Hotspotting

How long does it take for the value of real estate to double?

This is a topic that media regularly reports, but never in a particularly informed or helpful
way.

Media often refers to the alleged “industry standard” that property doubles in value every 7-
10 years.

According to writers on this subject, the industry makes this claim – that residential property
doubles in value every 10 years, or as fast as every seven years.

But I’ve never observed anyone in the real estate industry making that claim – it’s something
that media claims is said, but never provides any evidence.

We certainly would never make that claim, as it’s ridiculous generalisation about real estate
which is based on the erroneous assumption that all property behaves the same in every
location and at all times.

As I have often commented, generalisation by journalists and by economists is the curse of
Australian real estate consumers trying to understand real estate markets. It leads to a
proliferation of dodgy data based on rubbery figures.

It appears that investors are becoming more active in markets across Australia, based on the
latest lending figures from the ABS.

New lending to investors is certainly on the rise, with a 6.2% increase in May 2023. Lending
to owner-occupiers saw a more modest increase of 4% during the month.

This indicates that investor buyers are becoming increasingly active in the market, despite the
12 interest rate rises since May 2022 – providing further evidence that economists are wrong
when they assume that interest rate trends determine everything in real estate.

These new loan commitments have brought lending volumes to a level that is 45% above the
recent low in June 2020 – back when interest rates were at record lows.

One of the most popular and easy ways for property data companies to generate some free publicity for their business is to ask their computer system to spit out a list of locations which have had – allegedly –extraordinary price growth recently. It’s alarming how often these lists are published by media – because examination of the locations on the list shows that they are very often completely bogus.

The media headline, based on the research company’s list, might claim that property values have doubled in these locations in a very short time span – but usually, far too often, nothing of the sort has taken place.

What this means is that Australian consumers are being misled, yet again, by sham data from careless research companies and shallow media.

The common denominator of all the people involved in this sham is that nobody gives a damn.

Regional Queensland is a standout prospect for buyers of all kinds because it has so many locations that offer affordability, lifestyle and prospects for capital growth.

There are numerous regional cities with strong economies, significant spending on infrastructure – and the possibility of buying houses in the $300,000s and $400,000s, often with rental yields above 6%.

Recently, Hotspotting put together a major national report for Australia’s biggest comparison website Canstar.

The Bright Stars report focused on providing affordable locations for buyers, particularly young buyers starting out with real estate.

The report provided data for the 14 major market jurisdictions around Australia – the eight state and territory capital cities and six state regional markets. Of those 14 market precincts across the nation, Regional Queensland ranked fourth best in the report’s affordability scorecard.

One of the things many media commentators have in common is that they assume that if they didn’t know something was happening, then nobody knew it was happening.

It’s far better than admitting they were poorly informed about a subject on which they are claiming to be experts.

We see this with real estate prices all the time, especially with economists who struggle to get their forecasts right.

Usually, in fact, they get them spectacularly wrong.

So we currently have many commentators claiming that the price rises we’ve seen in many major markets across Australia since the start of 2023 are “surprising” or ‘unexpected” or indeed a “shock”.

I have to tell you that here at Hotspotting we weren’t shocked, nor did we find the price rises unexpected, because it’s what we forecast late in 2022 and at the start of 2023.

The Brisbane property market is a place of contradictions: it is currently a national leader on price growth at a time when sales activity is below par.

This dichotomy arises because of one of the dominant factors driving real estate in this era of higher interest rates: shortages of everything.

There is a serious shortage of listings of properties for sale, an under-supply of new dwellings under construction and a chronic shortage of homes for rental.

These imbalances in the Brisbane market are pushing up sale prices and rentals.

CoreLogic’s Home Value Index published on 3 July indicates that Brisbane house prices rose 1.3% in June, with prices up 3.0% in the June Quarter. 

These growth rates are the second best in the nation, after Sydney.

At current growth rates, Brisbane will soon overtake Melbourne in terms of its median house price.

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You have to wonder what needs to happen before economists and other usual suspects let go of their cherished theories about residential real estate prices.

After the June rate rise by the Reserve Bank, the usual suspects are forecasting that this will cause prices to fall.

The big bank economists and others have been telling us for the past 12 months that rising interest rates mean prices must fall – indeed, fall a lot.