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Housing bubble, what housing bubble? The Canberra’s inner south from 2005-2013.

By justsomeaussie - 10 February 2014 44

Canberra inner south housing prices
Justsomeaussie sent this in challenging the notion that we’ve had a housing bubble in the inner south that’s going to ‘burst’.

What are your thoughts? Is housing in Canberra over priced? due to crash or will we just see stagnation for a while?

What’s Your opinion?


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44 Responses to
Housing bubble, what housing bubble? The Canberra’s inner south from 2005-2013.
qbngeek 9:17 am 12 Feb 14

A_Cog said :

But the Queanbeyan postcode 2620 also goes all the way out east to Braidwood. What to do!?!

Yeah, except it doesn’t. I believe it might cover Gundaroo to the north and Michelago to the south. I think it stretches to Carwoola in the east so approx 10-15km as the crow flies. It doesn’t cover Jerrabomberra which is 2619, or Bungendore/Braidwood/Captains Flat

A_Cog 11:01 pm 11 Feb 14

howeph said :

The only economic theory that I can find that provides a clear definition of a bubble is Hyman Minsky’s “Financial Instability Hypothesis” which I understand identifies an asset bubble if the following conditions are met:

* revenue from the asset is insufficient to cover the interest and principal of the debt used to buy it; and
* owners are relying on the escalating asset’s value to realise sufficient capital gains upon sale to meet the costs of the debt and expenses.

So according to this definition investment properties are in a real estate bubble if property investors can’t profit from their rental income alone (negatively geared), and are relying on capital gains for their return on investment.

So by this definition I think we are in a bubble…

I read Steve Keen all the time, and he LOVES Minsky. But I still can’t agree with Keen (or Minsky) because the first criterion is actually deliberately built into our market thru neg gearing, which was designed to help middle/upper class Aussies build equity over a timeframe where property prices would increase (Minsky’s second criterion).

I hope there is a bubble, because otherwise it means that Canberra houses are NOT overpriced currently, meaning stiff chips for everyone who doesn’t yet own. And quite frankly, WTF with a 3bedder in Hackett for $750K!!! Yes, I think the first home grant in the GFC pumped prices up, yes I think SMSF is driving prices up, but unless they close the SMSF gateway or ban ‘usury’ (c’mon Bernardi you theocratic-psycho-douche-f&ckhead, you’re always “we need to return to Judeo-Christian values, let the bible lead the way…” Well, usury is a SIN -apparently, I haven’t actually read the bible, but hey, I haven’t read “Mein Kampf” either but I’m content to take history’s word for it that Adolf was a bit of a dick), then I don’t reckon there’s a bubble pop coming.

howeph 6:00 pm 11 Feb 14

What’s the definition of an economic bubble?

Without agreeing what a housing bubble is how are we to say if the data indicates that there is one or not?

I’ve done a bit of searching. Wikipedia is no help as economists don’t seem to be able to agree if bubbles even exist or not! Amongst those that do agree that bubbles exist many seem to think that they can only be identified after they have burst (so much for our current economic understanding being a Science; a key property a true science is that is must be able to make reliable predictions).

The only economic theory that I can find that provides a clear definition of a bubble is Hyman Minsky’s “Financial Instability Hypothesis” which I understand identifies an asset bubble if the following conditions are met:

* revenue from the asset is insufficient to cover the interest and principal of the debt used to buy it; and
* owners are relying on the escalating asset’s value to realise sufficient capital gains upon sale to meet the costs of the debt and expenses.

So according to this definition investment properties are in a real estate bubble if property investors can’t profit from their rental income alone (negatively geared), and are relying on capital gains for their return on investment.

So by this definition I think we are in a bubble.

Note this does not mean you shouldn’t by a house if you are planning to live in it; in which case it is not an “investment” property. You just need to be confident that you can meet the repayments, even if interest rates rise a bit.

