Hotspotting

Have you ever wondered why we NEVER achieve solutions to the biggest real estate issues confronting Australia.

Housing affordability has been debated in the country for decades and every year it gets worse.

The rental shortage has been a reality for years and has attracted a lot of media attention and much political rhetoric, but vacancies remain at record lows and rents keep rising, with no resolution in sight.

And there’s a very good reason why solutions are never found to these core issues.

It’s because the finger of blame is always – ALWAYS – pointed in the wrong direction.

Fundamentally, it’s because politicians have caused these dilemmas and our politicians are very good at blaming others for the problems they have created.

And so it is, right now, with the rental shortage crisis.

There is a growing body of evidence that the worst of the downturn has passed and there are significant numbers of locations across Australia where prices are now rising.

We recently saw the publication of the latest price report from domain.com.au, which recorded growth in the median house prices of five of the eight capital cities in the December Quarter.

Now the latest Weekly Prices Index from SQM Research has provided more substance to the trend of positive price trends in a growing number of key markets.

According to the new SQM report, house prices grew in four of the eight capital cities during January, headed by the 2.7% rise in Adelaide.

The other cities to record rises were Brisbane, Perth and Darwin.

The general tactic of politicians when they haven’t got a clue how to resolve an issue – which is most of the time – but want to give the appearance of doing something, is to blame an unpopular minority for the problem.

A very popular choice when it comes to housing affordability issues is foreign investors.

You can slam foreign investors without any direct electoral consequences, because foreign investors don’t vote in Australian elections.

As politicians, they can present themselves as big and tough by banning foreign investment – or, even better, slug them with major new taxes as a way to raise more revenue from the housing industry – while claiming in front of the media that they’re doing it to improve housing affordability and help first-home buyers.

The problem is – it doesn’t work.

Foreign investors are not, and never have been, the cause of unaffordable housing in Australia or anywhere else.

While much of the mainstream media commentary on the property market focuses on the highs and lows of the big capital cities, it was Australia’s smaller capital cities which shone in 2022 – and they continue to do so in 2023.

Adelaide, in particular, is one of those shining stars.

Overall, Adelaide is a story of continuing high sales activity and on-going price growth, remaining generally one of the strongest markets in the country.

Indeed, the 2023 edition of the Rising Stars report which I published recently in collaboration with the comparison website Canstar, ranked Adelaide the No.1 market in the nation.

The Rising Stars report used a series of forward-looking indicators to rank the 14 major market jurisdictions of Australia (8 capital cities and 6 state regional markets) on their prospects for growth in 2023.

Adelaide topped the national rankings based on our analysis of sales volumes, vacancies, rents, price patterns and infrastructure spending.

The reality of statistics is that you can use them to tell any story you like. This reality impacts real estate consumers every day.

You can take any set of figures about house prices and use them to tell a positive story or a negative one, depending on your viewpoint.

Media, usually, will choose the negative option – and the people who feed press releases to journalists, seeking publicity for themselves, know that sensational negatives get more publicity than balanced analysis of property markets.

So the publicity seekers will place their focus on screaming negatives in their effort to lift their public profile – and the journalists of Australia will happily comply.

The mantra for media has always been: If it bleeds, it leads.

So when CoreLogic ran the numbers on price movements in the various locations across Australia in 2022, they found that roughly half had recorded price increases and half had price declines.

All the headlines around Australia screamed that half of locations in the nation had dropped – or, to use media parlance, they had plummeted, nosedived, collapsed or fallen off a cliff.

The headlines could, with equal validity, have shouted that half the nation’s locations actually recorded higher prices– which, given the tone of media coverage lately, is a remarkable outcome.

If you’re a long-term customer of a major bank with a mortgage and you’re paying their standard mortgage rate, then you’re likely paying a loyalty tax.

That’s because new customers to your bank will be offered a lower interest rate than the one being paid by the bank’s longer-term customers.

There are many things about the behaviour of the major banks that are disturbing - but few things annoy me more than their policy of providing the best loan deals to new customers, while refusing to offer the same terms to their existing, long-term, loyal customers.

There are far too many Australians who feel it’s right to stay loyal to the major institution they’ve banked with for years.

But the reality is, your loyalty is not being reciprocated by the bank.

Sometimes the best clues about what will happen with property markets come from the things happening behind the scenes, often hidden from the view of the general public.

News media obsesses over the latest price data as the best way, indeed the only way, to chart what’s happening with property markets.

But, for everyday consumers, this is essentially useless information because it tells you what has happened recently – if you believe the dodgy data pumped out by the attention-seeking research companies.

What Australian consumers really want to know is what will happen with prices in the future.

What has happened in the past might be interesting, but the past often does not inform the future, which is what matters most to people.

So our focus at Hotspotting is examining and analysing forward looking indicators – sets of information which can provide a clue to the future.

It will probably surprise many people to learn that house prices are rising in most Australian capital cities at the moment.

That’s according to the new House Price Report from one of the nation’s leading real estate websites, domain.com.au.

The Domain report indicates that house prices rose in the December Quarter in five of the eight capital cities.

The report records house price growth in Melbourne, Adelaide, Perth, Hobart and Darwin in the December Quarter, led by the 3.3% quarterly rise in Darwin.

And those cities, except Melbourne, also recorded annual growth in their house prices.

I find it quite startling that no one in this country questions the prevailing theory that the best way – indeed the only way – to fight inflation is to increase everyone’s mortgage rates.

Everyone – including economists, politicians, journalists and the general public – seems to blindly accept, without question, that constantly lifting interest rates is the thing to do when inflation is high.

I think there’s a strong case that the conventional wisdom – if indeed it is wisdom – is questionable in the current circumstances and that Australian families are being slugged with massively higher dwelling costs for no good reason.

There are other, better, ways to deal with the key components of the current high inflation rate and that higher interest rates are not having the forecast effect.

The biggest trend currently evident across Australia is that buyers increasingly are chasing affordability.

In most of our capital cities, it’s the affordable suburbs where buyer demand continues to be strongest.

And, at the same time, investors continue to buy in affordable regional locations that offer higher yields to compensate for rising interest rates.