The market is cooling - and that's a good thing

I have been following the latest run of property propaganda in the media with great interest. 

The only part that remains missing (by coincidence) is that the markets are in fact cooling. The reality is that, despite being an agent (the majority miss this point), I think this is a positive sign.

It should be noted that the Reserve Bank of Australia (RBA) have already made this observation some time ago. What, no bubble? Well that was property propaganda.

Some are simply hellbent on misrepresenting the statistics that are quite simply totally irrelevant to the argument. No, let’s be polite and call it a discussion – albeit biased for personal gain.

Australian Property Monitors (which is owned by Fairfax Media) was quick to release its September quarter results noting that the national median house price was up 1.2% in the last quarter. Who cares what the national median does; it’s totally irrelevant. If a vendor asked a real estate agent to appraise their property and they started quoting the national median price then the Sydney median price they would be laughed out of the home.

The national result was the lowest since March quarter 2013 and wait for it – house prices were down in Brisbane (-1.3%), Adelaide, Perth (-1.5%), Canberra (-1.7%) and Hobart. Darwin prices were up (2.9%), Melbourne struggled with just 1.0% and Sydney was up 3.8%.

Based on this data I’ll make three quick observations: Melbourne will in all probability be in negative growth territory by the end of the December quarter, Sydney will stagnate as investors are pumping this statistic and the next RBA rate move (sometime in 2015) will be down.

So let’s stop for a moment and give credit where it’s due – the RBA have read the Australian domestic market perfectly.

Contrary to what property propaganda bashers would have you believe, this is a very soft landing with absolutely no bubble-pop or monumental crash of epic proportions.

I’ve argued long and hard for years that it is only when you analyse the housing market statistics by a ‘single’ municipality that you get an accurate assessment. When you do critique the performances of, say, the 38 Sydney municipalities, there is nothing to write home about.

Not all Sydney areas are booming: The city’s three worst performing regions – Yes!

Breaking data down by region, which by the way is not politically but rather media incorrect, is not how they want demographic property markets displayed for human consumption.

The preferred media modus operandi is obviously to bundle market data given the media organisations (News Limited and Fairfax Media) rely heavily on newspaper advertising revenues.

Unfortunately these statistics (median price growth) don’t include how much of this growth was attributed to the investor splurge (local and overseas) – although there are some important observations to be made from the following graphs.

Now it’s no coincidence that we see an almighty upward swing (above) from September 2012 in the second graph. Only when you cross reference this graph to the RBA Cash Rate Target data do you see that on 7 August, 2013 the cash rate dropped to the current position of 2.50%. Investor returns were being decimated in the financial markets, so a property investor assault was inevitable and continues to this very day.

Now we read that negative gearing needs to be abolished despite recent revelations that Sydney for the first time in decades is seeing rents declining – which again is a positive sign. It is inevitable that one day the government will critique negative gearing (just don’t hold your breath).

As strange as this may sound given Australia’s mining industry continues to decline and the real estate and associated industries remain the largest employer within Australia. Where would the Australian economy be today without negative gearing?

Negative by name, whilst positive by result!