Lack of industry knowledge contagious: Terry Ryder

I can count on the fingers of one of Homer Simpson’s hands the number of people who commentate on real estate and actually understand it.

There are plenty of people at the coalface of the industry who get real estate. It’s just that you’re never likely to hear about them in the media.

Among the public pontificators, there’s a lack of understanding about the drivers of events in real estate that’s become a contagion on the industry.

There certainly aren’t any journalists working for metropolitan newspapers who have any knowledge of market dynamics. It’s become very last century to actually know about the subject on which you write.

They compound their ignorance and confound their audience by seeking enlightenment from others who know little, notably economists. 

When I consider all the economists who have been regular lecturers about real estate – Shane Oliver, Saul Eslake, Gerard Minack, Paul Bloxham, poor old Steve Keen, pretty much everyone who works for Moody’s, absolutely everyone employed by CommSec – I can’t think of one who understands this business.

Most of them employ the Graham Richardson method of media commentary – a big ego connected to a hyperactive mouth, without the intervention of coherent thought processes. It works a treat.

It’s how much noise you make that matters. Knowledge is optional.

There are specialist real estate research companies that should bring some expertise to the table, but they’re all so devoted to making money out of computer-generated numbers they don’t conduct any real analysis. They just shovel out median price data to generate publicity. Most of their employees could write their real estate smarts on the back of a postage stamp in crayon.

The lowest-common-denominator mistake they all make – and it’s the curse of real estate consumers trying to understand what’s going on – is that they generalise. To do more would require genuine real estate wisdom. 

And because they generalise, they mislead and confuse – themselves and others.

This is why none of the chattering economists and others who sermonize on property can explain why this prolonged era of record low interest rates has managed to produce a property boom in only one Australian city.

They’re all so flummoxed by this that they pretend it’s not happening. Quoting a single generalised national figure to describe what happening to “Australian property values” is the limit of their contribution.

But the statement “Australian house prices rose 9.8% in the year to 30 June” (the latest ABS Property Price Index) is an absurdity, because prices have risen that much only in Sydney. In six of the eight capital cities, it’s been less than 3%, including two with “negative growth”.

If genuine market analysis happened in this country, someone would be making a study of this strange occurrence. Why has Sydney boomed and nowhere else? (Here’s a clue: it’s not related to interest rates, as I explained in my column on 18 August).

Last time real estate went seriously ballistic in Australia, everywhere boomed. In 2003, all of the eight capital cities had double-digit growth in their median house prices. The worst was a 13% rise. Four did better than 20% and the city average rise was 19%.

That’s what everyone expects a property boom to look like. And that’s why economists and media can’t get their heads around the current situation. 

It’s all about interest rates, isn’t it? So why isn’t it booming everywhere? Why are Perth and Darwin going backwards? Why aren’t Canberra, Brisbane and Adelaide firing? 

Maybe the tools we use to measure things aren’t up to the task. Perhaps the blunt instrument of median price data, with a single figure to describe each capital city, needs to be replaced.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.