Alone Again, Naturally.
Market Wrap with John Edwards
The prediction we made a year ago that housing values would rise during 2009 left us feeling very much "alone again", as a hoard of experts howled us down, forecasting price falls of up to 40%.
The housing market has seen a resoundingly positive outcome for 2009 with an average total return of 9.5%, very close to my predicted total return of 9%.
Our concerns were both timely and accurate, when in my January 2009 newsletter I advised investors ‘As a blanket rule you should stay out of the Gold Coast market, Western Australia and Brisbane units.’ If you take a look at the tables below you will see that these were amongst the worst performing areas in the entire housing market for the last year.
Table 1: November 2009 statistics
Houses
| Area | Current Median Value | November 1999 Median Value | Capital Growth | Sales |
| 10 Year average %p.a. | Nov 08 - Nov 09 | Last Month | Quarter Ending Nov 09 | Year Ending Nov 09 | 10 Years Ago |
| ACT | $487,000 | $177,702 | 10.61% | 8.07% | 1.88% | 1320 | 4973 | 6682 |
| Adelaide | $392,500 | $144,389 | 10.52% | 5.12% | 1.22% | 5731 | 21790 | 22382 |
| SA Country | $251,000 | $99,117 | 9.74% | 3.62% | 2.16% | 2062 | 7793 | 7644 |
| Brisbane | $459,500 | $151,807 | 11.71% | 2.67% | 0.12% | 10632 | 40724 | 38522 |
| QLD Country | $384,000 | $141,361 | 10.51% | 1.78% | 0.89% | 9770 | 37876 | 32003 |
| Darwin | $497,500 | $172,572 | 11.17% | 15.63% | 1.47% | 497 | 2001 | 1845 |
| Northern Territory | $457,500 | $165,458 | 10.71% | 17.04% | 1.75% | 698 | 2770 | 2642 |
| Hobart | $372,500 | $116,143 | 12.36% | 6.27% | 0.04% | 592 | 2394 | 2431 |
| TAS Country | $269,000 | $87,946 | 11.83% | 4.13% | -2.12% | 1073 | 4599 | 3905 |
| Melbourne | $532,000 | $206,408 | 9.93% | 10.95% | 2.69% | 17827 | 55155 | 50495 |
| VIC Country | $287,500 | $113,497 | 9.74% | 5.14% | 2.03% | 12074 | 44477 | 39164 |
| Perth | $492,500 | $154,727 | 12.28% | 0.24% | 0.15% | 7569 | 28302 | 32813 |
| WA Country | $383,000 | $125,570 | 11.80% | -7.66% | 1.85% | 1758 | 6315 | 6955 |
| Sydney | $617,500 | $324,447 | 6.65% | 9.29% | 0.39% | 12703 | 45793 | 47395 |
| NSW Country | $328,500 | $149,375 | 8.20% | 5.30% | 0.95% | 12030 | 47526 | 48190 |
| Australia | $419,000 | $163,211 | 9.89% | 5.13% | 1.88% | 95839 | 350487 | 341223 |
Note: Surfers Paradise has a median value of $593,000 and in the previous 12 months has had growth of -0.7%
| Area | Rent |
| Rate Month Ending Nov 09 | Rate Nov 1999 | Weekly Rent Nov 09 | Weekly Rent Nov 1999 | Change over last 10 years |
| ACT | 4.82% | 7.07% | $450 | $250 | 1.80 |
| Adelaide | 4.25% | 5.87% | $320 | $170 | 1.88 |
| SA Country | 4.78% | 6.89% | $230 | $134 | 1.72 |
| Brisbane | 4.20% | 6.30% | $370 | $187 | 1.98 |
| QLD Country | 4.75% | 6.74% | $350 | $186 | 1.88 |
| Darwin | 5.61% | N/A | $535 | N/A | N/A |
| Northern Territory | 5.93% | N/A | $520 | N/A | N/A |
| Hobart | 4.62% | N/A | $330 | N/A | N/A |
| TAS Country | 4.66% | N/A | $240 | N/A | N/A |
| Melbourne | 3.63% | 6.71% | $370 | $272 | 1.36 |
| VIC Country | 4.90% | 8.23% | $270 | $190 | 1.42 |
| Perth | 3.82% | 5.80% | $360 | $180 | 2.00 |
| WA Country | 4.09% | N/A | $300 | N/A | N/A |
| Sydney | 4.01% | 5.83% | $475 | $379 | 1.25 |
| NSW Country | 4.77% | 6.14% | $300 | $184 | 1.63 |
| Australia | 4.36% | 8.52% | $350 | $274 | 1.28 |
Units
| Area | Current Median Value | November 1999 Median Value | Capital Growth | Sales |
| 10 Year average %p.a. | Nov 08 - Nov 09 | Last Month | Quarter Ending Nov 09 | Year Ending Nov 09 | 10 Years Ago |
| ACT | $389,500 | $135,227 | 11.16% | 9.08% | -0.11% | 649 | 2765 | 3061 |
| Adelaide | $304,500 | $100,282 | 11.75% | 4.20% | 1.17% | 1400 | 5482 | 5884 |
| SA Country | $223,000 | $97,833 | 8.59% | 5.25% | 1.61% | 171 | 614 | 446 |
| Brisbane | $363,500 | $132,058 | 10.66% | 5.38% | -0.09% | 3000 | 11474 | 9270 |
| QLD Country | $339,500 | $130,144 | 10.06% | 2.63% | -0.36% | 3593 | 13044 | 10572 |
| Darwin | $385,000 | $142,045 | 10.49% | 17.57% | -0.32% | 359 | 1429 | 706 |
| Northern Territory | $364,000 | $136,817 | 10.28% | 18.45% | 0.07% | 444 | 1772 | 866 |
| Hobart | $272,000 | $89,882 | 11.71% | 9.61% | 1.39% | 171 | 799 | 30 |
| TAS Country | $215,500 | $76,257 | 10.95% | 9.44% | -0.51% | 140 | 620 | 19 |
| Melbourne | $403,000 | $160,079 | 9.67% | 11.56% | 2.50% | 9737 | 34629 | 27870 |
| VIC Country | $231,000 | $91,426 | 9.71% | 6.86% | 1.48% | 1867 | 7246 | 4731 |
| Perth | $392,000 | $131,350 | 11.55% | 3.40% | -0.76% | 1349 | 4663 | 5688 |
| WA Country | $332,000 | $141,608 | 8.89% | 4.71% | -1.00% | 132 | 457 | 313 |
| Sydney | $432,000 | $240,385 | 6.04% | 8.58% | -0.47% | 12535 | 46337 | 37500 |
| NSW Country | $289,500 | $132,980 | 8.09% | 2.58% | 0.08% | 3112 | 12316 | 10251 |
