Matusik Missive

Merry Christmas – oops Happy Holidays – to you and your family.

I hope you have a safe and relaxing break.  Spend some time with people that matter.  Often easier said than done.

At this time of the year I like to share with you a list of books that are worth reading or listening to.  They include:

Has the luck run out? by David Fagan

Breaking Point by Peter Seamer

Australia Reimagined by Hugh Mackay

The Salt Path by Raynor Winn

The Land Before Avocado by Richard Glover

China’s Great Wall of Debt by Dinny McMahon

Doughnut Economics by Kate Raworth

Enjoy.

The Matusik Missive starts again in mid-January.  

By then we should have downsized and moved to Tasmania.  

I will be splitting my time over the next couple of years in two places – Brisbane and Tassie.  Back to gold status flight membership for sure!

Following on from part 1 yesterday…and extracts from my new SEQld Quarterly Report.

Moreton Bay

The Moreton Bay area has seen substantial increases, in terms of new development, sales and population over recent years. A steady supply of new housing has kept a lid on price appreciation. That supply – over the short to medium term – is now running out. However, price growth is likely to remain subdued, due to affordability limits. More townhouse and apartment development are expected. New Infrastructure to help alleviate the increasing congestion on the Bruce Highway is needed.

Noosa

Strong price and rental growth in recent years. But the Noosa market is quite cyclical and heavily influenced by outside factors, including interstate migration, business confidence, investment returns and the overall economy. As such the Noosa market often acts as a bellwether, signally a coming change in the Australian economy. The Noosa market appears to have peaked, suggesting that harder economic times lie ahead. 

Redland

Limited new housing supply. Expect more townhouse and other infill type development. In parts, the area holds an aging demographic and many of these residents will age in place. The future – again similar to Brisbane and the Gold Coast – is fewer sales, higher prices and rents, limited affordability. 

Sunshine Coast

Small allotments, in more urban settings, plus more apartment and townhouse supply are growing trends and make sense given affordability constraints plus aging demographics. Like the Gold Coast, the Sunshine Coast is less cyclical than in its past, yet this market remains exposed to changing market conditions. Investors need to understand the potential risks.   

Toowoomba

The new housing market was oversupplied a few years back but is now tight.  Residential sales volumes have been declining rapidly, so too were prices and rents, but things are now looking better.   The rental market is often a good property bellwether, improving rents suggests that the Toowoomba market is on the improve. Whilst some local jobs have been recently lost (due to the completion of major transport infrastructure) Toowoomba’s housing market looks set to gain strength in coming years.  

Extracts from my new SEQld Quarterly Report.

Queensland

The limited strength of the Queensland economy remains a constraint on the housing market. The proposed changes to the Queensland tenancy laws may also stifle housing investment.

Brisbane

Detached housing market strengthening. Apartment market better than most think. Limited vacant land now left for sale. Townhouse restrictions in suburban areas will limit buyer choice and negatively affect future population growth. More will age in place. The future is fewer sales, higher prices and rents, limited affordability. 

Gold Coast

Overall housing market is set to improve. New infrastructure projects will help. The area faces some serious issues regarding future detached and townhouse housing supply.  Non-local buyer and developer interest is now rising. The city has fared well post the 2018 Commonwealth Games. The Gold Coast has also considerable scale, within 600,000 permanent residents – 650,000 with Tweed area – providing a more stable economy and housing market. Like Brisbane: the future is fewer sales, higher prices and rents, limited affordability. 

Ipswich and Logan

Affordable housing markets, relative to Brisbane and the Gold Coast. Both hold a substantial proportion of SEQld’s new housing supply. More urban development, and a subsequent rise in population growth, is expected in the future; potentially expediated by the recently tightened townhouse policy in Brisbane. Rising sales volumes expected, not necessarily strong price growth.    

Lockyer Valley

Another affordable housing market when compared to Ipswich and Toowoomba. Drought conditions are currently having a negative impact on local employment. The area needs a major employment catalyst to lift local housing demand. If not, then the usual buyer leakage from Ipswich and Toowoomba will remain the major buyer segment and therefore not much change is expected in the Lockyer valley housing market in coming years. Local new housing supply is also being stymied by the high level development taxes and charges relative to end prices.  

Part 2 out tomorrow.

Are we being hoodwinked when it comes to house price growth?

I have included three tables in this missive.

Table 1: Detached house prices: Current quarterly median price
Capitals	CoreLogic	SQM Research	ABS	PriceFinder
Sydney	$840,000	$1,306,000	$885,000	$852,750
Melbourne	$667,000	$972,750	$685,000	$670,000
Brisbane	$497,500	$632,500	$535,000	$540,000
Adelaide	$433,750	$519,000	$468,000	$465,000
Perth	$437,000	$653,500	$480,000	$465,000
Hobart	$474,250	$537,000	$460,000	$450,000
Darwin	$388,000	$576,500	$472,000	$463,000
Canberra	$311,750	$814,750	$673,750	$645,500
Capitals	$622,500	$951,500	$657,000	$641,250
Matusik, CoreLogic, SQM Research, ABS and PriceFinder.

Table 2: Detached house prices: Current quarterly change in median prices
Capitals	CoreLogic	SQM Research	ABS	PriceFinder
Sydney	6.2%	2.8%	3.6%	-3.1%
Melbourne	6.4%	3.6%	3.6%	-4.6%
Brisbane	1.8%	2.4%	0.7%	-0.4%
Adelaide	0.9%	1.2%	-0.3%	-1.8%
Perth	-0.9%	0.9%	-1.2%	0.0%
Hobart	2.8%	5.7%	1.3%	-3.2%
Darwin	-1.1%	-2.5%	-1.2%	-1.5%
Canberra	3.2%	0.3%	-0.5%	-9.1%
Capitals	4.2%	3.5%	2.4%	-2.5%
Matusik, CoreLogic, SQM Research, ABS and PriceFinder.

