Wednesday, 10 August 2011

Reaching


Craven opportunism knows no bounds. And in the midst of equity market routs you can almost set your watch to it. A real estate agent, no doubt with AFSL in hand, blabbering about how an equity market downturn will be good for real estate.

In this instance, reader Robert dropped me a line with a nice scan attached of today's Advocate. It featured Devonport real estate agent, Alan Halliwell (a regular source of Advocate talent who previously disagreed there was any large amount of empty properties around). Al-Hal was super keen to offer those ever accurate indicators of "investors are looking" and "inquiries at my agency are high." Al-Hal also offered some lessons in real estate as a hedge against inflation and how real estate will always outperform money in the bank. He rounded out reminding sellers there was a bit of stock on the market and they couldn't afford to be greedy.

Of course, being little more than a craven opportunist myself, I decided to test Al's theory - on a couple of properties listed with Al's agency. Taking the first four listed on Domain, two are removed because of the lack of any sales history - originally built in 2007 and 2010, so we're left with the hedge against inflation...
Last sold in 2009 for $283,000. It's now listed at $289,000 after hitting the market 53 days ago at $299k. Even at an annual inflation rate of 2.6% you'd be expecting $297,000, but the listing price is already below that and without factoring any closing costs. If you had that 283k in cash, circa mid 2009, sunk it into a Ubank account and they hadn't raised their interest rate past their opening figure (I'm too lazy to calculate the ongoing changes) that 283k would have grown to $313k pre-tax.

Using the same interest numbers against a 20% deposit on the property, the 20% deposit left in a savings account would be up $76 pre-tax, against the property purchase and sale pre any buying/selling costs and interest paid on a loan. And while this is finger painting mathematics, it's all that's needed to dispel Al-Hal's advice regarding property always outperforming money in the bank.

This presupposes the pictured house will sell at $289,000. Taking the latest listings figures from SQM Research, Al-Hal's backyard of Devonport is starting to get a little crowded. Up again on the previous month...



And that brings us to vendors not getting greedy with their expectations...


Buggered if I know who buys and attempts to sell a house in 13 months, but maybe the Feng Shui just wasn't shui-ing it for these footloose peeps. In this market, as Al-Hal says, you can't be Winnie the Pooh and expect you'll get all the honey, but Al, you need to get the vendors to follow your lead. Buying for $180,000 in June 2010 and attempting to sell for $229,000 in July 2011, before a meagre 10k discount 30 days later - that's the path you take when you want to be giggled at on a fringe lunatic's real estate blog.

This wasn't the only real estate related news in the state today, the arrival of June's housing finance figures - DOA again - we're greeted with funeral like glee in The Mercury. And being a benevolent bunch, the HIA wasn't only worried about their own industry, they were worried about renters and first homebuyers too...
Housing Industry Association executive director Stuart Clues said the figure was a warning that things were softening in the housing market.

Mr Clues said the decline in construction could drive up the cost of rental properties and lock first home buyers out of the market for longer.

"New home lending is a leading indicator of residential building activity, so unfortunately the current low number of loans reinforces HIA's view that dwelling starts will fall by at least 10 per cent in calendar year 2011," he said. "This low level of residential building activity is not only a negative for the Tasmanian economy, but will place additional pressure on the rental market and poses major home affordability challenges, particularly for first time buyers."
Unable to hold the pun any longer, maybe it's time Stuart Clues actually got a clue. If he bothered to pursue this site, or any real estate listing site, he might realise this decline in construction is seemingly self-inflicted. This heinous crime against good blogging has relentlessly banged on about overbuilding and empty houses. Despite Clues' scare about affordability, there's no lack of stock on the market, nor is there a lack of empty houses and what is consistently found amongst those empty houses? New builds. It's not just beaten up, run down, rat infested garden sheds with the weeds growing through the floorboards, it's, well, let's allow Michael Kerschbaum from the Master Builders Association do the talking...
Master Builders Association Tasmania executive director Michael Kerschbaum said that in recent years the supply of more than 3000 houses each year, coupled with a population growth of about 4000 a year, meant the state was almost square. However, he said there were still areas where certain people found it difficult to find an affordable home.
Did you just see what I did? I believe that was an admission and I wasn't the only one to notice it...
Last time I heard from the MBA they were relaying stories of builders relying on overdrafts in the hope of landing jobs. Jobs that won't come. This is the new normal and the new normal is the late 90's, no amount of building code revamps and tax reductions is going to re-fire this boiler, it needs actual demand and demand doesn't exist at the tail end of a decade stuffed full with speculative house building.

Alas, there's always other options, as Robert said, "Check out the highlighted section, apparently the local sharemarket fell a staggering 4.5% yesterday. Only 6.5% wrong!" Kudos to Courtney Greisbach for further scaring the shit out of independent retirees, and kudos to the faceless subeditor for making Courtney look a total goose.



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