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Real estate predictions, anyone?

crabb 7 November 2008 34

We are in the position of having bought a new house before starting to sell our old one.

We were happy to do things this way – we waited a very long time before finding precisely the property we wanted, and did not want to take the chance of losing it while waiting for our house to sell.

Unfortunately, the market has dropped away under our feet in the meantime.

Four months of marketing the old place at what seemed a realistic price, which then reduced substantially twice, resulted in no offers.

An auction one month later resulted in one pathetic bid well under our (very reduced) reserve.

We are on the point of deciding whether to persevere with attempting to sell, or renting it out for a year.

I don’t want to bore you with details – suffice it to say that failing to sell will be horrendously expensive, while renting out will be only somewhat less so.

So – what do you crystal-ball-gazers, property developers (!), and would-be real estate moguls think the Canberra market will do in the next 12 months?

Uninformed opinions welcome too – this is RiotACT after all!

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34 Responses to Real estate predictions, anyone?
crabb crabb 9:31 am 10 Nov 08

Thank you to all who contributed their thoughts and experience. The weekend was decision time for us, and the ideas posted here did help clarify our thoughts. We had been at wits’ end.

Astonishingly, at the exhibition we had on the weekend, 7 groups of people came through – more than at any exhibition over the previous 5 months – and we’ve had one offer, and possibly another in the wings. We’re dumbfounded! We had essentially given up on it selling. This was the first exhibition after the failed auction, with the house at a new,lower, fixed price. Maybe folk who don’t like auctions were waiting to see the outcome.

Re auctions generally (seveal negative comments above). Remember we had tried to sell for 4 months prior to changing agents and trying an auction. It seemed a logical next move, and there was no extra cost to us.

We’ve decided to accept the offer from the weekend. It’s 120k below where we started 5 months ago, but the numbers on renting out vs lack of certainty of prices in 12 months time (weren’t willing to go any longer) made it seem an expensive exercise for little if any potential gain. Yes, this is a short term view of real estate, but for us, this is a matter of homes not houses ( and we had already moved out of the old house, VY, so unable – and unwilling!- to rent out the new one). Our kids had moved out of the family home on a busy road, and we’ve gone rural.

Thanks again to all of you.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 6:03 am 10 Nov 08

One way to think about value is to look at what a property comprises, ie land size and orientation, size and quality of the dwelling, features, etc, then look at what similar properties in different locations cost. For example, it’s interesting to note that when calculated by the square metre, land in Gungahlin seems similarly priced to land in Dickson, because the Dickson blocks are bigger.

Ultimately, I think there will always be demand for inner city living.

2604 2604 11:09 pm 09 Nov 08

Thanks VY. It is difficult trying to figure out where value is and where future growth will occur – it feels like trying to pick the quickest line at the supermarket sometimes.

If anyone is interested, there is some interesting discussion here about where the market may be heading:

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 8:45 pm 09 Nov 08

2604 – some good points in there. I guess for me it’s all about trying work out what real value is all about in property, and taking advantage of opportunities that maximise that value.

In a similar thread there’s discussion about new homes in Franklin costing upwards of 500k, which to me seems crazy money, given the block size and location.

2604 2604 5:46 pm 09 Nov 08

VY, I agree that time will tell. You are right that Inner North, Inner South and Woden Valley houses have become very pricey relative to real estate in places like Gungahlin and the Lanyon Valley. However, that’s because people have become convinced over the past 5-10 years that a house is no longer worth having if it’s more than 10 mins drive from the City or Woden – a crazy situation. In my opinion, an original condition 45-y/o duplex in Dickson or Downer is not worth $500k – I’d take my money 5 mins down the Barton Highway to Gungahlin and get a 10 y/o 4 bedroom house with the works for the same price. But I’m in the minority in holding such a view.

