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Ben Kingsley Blog post by Ben Kingsley

The ‘NOISE’ is back – Property Prices Falling

The latest REIV median house prices for Victoria were released on Saturday and the media responded with all the noise we have come to expect.  Toorak properties prices fall by over 20%, Albert Park down over 10% for the quarter etc, etc.  However, as usual the ‘details’ were somewhat overshadowed by the sensationalist headlines and 30 seconds new briefs.

What ‘Detail’ – The critical element for me is the lack of sales and stock on offer in the first quarter of this year.  It’s a fair argument to debate that the amount of stock offered during this time is almost half compared to the same time last year as owner occupier vendors hold off in selling as they cannot find anything worth upsizing or downsizing too, and for investors who might have been forced to offload an investment because of the down turn, well one could argue that if they held several properties, the one to go first would most likely be their ‘ugly duckling’ or worse located property.

So I’m putting my head out and arguing the quantity and quality of stock is down in most of these premier locations and this has been a contributing factor along with the economic slowdown and stating once again that one quarter doesn’t show a true reflection of a long term trend. As an investor I’m interested in the long term – 10 to 30+ years, as that ensures historical references through so called “boom and bust cycles”.

So ATTENTION ALL INVESTORS, let’s hope the noise continues, as less competition ensures we get to buy more stock in these so called ‘bubble’ times, because one thing that backs up my position is long (and in the example below) short term performance of great investment locations.

 

TOORAK

I thought it was important to look at the top of the market, as this is where we are hearing about the dramatic price falls.

SOURCE: www.reiv.com.au

Less than 30 sales recorded, and as evident within the 5 year trend during a Sept 06 quarter, property prices went up by almost $900,000 in 3 months, just proving that the longer term average rather than one quarter tells a far more informed story.  And for the record since 1974 until March 2009 the median value in Toorak has grown from $120,000 to $1,900,000 or 1483%.  Furthermore, based on what I am seeing here, if you had the money Toorak would be a terrific place to buy at current median levels. If that graph doesn’t show a great buying time, then I don’t know what does, as sure, incomes may have come off for some, but there are still thousands of buyers of household incomes greater than $250,000 a year and if you had a mortgage of $1.5 million, then it’s all relative and this would very much meet affordability levels.

 

BRUNSWICK

Here’s an inner city location and a lot more affordable to many more Melbournians than Toorak, and at the higher price end of the most First Home Buyers, but achievable if correctly planned for.

SOURCE: www.reiv.com.au

Interesting Brunswick was only one of a few inner city suburbs that recorded greater than 30 sales for the quarter and also interesting the median value was up slightly for the quarter and the long term trend is very positive indeed, as people see a transformation of this area continuing into a very ‘liveable’ inner city location. Certainly increased demand for first home buyers would have contributed to its slight increase in median value.

I’m sure the argument is the same for all interstate and overseas quality locations close to large employment centres (CBD’s).

So for those of us as who are investor’s this market noise is terrific, as its going to buy us some more time to look for quality properties with less competition.  I just hope the stock improves a little bit.  As for first home buyers, save, save and then save some more, as lenders have reintroduced genuine savings measures and lower loan to value ratios  to try and ensure they lower their lending risk levels.

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