Nor does it mean that the bubble is going to burst any time soon, which means that many people may still be able to make more money speculating in negatively geared real estate. But it does mean that they are speculating (i.e. gambling) in real estate – not investing.

You take your chances.

leonnie 1:16 pm 11 Feb 14

Interesting link , Thanks justsomeaussie
I’m no realeste expert
My partner and I have purchases a few properties in Canberra over the past 10 years or so
I’ve run a lot on instincts and some research leading up to the time of purchase
I’ve never been keen on units in Canberra
Looks to me like there is too many units in Canberra
Thank heavens we have none!

rigseismic67 12:35 pm 11 Feb 14

Agree with NoImRight. In the 1980s I was working in a low paid job (apprentice) and decided to buy a house in the Inner South. Coworkers said I was an idiot and that I should rent, later I bought another house nearby with all and sundry telling me to invest instead in Telstra shares. I paid $340,000 for both houses and they are now worth a combined $1.5 million (both owned outright). That’s my super nearly sorted. When purchased they were both around 5 years salary each, which seems to fit with todays market.
Bubble? who cares I think I will get my money back no matter what happens. I know someone who has been saving for over 10 years to buy a house and never taking the plunge, they keep saying prices will go down…….good luck with that strategy. You will likely not save enough to meet the increases in house prices. There is no time like the present.

farout 11:40 am 11 Feb 14

Hard to see a bubble.

Take this place : Under offer after just one open house.
Or this one down the road from it, sold after just two open house viewings.

Houses seem to be selling, and neither at vastly inflated prices (which would be case in a rising bubble), nor at discounted prices (as would be when a bubble pops).

HiddenDragon 11:35 pm 10 Feb 14

I assume this is basically due to the breaks being slammed on for federal hiring, together with a recent boom in apartment building in the inner south, particularly Kingston. Hardly a surprising outcome, and not the first time optimistic plans have run into reality. If vacancy rates are starting to affect rents, that will presumably, eventually…… flow through to prices – modest easing, perhaps, if not bargains.

justsomeaussie 6:08 pm 10 Feb 14

A_Cog said :

If a bubble exists, when did it start? The tables go back to Jan 05 and April 08. Pre-GFC? Post-GFC? First-home buyers trigger?

From chart’s it looks as if around early 2012 is where things starting expanding a little more dramatically than usual.

A_Cog said :

Are you saying that the purple increase (units) compared to the blue increase (houses) shows a bubble? How about the alternative interpretation? FOr example, the unit supply increases reflects a slow house market, with slow house supply and longer house construction times, and that the +2008 increase reflects developers shifting to apartment construction and/or GFC-related construction projects targetting apartments which cost less, sell for less, are more attractive to buyers and investors?

I’m saying that particularly in the inner south (I haven’t looked around other post codes much). There is a significantly high amount of stock on the market i.e. a lot of sellers and also there is a high vacancy rate which means there is also a lot of empty properties as well. In short there is low demand (as demonstrated by the stock on the market and there is high supply as shown by the vacancy rate. In the medium term this *should* mean a downtrend/stagnation in prices.

justsomeaussie said :

Also, I reckon the SQM data is pretty incomplete without adding in Quenabeyan. I reckon Quangers (!) prices affect inner south ACT prices. The Quang has 40,000 to 55,000 people living there (can’t be bothered right now digging through ABS to count ‘dwellings’). But the Queanbeyan postcode 2620 also goes all the way out east to Braidwood. What to do!?!

I agree with you regarding Queanbeyan and we are seeing very similar trends in Queanbeyan. A simple drive around Queanbeyan will reveal a larger number of apartment complexes recently finished and still ongoing.

http://www.sqmresearch.com.au/graph_vacancy.php?postcode=2620&t=1

A_Cog said :

Still, that’s only $1000 a year. Not really a bubble bursting. And yeah, I’ve been reading Steve Keen, Craig Peacock, etc, for all my “disaster scenario” economists predicting a property bubble bursting… but [all of them] + [your post] still seem to bump up against continued price growth and no bubble popping.

