Interest rates

It might not happen later today, but it should happen soon and maybe twice in the next couple of months.

I am of course talking about the RBA cutting the cash rate.

Mark Twain famously said “Lies, damned lies, and statistics”.  And this was quoted in the context of the use of statistics to bolster weak arguments.

But for mine, the chart below isn’t a weak argument.  It shows that interest rates are heading down.

However, don’t expect much of it to be passed onto us punters.  

Nor will it really have much impact, economically, except maybe to help keep some housing markets more buoyant than they really should be.

But when you only have one or two tools in your tool box you have to use what you have got to try and get the job done.

Big homes

The average floor area of a new free-standing house in Australia is 254 square metres.

Our homes are much larger than those within Europe and even many American cities.

Why has this occurred? 

It is simply economics.

The actual land component of a new house and land package is very high and fixed.

And these days the land usually costs around two-thirds of the total purchase price.

For example, a 150m2 three-bedroom house and land package can cost $525,000. The land price would be around $330,000 and the cost to build the house about $195,000. The building rate equates to $3,500/m2 when including the price of the land.

Now, a larger 250m2 four bedroom house with a study + even multi-purpose room might cost $275,000 to build, making the end package total $600,000. The buyer gets 100m2 of extra house for just $75,000 more.

The total end price per square metre has now dropped to $2,400 or 30% less.

And here is the real rub.

Assuming that the buyer can afford to pay the extra deposit and fund a $600,000 house and land package, all it costs – assuming a ten percent deposit, 25 year principal and interest loan and using a 3.75% variable interest rate – is an extra $10 per day in mortgage payments.

The new home buyer can now own a home that is two-thirds larger for just $70 per week.

To upsize the house, as outlined in the example above, would cost the buyer an extra $3,650 per year.

Given the high cost of land in and around our capital cities, the trend towards larger new homes makes economic sense.

Buyers are just acting in their own interests and are making rational decisions to choose a larger and more valuable home for what is a small additional out of pocket expense in the broad scheme of things.

Unless there are real economies in the land content – for example, the plentiful supply of subdivided land to keep land prices keen – building a small house is often not the best value for money.

On the rise

At first glance it looks like we have a lot of spare bedrooms.

Yes, our homes are big, but they aren’t all that well designed to cater for multigenerational households.

The number of people per household is now on the rise.

This is being influenced by a range of factors including low housing affordability, harder economic times, limited land supplies in our major cities, rising land prices and demographic change.

Increasing traffic congestion and travels times are also having an impact. 

Many younger adults are staying at home longer or boomeranging back and forth. Whilst, in some cases, grandparents are living in the family home too.

Also, quite a few homeowners are taking in a tenant to help make ends meet.

My new business venture backyardhome.com.au caters for these trends. 

Goodbye Anglosphere

Queensland: Population growth components

Years

Natural increase

Overseas migration

Interstate migration

Total change

Annual change in population component

2009

36,519

59,319

14,702

109,266

2018

29,356

27,741

24,698

81,795

2019

29,882

32,963

22,831

85,676

Distribution of annual growth by population component

2009

33%

54%

13%

100%

2018

36%

34%

30%

100%

2019

35%

38%

27%

100%

Change over last year

Number

526

5,222

-1,867

3,881

%

2%

19%

-8%

5%

Matusik + ABS 3101.0. Financial years.

Queensland is attracting more people.

They are increasing coming from overseas and not from interstate. 

Queensland’s biggest increase in overseas nationalities over the last five years were:

  • Indian up 64%
  • Korean up 57%
  • Chinese up 49%
  • Spanish up 44%
  • Sri Lankan up 43%
  • Filipino up 35%
  • Vietnamese up 35%                                

If this population remix remains in play, then Queensland’s housing needs will change. 

Many of the nationalities high up on the Queensland overseas growth list want different things when it comes to housing when compared to older Australian households and migrants coming from the Anglosphere.

They like, for example, to live in multi-generational groups. 

For many accommodating their adult children and/or their elderly parents on the same title is the major factor when buying or renting. 

Many also opt to improve their residence – over time – to support more household members.

For more detail about backyard home go here.

A lopsided nation

Resident population and annual growth

State or territory

2018

2019

10 years

Last year

Difference

NSW

7,980,168

8,089,526

103,577

109,358

6%

Victoria

6,462,019

6,594,804

122,287

132,785

9%

Queensland

5,009,424

5,095,100

76,633

85,676

12%

South Australia

1,736,527

1,751,693

14,279

15,166

6%

Western Australia

2,594,181

2,621,680

38,143

27,499

-28%

Tasmania

528,298

534,281

2,993

5,983

100%

Northern Territory

247,058

245,869

1,984

-1,189

-160%

ACT

420,379

426,709

7,192

6,330

-12%

Australia

24,982,688

25,364,307

367,265

381,619

4%

Matusik + ABS 3101.0. Financial years.

One might say there are winners and losers. 

With Tasmania, Queensland and Victoria in the improving line-up and the Northern Territory and Western Australia in the loser’s circle.

Well one might.  But I reckon it depends on which side of the fence you sit. 

More bums on seats can be a good thing, but it can also be a curse.

Remember for every 1,000 increase in population there is another 776 cars.  This ratio is 817 in Queensland and even higher out west and in Tasmania.

There is little doubt that the east coast states are dominating population growth, with an 85% market share last year.  Its share of the spoils is on the rise too. 

When it comes to population, we have a very lopsided nation.

For more detail about what is – and isn’t – going on in south east Queensland go here.

Jobs matter

South East Queensland: Employed residents

Municipality

Number of employed persons

Annual change

2014

2018

2019

5 years

Last year

Brisbane

632,343

662,943

671,172

7,766

8,229

Gold Coast

291,212

321,601

333,754

8,508

12,153

Ipswich

88,266

99,703

103,269

3,001

3,566

Lockyer Valley

16,182

18,299

18,222

408

-77

Logan

123,066

151,453

148,943

5,175

-2,510

Moreton Bay

206,582

218,328

219,055

2,495

727

Noosa

25,502

26,715

27,424

384

709

Redland

77,539

81,457

84,288

1,350

2,831

Scenic Rim

17,356

19,568

19,875

504

307

Somerset

9,979

10,607

10,758

156

151

Sunshine Coast

142,076

150,240

156,427

2,870

6,187

Toowoomba

73,744

80,766

77,967

845

-2,799

Total SEQld

1,703,847

1,841,680

1,871,154

33,461

29,474

Matusik + Small Area Labour Markets Australia. Years ending June.

Some areas are doing better than others. 

However, the overall trend is down, with fewer new jobs being created across SEQld last year when compared to the previous five year average.

Also, of note is that if Brisbane is going to continue to create about a quarter of the new jobs in the region, it really needs to think through its new housing development policies.

Does Brisbane really want to be a doughnut city, where most workers reside elsewhere and commute in and out of the city each day? Do Brisbane residents want to pay the lion’s share of that burden?  Or is it best to have people work and live within a close commute?  I wonder.

Regardless of my muse, new job creation is the challenge for Queensland and a big factor as to how the local housing market plays out during 2020.

And if you want to get another 23 tables like this one, go here.

Shut happens

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!

Outlook 2020 – Part 2

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.  

Outlook 2020 – Part 1

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.

Hoodwinked?

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?

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