LOOK ON THE BRIGHT SIDE

It’s no secret that the Perth real estate market is no longer booming. Naturally, everyone is constantly trying to pick that silver bullet that will fix everything and make the tough times go away. Many were hoping an interest rate cut was the answer, unfortunately it’s not that simple.

But let me put things into perspective. Sure the market is not an easy place but the news isn’t all bad. If you’re a buyer, the news is actually quite good. The market is full of choice and affordability has made a come back. The cost of money is starting to drop as indicated by the first cut in interest rates and buyers have the time to make informed decisions. Put simply, right now there is an abundance of opportunity out there for buyers. The challenge for buyers maybe the availability of loan funds although the Federal Governments $4 billion initiative last week will greatly assist funds liquidity for housing.

We are truly witnessing a buyers market and to be honest, it is probably about time they had a fair go and actually good for market fundamentals. Boom time pushed the Australian Dream further and further from the reach of many people and while Perth is by no means a ‘cheap’ place to buy, prices have corrected and there is value to be had. I see this continuing well into 2009.

However like all things, this buyer friendly market won’t last forever. The fact is this is simply a normal part of the property cycle and in time things will again turn in favour of the sellers, it’s the way the cycle works. World economic factors may distort and prolong the cycle timing but it will re-align itself.

While things are not going to dramatically change in the near future, Perth is poised for change. The following factors indicate that a strengthening of the market is on the horizon.

1) The dropping of interest rates is always the first trigger – the first sign of the ‘curve’ in the property cycle.

2) Demand for housing continues to accumulate as people move into the state looking to capitalise on the employment opportunities.

3) Another key factor is employment, all signs point to continued employment growth in WA. Security of employment encourages buying confidence.

If you understand the property cycle, you will understand that what we are going through now is completely normal and somewhat predictable. Trust me, I have been in this industry for a long time and I have seen it all before.

Let the facts speak for themselves

Spring – supposedly the “Nirvana” of the real estate year – is upon us once again. With temperatures on the rise, flowers blooming and much talk about an impending interest rate decrease, it might feel like the Perth property market is about to perk up. But don’t let emotion mask the facts – and the facts tell us that there is unlikely to be any radical “bounce back” in
the near future.

It is impossible to predict the future of the property market – unfortunately we don’t have a crystal ball! But according to Realmark principal John Percudani, we can use current data mixed with historical evidence to look at probabilities. And the most recent facts and figures tell us that no matter how much we might want to see a strong positive change, it is unlikely to happen this year.

“If you look at the recent REIWA figures, we can see that the volume of residential transactions or sales is down this June quarter (as compared to March quarter 2007) by 25 per cent,” says Mr Percudani. There are currently 17,500 properties for sale in Western Australia. This equates to about 5 months supply of property. In March 2007, we had only 3.5 months of supply.”

“Not only is there a glut of property, but they are taking longer to sell. The average days on market are 74 as compared to 55 days in March last year. This is an increase of 35 per cent. And we already know that this has had an effect on overall median house prices In Perth which are down approximately four per cent.”

Even with the likelihood of an interest rate drop, which has been touted by the Reserve Bank and the media in recent times, Mr Percudani believes it would unrealistic to expect an upswing in 2008.

“It’s not all doom and gloom – this current downturn is part of the overall property market cycle and with any price correction comes buying opportunities and increased affordability,” says Mr Percudani. “But I think it is important to understand the factors that lead to this downturn in order be realistic about any positive change in the property market ‘curve’.”

Mr Percudani points to a number of events that have influenced today’s market. Not only is there a global economic downturn which has created a general sense of unease and caution amongst buyers and investors, but also our major lenders are suffering from a global credit squeeze, forcing interest rates up. Even if the Reserve Bank lowers interest rates, there is no guarantee that this will be passed on by the banks and lenders who are finding it increasingly difficult to borrow money themselves in the global credit market place.

“All I’m suggesting is that it has taken a number of changes in the market to create the current situation,” says Mr Percudani. “So it would be unrealistic to suggest that only one change – such as a decrease in interest rates – will be enough to radically change the property landscape. We cannot expect one factor alone to influence such a major turn around.”

“Agents are intrinsically optimistic – they want the best price for their clients and themselves,” says Mr Percudani. “But advice that is not based on facts can be misleading and unrealistic. And the current facts tell us that a Spring upturn is unlikely. Agents need to be using transparent evidence on which to base their estimates. Otherwise sellers will be living with false hope.