I’m not sure why people get all dramatic regarding a bubble. It’s more or less pretty much part of the cycle. I’m certainly not saying there is some disaster scenario coming particular in an area as rich as Canberra. The prices could ever only drop so far before they’d be picked up by another buyer again.

The reason why I posted this is that since 2012 we’ve had a pretty dramatic change in real estate something that historically I can’t find any other data on.

More to the point with vacancy rates up to 8% in some areas i’m not sure where the people will come from to fill the properties up.

A_Cog 3:57 pm 10 Feb 14

Thanks for answers. [Nit-picking resumes]

If a bubble exists, when did it start? The tables go back to Jan 05 and April 08. Pre-GFC? Post-GFC? First-home buyers trigger?

Are you saying that the purple increase (units) compared to the blue increase (houses) shows a bubble? How about the alternative interpretation? FOr example, the unit supply increases reflects a slow house market, with slow house supply and longer house construction times, and that the +2008 increase reflects developers shifting to apartment construction and/or GFC-related construction projects targetting apartments which cost less, sell for less, are more attractive to buyers and investors?

Also, I reckon the SQM data is pretty incomplete without adding in Quenabeyan. I reckon Quangers (!) prices affect inner south ACT prices. The Quang has 40,000 to 55,000 people living there (can’t be bothered right now digging through ABS to count ‘dwellings’). But the Queanbeyan postcode 2620 also goes all the way out east to Braidwood. What to do!?!

justsomeaussie said :


Personally I’ve had to drop my rent down by $20 a week…

Still, that’s only $1000 a year. Not really a bubble bursting. And yeah, I’ve been reading Steve Keen, Craig Peacock, etc, for all my “disaster scenario” economists predicting a property bubble bursting… but [all of them] + [your post] still seem to bump up against continued price growth and no bubble popping.

Maybe I’m impossible to convince, but I don’t feel closed-minded. I dunno. Maybe this is what closed-minded feels like.

justsomeaussie 3:37 pm 10 Feb 14

Sorry, just realised I didn’t answer much of your questions.

A_Cog said :

C’mon. How about some details.
What does the second graph show? (Is it houses for sale? “stock on market’ means what, exactly?)

Answer above.

A_Cog said :

What is the blue and purple for, in graph 2?

Purple is units and blue is houses.

A_Cog said :

Why does this data show there is NOT a housing bubble in the inner south?

Perhaps my attempt at humor was misconstrued. I was saying that there is a significantly inflated market in the inner south at the moment. Certainly doesn’t mean it will pop as long as demand keeps up. Excluding people moving from sharehouses to own homes single rentals, I fail to see where all these new people are coming from since as we can see from the last few years, we can’t fill up the rentals anymore but we keep building more developments. (supply>demand)

A_Cog said :

What is included/excluded from ‘inner south’?

It doesn’t quantify on the site but you can do a direct postcode search like:

http://www.sqmresearch.com.au/graph_stock_on_market.php?sfx=&postcode=2603&t=1
http://www.sqmresearch.com.au/graph_stock_on_market.php?sfx=&postcode=2604&t=1

which will show that Griffith (2603) has a significant number of units for sale compared to 5 years ago and Griffith’s vacancy rates have approximately quadrupled and Kingston has doubled (2604).

http://www.sqmresearch.com.au/graph_vacancy.php?postcode=2604&t=1
http://www.sqmresearch.com.au/graph_vacancy.php?postcode=2603&t=1

A_Cog said :

And if there is NOT a bubble, then how do these graphs disprove the bubble-effect shown by increases to house prices? (Which is the primary proof that bubble-panic-pushers rely on.)

As I said above I think there is already some pain being felt in the inner south. The huge growth of developments combined with Canberra typically 1% – 1.5% vacancy rate would have meant a lot of buyers have bought in expecting good returns but now those renters/buyers may not exist.