Interestingly, we have a few friends in the UK and the opposite is happening there – people are moving away from inner city locations. The ideal is a small town or rural property within 30-45 mins drive of a major centre. The current “baby boom” makes me wonder whether people will become disenchanted with the Inner South and Inner North and start heading back to the (more family-friendly) suburbs.

Also VY, I don’t agree that housing in Canberra was “very, very cheap” 10 years ago. Certainly relative to today’s values it was, but relative to other markets (such as Melbourne, Brisbane, the US or UK) it was about right. Today’s property is very overvalued – when an average household has to spend seven times its annual income to afford an average house, something is wrong.

Finally, I don’t see the fact that we have no subprime mortgages as a guarantee that prices won’t drop. As I understand it there were also wasn’t really a subprime market in the UK and they have dropped 10-20%.

caf caf 1:43 pm 09 Nov 08

I’ve been to 8 auctions in the last week, and not a single one reached reserve. Several didn’t even get a starting bid.

shauno shauno 11:24 pm 08 Nov 08

Was talking to my uncle today who said some one trying to sell their townhouse in Florey has reduced the price from $360k to $285k and still no buyers. In the same complex as one of my cousins.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 10:14 pm 08 Nov 08

Sorry, the example with Dickson and Gungahlin should have had the Gungahlin property as 100k cheaper…

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 10:13 pm 08 Nov 08

Then again, with intelligent people like Steve Keen

Steve Keen is a doom and gloomer who likes to talk up the worst possible scenario, which is why he gets airplay.

The price of individual properties (as opposed to ‘market average’) has been increasing for decades, simply because new houses are typicaly constructed at the edge of cities, thus city growth makes a given property more ‘central’ over time. This is one of the main reasons why many property investors assert that property rises, on average, between 7 and 10 % per year over the longer term. For example, do you think that a 3 bedroom house on an 800 sqm block in Dickson is always going to be only 100k or so cheaper than a basic 4 beddy at the back of Gungahlin? What about in 25 years when 800sqm blocks within 5 km of the city are practically unobtainable?

Property goes through cycles, and we’ve just been through a big one, caused not only by loose lending, but also due to the fact that 10 years ago property in Canberra was very, very cheap. Note, though, that buyers in the middle to premium end of the market are having little trouble getting finance. (I had a property loan approved last week with zero problems, over the phone without even meeting the lender.) The US is in the trouble it’s in because of the large proportion of borrowers who were given loans that don’t meet even basic lending criteria – Australia doesn’t really have this problem (and is backing away from lo-doc and no-doc loans, which I think is great news). Couple this with very low approval and building activity, despite a shortage of housing, stable income of most Canberrans, and I can’t see the market softening as being any more than temporary. That said, I don’t think we’re in for 400% gains in the next ten years, but to suggest falls of 40% in a place like Canberra goes against the fundamentals too much to be realistic. Make no mistake, some markets will fall 40%, but they will be the discretionary type markets of the rich and rich wanna be’s.

Time will tell.

taco taco 3:00 pm 08 Nov 08

I’m personally betting on a fairly major correction in house prices – the average house is now too expensive for the average wage earner and must come down, and once prices begin to drop the speculative (negative gearing enhanced) demand falls away.
The speculative demand appears to have disappeared with the investors even shying away from low risk housing investments like defense housing and as a result, like 2604 mentioned, available housing stock has been steadily increasing since last year as is visible with allhomes breaching 2800 properties for sale this week (which at current sales rates means 4 to 5 months worth of stock, with demand still dropping)

I’m a young first home buyer, but I’ve tucked my deposit up in a term deposit until early next year to wait and see how the market plays out.

The only thing I could see that would make my bet not pay off would be if rampant inflation sent wages through the roof and made houses relatively cheaper (thus continuing the bubble), but the New Great Depression seems to be curtailing wages growth and sending people to the centrelink queue, which means more renters, so renting out your house out could be a good short term solution

Then again, with intelligent people like Steve Keen predicting house prices will fall 40%, it could be a decade or more before you could sell at these prices again, so jumping out while the market is still not far from last year’s peak could be prudent.