Table 3: Detached house prices: Current quarterly sales, supply and change
Capitals	Sales	% change	Supply for sale	% change
Sydney	10,340	0%	30,000	3%
Melbourne	9,020	-25%	36,200	4%
Brisbane	6,600	-8%	31,000	0%
Adelaide	3,750	-9%	16,400	3%
Perth	5,440	-5%	24,400	-1%
Hobart	625	-19%	2,140	-2%
Darwin	250	-20%	1,920	-2%
Canberra	700	-32%	4,530	7%
Capitals	36,725	-9%	146,590	2%
Matusik, CoreLogic, SQM Research, ABS and PriceFinder.

In contrast to CoreLogic’s price growth estimations, SQM Research’s asking price index and the ABS quarterly property price index  – which uses CoreLogic’s data by the way (combined with VG records) – my analysis of PriceFinder transactions are based on settled sales.

I only trust settled sales.  

My barometer suggests that house values are stagnant at present, but most likely are still falling. 

Of import too is that sale volumes are declining, whilst stock for sale is increasing.

Real estate is essentially all about demand versus supply.

Right now, demand is falling, and supply is rising. 

But apparently house prices are accelerating.

Are we being hoodwinked?

To me next year is all about debt.  This of course will influence the housing market.  

Weak incomes and already high debt leverage are constraining further borrowing.  

This is illustrated by the fact that despite the lowest mortgage rates since the 1950s, the debt-servicing ratio for households is near its 2008 peak, back when the cash rate was 7.25%.

And in case you have somehow forgotten the current cash rate is 0.75%.

Debt is now growing faster than income.  

As a result, the average household gearing now stands at an all-time high of 200% of annual income.  By way of comparison, the average leverage was 120% in 2000.

Gauging leverage from a different perspective, mortgage debt has risen – on average across the country – to 30% of the value of the housing stock, meaning that housing equity has fallen to 70%. 

Now many may think that 70% equity is great news.  

But the RBA reports that at least 75% of small business loans are collateralised, with about two-thirds of this lending secured by housing.  

This substantially reduces the equity positions of many households.  

The table below looks at the estimated average household debt and equity by each Australian state and territory.

Average household debt and equity

State or territory	Household debt	Household equity
New South Wales	190%	75%
Victoria	215%	73%
Queensland	185%	65%
South Australia	155%	69%
Western Australia	190%	59%
Tasmania	130%	75%
Northern Territory	110%	55%
Australian Capital Territory	110%	70%
Australia	200%	70%
Matusik + NAB.  Financial 2019.

High debt levels leave many Australian households susceptible to economic shock.  It’s a double edged sword if you run a small business.

And lets hope that 2020 isn’t a shocking year.

I don’t know about you, but Christmas at our joint will be tight this year.  

Most of the promoted price growth, of late, is mostly taking place in Sydney and Melbourne. 

Many are trying to couch the reasons behind this price growth – lower interest rates, federal election outcome, improved housing affordability, some loosening in loan servicing, rising auction clearance rates – in terms that would influence all housing markets, not just Sydney and Melbourne. 

For mine, just like the previous price surge, the main reason for the current promoted heat in the Sydney and Melbourne housing markets is due to Chinese buying and much of that money is coming from overseas.

This, in turn, has sparked, again, local FOMO (fear of missing out). 

Notably any gains that have been actually made are localised to trophy suburbs and within these areas, prized homes. 

Rubbish? 

Hmmm. 

China’s hidden capital flight surged to a record high in the first half of this year, suggesting that residents wanting to move money abroad are using unrecorded transactions to evade tight capital controls. Much of this money finds its way into overseas housing. Sydney and Melbourne are target cities.

The “net errors and omissions” in China’s balance of payments – widely seen as an indicator of concealed capital flight – rose to a record high of $131 billion in the first six months of this year. And it is estimated that this amount could exceed $300 billion for calendar 2019. Another record. 

It is little wonder given the recent events in Hong Kong and across mainland China.

Also, a large part of the Chinese culture is about saving face and perception. They aren’t really interested in second tier cities, let alone in a regional town or a suburban based municipality. 

It is their perception of a prime location and property that matters. This trend is evident elsewhere in the world.

One of the better things I have read this year was a short piece by Seth Godin titled Golf or Surfing.

In short, golf is a game of rules, regulations and pin placements whilst no wave is the same.  Our world is increasing like surfing.  The world of golf is on the wane.

And with this in mind, I segue to recent happenings in Queensland – Brisbane townhouse restrictions, new development carparking allocations and the state-wide proposed residential tenancy changes.

Of course, there is the usual pistol duel at 50 paces on each issue – with the housing industry advocates calling it Armageddon whilst the relevant government authority replying that it is the “will of the electorate”.

I don’t think any of us really know the future impact of such changes, except to say that, if implemented, there will be changes.  Some good, others bad and on both sides of the fence.

But in an increasing wayfinding world, we need more flexibility not rigidity.

We seem to be stuck in the wrong mindset.

It gets a lot easier if you bring the appropriate attitude.

There is little need to set the pin placements in the most difficult position on the green.  They definitely don’t need to be set in concrete.

It’s hard to surf with a putter.

And my second segue this post is to backyardhome.com.au 

Such housing solutions provide households and investors with control and flexibility.

They are a surfboard.