More pain for city prices – Graham Cooke

Property prices across the nation haven’t hit rock bottom yet with further dips predicted, according to Finder Insights manager Graham Cooke.   He believes prices in our major capitals are in for a shake-up.  He tells us how big that is likely to be.
Kevin:  According to Finder, property prices across the nation haven’t hit rock bottom yet, with further dips predicted on the way. Joining me from Finder, Graham Cooke. Good day Graham, how are you doing?
Graham:  G’day Kevin, how are you doing?
Kevin:  Yeah, very well thank you. Some pretty sobering news here, what’s on the… where does this come from? Because these are pretty big predictions of drops that you’re predicting.
Graham:  Yeah, we are indeed, more drops, not to ignore that these are falling on the back of massive drops we’ve seen over the last year, with property prices falling, you know, 30 to 40 percent in some cities, already. So we asked economists very specifically in our monthly survey, how much they expect the prices to drop, by the end of the year, across Sydney, across units and houses in very different Australian capital cities. And the average for the Eastern Cities, for Sydney and Melbourne was about, near kind of eight percent for houses and near six and a half for units. So we’re going to see probably by this fall, quite significantly, the biggest … sorry, the biggest percentage drop expecteded in Sydney apartments, because there is talk of an oversupply there of 7.7% drop by the end of the year. And then the biggest dollar drop was with Sydney houses 6.2%, so that was 57k off the selling price.
Kevin:  Yeah Graham just help me understand here, because I always get confused between medians and value, when we talk about medians thats an indication of where the market is currently active and buying, it records the number of sales, and so on, as opposed to an average.
Graham:  Yeah, it’s the median price over the last three months, is the price that we test. The average would be-
Kevin:  That’s not an indication of value, that’s simply an indication of where the market is moving and if people are starting to buy down in the range, it’s going to move the median down, it doesn’t move the value down.
Graham:  Well that’s true, that’s interesting, it kind of depends on what way you define value. This kind of topic comes up all the time where the market is over or undervalued. Another way of looking at value is whatever price you can get for something at a particular time is the value of that thing as it partakes to the time itself. So it’s kind of almost a semantic arguement there… it does look like the dollar prices are going to continue to go down, so yeah. You could also say the market is overvalued and will continue to drop, so-
Kevin:  Yeah, but if medians move down by seven percent it doesn’t mean that values have dropped by seven percent. They may have even dropped by more, but most cases they will have dropped by less, and I think many people get confused when we talk about the drop in the median, they instantly think they’ve lost about seven percent value in their property which is not always the case.
Graham:  No, yeah and it will change massively, you know, suburb by suburb and it will change depending on the type of property and it’s more of a general indicator but if you look at more macro numbers, looking at the general sense of these drops. We also ask economists for their economic sentiments, on a bunch of different economic metrics, there’s five things we ask about. We ask about employment, wage growth, housing affordability, cost of moving and household debt, and we’ve tracked, we’ve asked this question every month for the last year, we’ve tracked the positivity on all those metrics over the last 12 months and the biggest change I’ve seen is with housing affordability. So, the positive outlook on this is over the last 12 months the positive sentiment for housing affordability has gone up hugely from about 5% a year ago to nearly 50% and that’s the biggest swing I’ve seen on any sentiment metric. So, if you are in the position where you’re a first home buyer, you have most of a deposit saved, if you can still get a loan, those are the people in the best position right now.
Kevin:  With a federal election coming up too, I know this is a little off topic but we’ll keep it on topic, with a federal election coming up and Labors moves or discussions about wanting to change negative gearing and capital gains tax, to make houses more affordable. It seems the market is adjusting itself without those sorts of changes.
Graham:  Yeah, it’s true, I mean the changes have been so dramatic already it’ll be interesting to see what changes, altering the negative gearing rules, might have, might accelerate these downward trends even further, because it might make property even less appealing for the investment market. So it’s really all to be seen there, and also interesting is going to be, we were doing some coverage of the budget earlier today, the income taxes are going to go down, for most people are going to have a thousand dollars more to spend in their bank accounts at the end of the month. Two thousand dollars for couples, so it’s going to be interesting to see the impact of that, but any federal budget that happens just before an election is going to be designed to appeal to the highest number of people possible.
Kevin:  Yeah, certainly the feedback out of the budget has been mostly positive, and we also noticed in its most recent review the Reserve haven’t lowered or adjusted the rates so just on another topic, you also highlighted in another release that one in two mortgage holders struggle to pay, even with the cash rate on hold. Do you think we’re far away from a drop in rates?
Graham:  I think we’re quite a far away from a drop in rates, I think we’re probably looking at an increase in rates more than anything. To illustrate the change in sentiment here in the market, there’s another thing we look at with economists which is the number of economists which indicate the next rate movement, whenever it happens, is going to be a positive. It’s an indication of the percentage of economists who think the next rate movement is going to be up, and we’ve tracked this for the last year as well.
Graham:  Since April 2017 to around November, December last year this stood at 70 to 80 percent, a pretty flat line across the whole period of economists predicting a rate increase. And then thats dropped quite significantly from 80 percent to 40 percent earlier in the year and now down to 24 percent, likely cuts are what we’re going to see on the way rather than an increase. As to when that’s going to happen, the average date we’re seeing from economists is kind of towards the end of this year. August was the most popular month … but we’re kind of yet to see … it’s interesting the different commentaries we’ve got from economists.
Graham:  One of them was Matthew Peter from Queensland Investment Corporation, was one of our panellists, and he was saying if the RBA can withstand market pressure for a further six months, many of the current headwinds generating recession periods, the trade wars, the growth of the euro, Brexit, god knows what’s going to happen there, and the housing market downturn may have actually passed or the RBA might not need to cut rates at all. Which would be interesting because it will give them more wriggle room in the future, one of the issues in Europe for example is their rate is so low, that no lower to move. So we’ll have to wait and see.
Kevin:  Graham Cooke, thank you very much. Graham is the insights manager at Finder, thanks for your time Graham.
Graham:  Thank you Kevin, any time.

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