2604 2604 1:26 pm 08 Nov 08

People often forget that 80% of home buyers are engaging in discretionary spending – up-sizing, downsizing, buying their second or third home, even buying their first home. No-one is a forced buyer, except people forced to buy because they are re-locating for work. And we all know that discretionary spending is one of the first things to suffer when there’s an economic down-turn.

I think that until the general economic climate improves, house prices will stagnate and possibly fall. We were looking on allhomes this time last year and there were only ~1000 dwellings for sale in the ACT. Now there are 2800+. For every first-home buyer out there, there seems to a seller or two.

One thing is certain: this is not 1996, and anyone thinking he can buy a property now and settle down for a 3-400% capital gain over the next ten years (as happened between 1996 and 2006) is seriously mistaken. That was a once-off increase brought about by lower lending standards and I expect that the 2007 average Canberra house price of ~$490000 will be a high water mark that can only increase, if it does increase at all, in line with CPI. People simply can’t borrow any more money than that.

Good luck to you Crabb – hope someone comes along who falls in love with your house, and gives you the price you want.

Thumper Thumper 11:27 am 08 Nov 08

I predict a complete lack of recruitment in the PS, which will lead to stagnation and deflation in the Canberra property market as people get out…

Quite astute Mr Ferret…

Heavs Heavs 10:27 am 08 Nov 08

I’d give Pottsy a call.

blub blub 10:16 am 08 Nov 08

What’s the value of the house? I suspect homes demand for homes in the lower-mid end of the market will increase due to Rudd’s doubling of the FHOG – an extra $7K seems to do that…

VicePope VicePope 10:04 am 08 Nov 08

Things will probably be flat for a while, and I can’t see a lot of public sector recruitment for a couple of years. But:
– you’re going to take a hit anyway, so it comes down to working out what hit is better
– land values will increase over time, even with hiccups that may run for a couple of years
– for most people, there’s pretty well no tax implications on taking a loss on your place of residence – ie, you don’t get a loss you can attach to your other income
– renting on a commercial basis at a loss can have tax benefits. Renting at a profit adds to income
– the sale will either retire some debt (including the new mortgage) or give you some investable money. At present interest rates, this won’t make as much difference as it would when things warm up again.

A lot depends on your circumstances. Where are you in the earnings life cycle? How much debt can you handle without going mad or overexposed? (Bear in mind that interest rates will go back up in time). I don’t need or want answers, it’s just stuff to bear in mind that might make general principles not work so well.

smokey4 smokey4 9:49 am 08 Nov 08

Job market, and housing, in Canberra will be quiet until some of the new infrastructure projects get started. This will be in 18 months time just prior to the next election.

affordable affordable 7:48 am 08 Nov 08

agree with others in regards to auctions, most properties offered should never be, it is a con by agents to increase their profits from you.
when did the you pay all the advertising and you still pay all the commission come in

affordable affordable 7:43 am 08 Nov 08

rent it out now
if you want to see how the market is going, drive down Hoskins street Franklin, looks like the sub prime streets you see in America, every house is for sale.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 12:44 am 08 Nov 08

Canberra will never be short of cashed up renters otherwise called public servants and rich asian uni students.

Opportunities like now only come along a few times in your investing lifetime – take advantage of being able to buy quality assets at a time when they are on sale.

Sleaz274 Sleaz274 11:32 pm 07 Nov 08

Never ever sell then in a couple of years when this “crisis” has blown over like every other because people still eat, drink, work and sleep somewhere regardless if the banking institutions shot themselves in the foot, then leg, then lung by selling off and buying ever larger parcels of debt and miraculously creating “profit” from it then you will have 2 houses which have gone up 15 – 30% in value effectively doubling the “profit” you have made. Then borrow and buy 2 more smaller rental properties. Repeat rinse recycle, retire in QLD because Canberra will never be short of cashed up renters otherwise called public servants and rich asian uni students.

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