are less likely to be diving into real estate.
Conversely, real estate markets are most likely to boom when interest rates are rising. A national property boom is most likely when the economy is expanding, employment is growing and consumer confidence is high. It is in times like these that the RBA will be lifting interest rates, to keep a lid on things and prevent an inflationary cycle.
So, both common sense and the historical evidence points to real estate markets being subdued when interest rates are low and buoyant when interest rates are rising. There have been some notable periods when real estate around the nation has boomed at a time when interest rates have been rising.
So it’s no surprise that Sydney is the only city with a real estate boom. The national economy is weak and consumers are uncertain and nervous.
Sydney has risen for local reasons, but around Australia we do not have the conditions to generate booms. And that’s why the RBA has been reducing interest rates.