Personally I’ve had to drop my rent down by $20 a week. Still positively geared but only just. I can’t see how things will get better by building more apartments when government is hiring like it used to. The counter is that I’d love to snap up a penthouse from a distressed owner so either is good.

justsomeaussie 3:16 pm 10 Feb 14

As I said. This is SQM Research’s free data. Their website has all the information but to directly address your question:

“Stock on market

Stock on market is defined as the total number of residential properties (including land) advertised online during the month concerned. It will include those properties that have been advertised and then withdrawn for the month

All listings are taken from online monitoring of major listings sites. Only those properties with unique addresses or with a unique listing id are used. Those advertisements with no addresses are excluded from the series. Any addresses repeated between sites are de-duped.

As SQM Research relies upon online listings only for its stock on market index, some outer regional areas which solely rely on hard-copy advertisments for their listings may be under-represented.”

But please DYOR @ http://www.sqmresearch.com.au/graph_stock_on_market.php?t=1#terms

For me what is interesting is the vacancy rates. Traditionally sitting at 1% are now at 6.5% and have been up to 8% this means that the inner south has lower rental returns and is perhaps why we are seeing he increasing stock on the market on the bottom graph.

Definition of Vacancy Rates:

“Rental Vacancies

The Rental Vacancies component is based on all monitored and unique online listings for the period of a calendar month. The series starts off in January 2005.

All listings are taken from online monitoring of major listings sites. Only those properties with unique addresses or a unique listing id are used. Those advertisements with no addresses are excluded from the series. Any addresses repeated between sites are de-duped.

Only those listings that have been advertised for three weeks or more (and are still currently advertised as at the time of collation) are used.

Established Dwellings

We use the 2001, 2006 and 2011 No. of total established Dwellings (as a base) by postcode as determined by the ABS census. In addition we estimate total dwellings for 2005, 2007, 2008, 2009, 2010 and 2012. We then multiply this by the percentage of renters for each postcode as also provided in the census. This provides an estimated available total stock for rent.

The numerator is then divided into the denominator, which provides a vacancy rate percentage.

Some have argued that using online real estate listings cannot be done because of advertising of false listings and properties that are only advertised for a fleeting moment as they are taken up immediately. We have addressed those issues.

We have left out those ads without an advertised address or unique property id and have also taken into account a whole month’s worth of listings which automatically adjusts for those ads withdrawn quickly.”

So in sum, things in the inner south are quite different from only a few years ago.

obamabinladen 3:10 pm 10 Feb 14

I’ve heard some experts who predicted the GFC years before it happened say that another GFC is imminent due to the Obama administrations handling of the GFC. These guys are saying this time it will be much worse. China’s economy will take a huge hit which in turn will affect us Aussies. Google Peter Schiff.

NoImRight 1:33 pm 10 Feb 14

Yes we needed a new thread on this topic.

If you want to buy a house buy it. No matter what internet experts say. Theres threads on here going back several years with canny buyers all saying they will hold off buying since the Canberra bubble will burst “any day”. While they wait around for years to make that magic bargain purchase for the rest of us life goes on.

A_Cog 1:27 pm 10 Feb 14

C’mon. How about some details.

What does the second graph show? (Is it houses for sale? “stock on market’ means what, exactly?)

What is the blue and purple for, in graph 2?

Why does this data show there is NOT a housing bubble in the inner south?

What is included/excluded from ‘inner south’?

What is the relevance of including both graphs? (Is there some link between the two which you could expand on?)

And if there is NOT a bubble, then how do these graphs disprove the bubble-effect shown by increases to house prices? (Which is the primary proof that bubble-panic-pushers rely on.)

justsomeaussie 1:13 pm 10 Feb 14

this data was taken from SQM Research:

http://www.sqmresearch.com.au/free-statistics.php

Feel free to plug in your post code and/or region and explore what has changed in the property market in the last 10 years.

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