Despite Sydney's auction clearance rates, the demographics are not booming: Robert Simeon

I can’t ever remember seeing as many conflicting reports on the state of the Australian economy as we are seeing at the moment.

Maybe in 23 days time when the outcome of the federal election is known we may be in a better position to get a true reading on exactly what is happening or to that extent where our economy is headed. At this juncture in time it’s anyone’s guess depending on your political persuasion.

Just over a week ago the Reserve Bank of Australia (RBA) singlehandedly attempted to steady the economy when they dropped the cash rate to a record low of 2.5%.

Only history will be the judge as to whether this decision was the right or wrong way to go – albeit already we are seeing some very scary symptoms emerging with the property markets. 

Sydney auctions in 80% plus overdrive for sixth consecutive weekend where it should be noted that previously it has been acknowledged that when clearance rates hit 80% plus, the markets are in what is known as a technical boom.

This time around it appears that it is the lower end markets participating in this buyer frenzy, with the top end markets not seeing anywhere near the same excitement.

Just look at this week’s Mosman and Neutral Bay Sales Watch which hardly suggests that our demographic markets are actually booming.

In some ways I agree with Robert Gottliebsen’s comments in Business Spectator this week "Beware of the mother of all housing booms":

“If we are not very careful Australia is going to have the mother of all dwelling booms. What we are seeing is a three – pronged boost to prices. First is a dramatic push to lift the demand for dwellings by banks offering cut mortgage rates thanks to the Reserve Bank Governor Glenn Stevens. But second, and just as importantly, there is reluctance by banks to fund new supply. In any commodity if you inflate demand and squeeze supply, prices go through the roof. Thirdly taxpayers will subsidise the boom via a massive increase in the use of negative gearing via both personal and superannuation tax breaks.”

Again it should be noted that investors (in the vast majority of instances) only invest within the lower end of the market so we don’t expect to see this resonate through to the top – end markets. BIS Shrapnels' Angie Zigomanis said that rental and price growth will drive more investors to Sydney inner city apartment market.

Which then permits the next school of thought to enter the property debate.

As China's slowdown poses a threat to house prices, Australia’s banks’ credit ratings would be cut by up to two notches and house prices would fall by 25% if China’s economy were to slow sharply, Standard & Poor’s says.

Well that could be true to an extent although I would also add that presently certain Australian property markets are experiencing unprecedented investor action.

Having said that Australia’s four major banks currently hold 80% of Australia’s banking assets and a staggering 88% of residential mortgages.

In the meantime lower bad debts and stronger profit margins on loans trigger CBA’s record $7.8 billion profit – just take a look at how the CBA has performed since the Global Financial Crisis:

Now take a look at investors bracing, but iron ore price stays steady this time last year the iron ore price was in a dramatic free fall hitting a September low of $US86.70 ($94.10).

The iron ore price has been creeping higher since late June, and spent most of last week in a positive trajectory towards $US133.10 ($144.45) per tonne; a very comfortable price for most Australian miners, made even better by the local currency trading well below parity.

But wait, there’s more, a new home building recovery is at risk of running out of steam, according to the HIA.

HIA estimates housing starts rose 8.3% last financial year to 157,108 following two consecutive years of decline.

Yes, decline, so it is hardly neither likely nor credible that we will see any sort of property crash. After all if we were going to see the mother of property collapses we would have as a result of the GFC which turned out to be a correction not a crash. Then again some will no doubt argue this was in fact a crash.

Whilst on crashes the only crashes we have seen of late within our Mosman, Cremorne and Neutral Bay real estate markets has been a crash in volumes not prices.

For the very first time in 13 years of Virtual Realty News we missed a couple of editions when I was overseas so let’s catch – up.

On July 12 Mosman recorded its lowest ever number of houses on the market at 59, which then moved to 64, 68, 76, 88 and this week 85.

Apartments went from 61, 62, 68, and 62 to 59 this week.

In Cremorne houses went from 7, 5, 6, 8, 7 to 3 this week – the lowest ever number.Cremorne apartments recorded 15, 18, 17, 18, and 20 to 17 this week.

Neutral Bay houses 5, 7, 8, 11, 12 and 11 this week. Neutral Bay apartments 34, 28, 26, 28, 34 to 30 this week.

MOSMAN – 2088

• Number of houses on the market this time 2012 – 89

• Number of houses on the market last week – 88

.Number of houses on the market this week – 85

• Number of apartments on the market this time 2012 – 85

• Number of apartments on the market last week – 62

.Number of apartments on the market this week – 59

CREMORNE – 2090

• Number of houses on the market this time 2012 – 12

• Number of houses on the market last week – 7

.Number of houses on the market this week – 3

• Number of apartments on the market this time 2012 – 15

• Number of apartments on the market last week – 20

.Number of apartments on the market this week – 17

Neutral Bay – 2089

• Number of houses on the market this time 2012 – 15

• Number of houses on the market last week – 12

.Number of houses on the market this week – 11

• Number of apartments on the market this time 2012 – 46

• Number of apartments on the market last week – 34

• Number of apartments on the market this week – 30

Source: Australian Property Monitors

Robert Simeon is a director of Richardson  Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blog Virtual Realty News since 2000. The RWM real estate model has sold in excess of $1 billion in database sales globally.