| Australia | $369,000 | $170,755 | 8.01% | 6.41% | -0.25% | 38300 | 142218 | 116501 |
| Area | Rent |
| Rate Month Ending Nov 09 | Rate Nov 1999 | Weekly Rent Nov 09 | Weekly Rent Nov 1999 | Change over last 10 years |
| ACT | 5.22% | 8.59% | $390 | $235 | 1.66 |
| Adelaide | 4.54% | 6.67% | $265 | $133 | 1.99 |
| SA Country | 4.44% | 5.63% | $190 | $110 | 1.73 |
| Brisbane | 4.88% | 6.13% | $340 | $159 | 2.14 |
| QLD Country | 4.64% | 4.93% | $300 | $124 | 2.42 |
| Darwin | 6.10% | N/A | $450 | N/A | N/A |
| Northern Territory | 6.02% | N/A | $420 | N/A | N/A |
| Hobart | 5.09% | N/A | $265 | N/A | N/A |
| TAS Country | 4.60% | N/A | $190 | N/A | N/A |
| Melbourne | 4.48% | 7.61% | $345 | $247 | 1.40 |
| VIC Country | 4.97% | 9.34% | $220 | $173 | 1.27 |
| Perth | 4.66% | 6.02% | $350 | $160 | 2.19 |
| WA Country | 4.40% | N/A | $280 | N/A | N/A |
| Sydney | 5.07% | 6.16% | $420 | $298 | 1.41 |
| NSW Country | 4.51% | 5.07% | $250 | $133 | 1.88 |
| Australia | 4.95% | 8.04% | $350 | $272 | 1.29 |
Although the Sydney housing market has the greatest (and increasing) housing shortage of all our capital cities, this has not always flowed into higher housing prices, due to the Sydney housing market's extreme unaffordability in periods of high interest rates. In such times, rents have increased instead, leaving Sydney with the highest rents of all capital cities.
When interest rates stabilised at generational lows early this year, the Sydney market's price gloves came off and at the same time rents started falling.
For the last decade Sydney house prices have grown the least of all markets on average; a mere 6.6% pa while Australia as a whole posted an average annual growth rate of 9.9% pa. The unaffordability impact issue is clearly evident.
Even in this situation an investment in a typical house in Sydney in the last 10 years provided the investor with almost a doubling of their investment. It is no wonder that housing investments are so popular.
The flip side to this is that where property was for most of the decade affordable, then an investment in a house provided an increase in wealth of almost 3 times. This was the situation for those who put their money into Brisbane, Perth and Hobart houses and as unlikely as it seems, people investing in Hobart did best of all as their investment increased by 3.2 times. That is, a typical Hobart property purchased for $116,000 ten years ago is worth $372,500 today; a stunning result.
In a market which has stock shortages, logic suggests that the affordable markets will be the best long term performers. This suggests that should either Hobart or Adelaide start generating higher levels of population growth then we can expect them to provide quality returns which will be the best available in Australia. Melbourne, given its current population growth and strong economy suggests that, of all our major capital cities it presents potentially the best future risk return outcome and a rate of growth which should exceed what may be achieved by Sydney. Having said that, it is probably in a very similar position to that which Sydney found itself in 1999, but with better Government and housing policies. As a result if we look at the long term outcome, Melbourne will in all probability perform better than we have seen in the last decade for Sydney
The table presents a host of interesting topics and is worth a few moments in review. Two of these are:
- Rental returns are less now than they were 10 years ago and in our opinion present a view of where they have to go as a minimum as capital growth returns slow down due to affordability issues. For example, in Sydney a return to yields of a decade ago would mean that the typical weekly rental for an average home has to rise to something in the order of $692 per week and probably more in the medium term. For units this suggests weekly rentals of at least $512, an increase of 22% or $92 per week.
- Sales activity or property turnover has seen minimal increase. Across the board sales last year were only 7% higher than they were a decade ago. However, more importantly it is clear that medium density housing is becoming more important with it showing an increase of about 22%.
Overall, our view is that Melbourne is the "hot market" offering best forward growth rates and well positioned affordable units and so that market presents good long term investment returns. For that matter the watch word for the coming decade must be "affordability" in all markets as interest rates move into their growth phase of their cycle.
Along with everyone at Residex, I wish you a Merry Christmas and a safe New Year. I look forward to celebrating our 20th anniversary with you in 2010.
John Edwards, CEO
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