7 November 2008

Real estate predictions, anyone?

| crabb
Join the conversation
33

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!

Join the conversation

33
All Comments
  • All Comments
  • Website Comments
LatestOldest

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_copy6:03 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.

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: http://blogs.domain.com.au/2008/11/whats_really_happening_out_the_1.html

VYBerlinaV8_the_one_they_all_copy8:45 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.

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%.

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.

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_copy10:14 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_copy10:13 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.

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.

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.

I’d give Pottsy a call.

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…

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.

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.

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

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_copy12:44 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.

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.

Hi,

I currently work as a property manager and we come across this issue every day. The rental market is still very strong in Canberra and there is really no shortage of good prospective tenants out there. Many renters are finding now that landlords are only in it for the short term tax deduction, and prefer to rent their properties out for 6 – 12 months so the turnover is constant. We get many referrals from our sales office as they are unable to sell properties at the moment and a lot of investors are going for these shorter term options to ride out the current crisis ( although the crisis in sales has been for a good 8 – 12 months now!). We are just coming into the busiest time of the year with people coming and going, so my advice would be to seriously consider renting it out, or at least have a couple of rental appraisals done with different agencies to get a true picture of what your place is worth. It is not impossible to sell it even with tenants in there..whilst you will have to sell to an investor if the tenants are made aware when signing the lease that this may be happening they usually don’t have an issue with it as long as they know their lease is still valid for the original term, and at least you have the $$’s coming in. Any rental property under about $700 per week should rent very quickly in the Canberra market as long as it is priced at market value and the ad’s are targeted to the best type of tenant for your particular property. Properties over $700 per week are more of a lottery at the moment but if they are good quality and sit well priced amongst similar properties there are people out there looking and should still rent. Best of luck!

Prices are coming down big time on the Gold Coast. You can now get water front properties in Broadbeach waters in the high 600K’s that’s a big drop of at least 200k from 12 months ago. Likewise apartments that where in the 900k range dropping 150K to 200K. Not sure where they are getting these low 3% price drops from. I’m guessing the numbers that come up in 6 months time reflecting the more recent data will show drops in the double figures.

Its going to hurt but as it has always done in the past the price bubble which has burst will eventually work its way back to the long term average price. Which will either be a quick 30% to 40% drop or a long drawn out period of stagnation or very slow growth so that it comes back to the long term average in 10 years time.

I’ve got the cash to buy now but am definatly waiting until this time next year to get a much better idea of what the market is doing. We also have a house here in Canberra that’s just been renovated and ready to sell but unfortunately bad timimg so just going to keep it and rent it out.

First rule of Real Estate – Never buy before you sell. That said, I can highly recommend reading Neil Jenman’s website. Do a search for “Top 10 mistakes sellers make Jenman”. Then get rid of your current agent and refuse to pay their fees. Psst who is your current agent? I’m guessing one of the big 3 here in Canberra 😉 Then give your property to a Jenman agent, I recommend the Real Estate Shop. Why do I make these reommendations? Having been in your situaion a few years ago, we sacked our agent and refused to pay their advertising fees due to their shoddy salesperson and ovehearing some of the lies they told to possible buyers. We got a lovely letter of apology and took our business to The Real Estate Shop (Jenman agents). We got our asking price to the last cent. No bull, no fluff, just genuine salespeople. And no, I don’t work for them just another humble PS here. They were fantastic to deal with.

Prices probably won’t drop too far because people who have paid too much to buy in the boom can’t afford to take the loss. The biggest problem at the moment is a lack of buyers. Whether it is difficulties getting finance, uncertainty about the economy, or a reluctance to buy in a falling market, people are deciding to stay put for the time being.

Be prepared for a long wait. My neighbour has been trying to sell their house for the past twelve months despite dropping the price by $250,000!

regularbrowse9:56 pm 07 Nov 08

If you do the maths and find renting the first property covers the costs, investment property taxes/rates and the bridging finance – then do it. Usually the figures are still ugly, so consider selling at a loss.

I remember houses being sold in 1997/98 at a loss on what people had paid for them 5 years before (just look up allhomes). It took at least 3 years for the housing market to recover after the Howard Government came to power and slashed the PS ranks. There’s likely to be a similar recovery for housing prices this time. And there was no ‘global financial crisis’ then. Can you afford to wait 3 years?

I agree with I-filed. You definately got poor advice from your agent about going to auction. Consider selling through someone else in future.

VYBerlinaV8_the_one_they_all_copy9:47 pm 07 Nov 08

It depends on the type of property you are trying to sell and location. Some properties will actually increase over the next 12 months, some will do nothing, some will drop in value. If you could give us a suburb and maybe number of bedrooms, and whether a house/unit/townhouse we could probably offer some good advice.

In the meantime, stay in the house you are currently in, and rent out the new place you bought. That way you can claim the stamp duty as a tax deduction, and can enjoy all the other tax perks of owning investment property.

If you can possibly hold both properties do so. In 10 years time you’ll be thanking yourself.

What real estate shonk told you to go to auction? Only highly prized houses that will attract bidders should be auctioned … get rid of that agent, and get one who will work for you – not rip you off by commanding an auction fee in a flattening market. Only the very most desirable houses warrant auction. Canberra has NEVER been an auction market other than in the inner south and the occasional rare house – like the gorgeous unique queenslander on the Chisholm St roundabout in Ainslie.

Worth pointing out that the ACT has the highest rents in the country, if you cant get yourself through the next 12 months with that going for you…

well

luther_bendross8:50 pm 07 Nov 08

Did it sell for around the $349,500 mark by any chance?

Rent it. unless you have no choice but to sell… rent it. The market is filled with (I have no choice, I have to sell or the bank will take it anyway type people) those losers will get a shit prices… even if the actually sell!

There’s a small hiccup happening just now in the Global Financial Data, perhaps you didn’t get the memo

You have no pressing need, so rent it out

BTW, I don’t believe a word of what your saying. Nobody, with half a brain would ask such a question on a blog if they actually owned 2 houses

Felix the Cat7:50 pm 07 Nov 08

Growling Ferret said :

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…

Maybe, but the new Defence joint at Bungendore will be open soon (if it isn’t already) and some of the workers there will commute from Canberra to Bungendore and therefore need somewhere to live so I see there still being a reasonable demand for rental properties. A guy at work lives in Bungendore and reckons it’s quicker to drive to work (Fyshwick) from Bungendore to than it was from his previous place at Gilmore.

“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.”

Just do the math. Is it going to be more expensive to keep the house for a year or two than to reduce the price again and swallow the loss?

This recession is going to be long and deep. Don’t expect prices to rise in a hurry.

where’s dr who and his time machine when ya need him?

sorry to say it crabb, but it looks likely the prices will continue to fall in the coming months, at least – but with an under-supply of housing in australia, the rental market is likely to remain more buoyant…

Growling Ferret6:06 pm 07 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…

Daily Digest

Want the best Canberra news delivered daily? Every day we package the most popular Riotact stories and send them straight to your inbox. Sign-up now for trusted local news that will never be behind a paywall.

By submitting your email address you are agreeing to Region Group's terms and conditions and privacy policy.