How One Sydney Suburb Has Dropped 62.5% in Eight Months
It?s funny how many times we?ve read the words, ?As we predicted?? during the last few week.
They?ve been spoken by property spruikers who claim they predicted house prices would fall.
The same property spruikers who insisted house prices could never fall.
The same property spruikers who insisted 2009 and 2010 would be a great vintage for home buyers.
Those same spruikers now claim they predicted the 6.8% drop in Brisbane and 7.1% drop in Perth prices all along ? ?As we predicted??
It?s laughable really.
The spruikers really have become a caricature of themselves. Scratch that. They?ve become an embarrassment to themselves.
Real values revealed
The fact is, they didn?t predict a thing. One of the slides we?re using in the Great Property Debate highlights exactly how the mainstream thinks:
chart Source: ANZ
Look, we understand it?s a stylised chart. In other words it?s just an example to show market moves without using real data. That much we don?t have a problem with.
We use them ourselves to illustrate a point.
But it?s the idea that house prices can never fall that gets our goat.
Surely, even in a stylised chart, any economist with a shred of credibility would show it?s possible? even slightly possible? that house prices can fall.
Especially when you see the table below released by RPData earlier this week:
chart Source: RPData
So we say, ?Stylise that, ANZ!?
Not that we trust any numbers we see from any of the index guys. For example?
In November 2008, Cameron Kusher, research analyst at RPData is quoted saying:
?The median house price in Tamarama, for example has increased from $455,734 in November 1998 to $4.4 million in November 2008. Over this 10 year period (ending November 2008) the suburb averaged an annual growth of 25.45%. That?s a total of 865% growth over last 10 years.?
You can read the article here. And here?s a screenshot from the website:
Source: Yourmortgage.com.au
The unnamed author of the article adds:
?This means the suburb doubled in value about every 3 years during this 10 years time frame.?
Did it? Did it really? Hold your horses, Bucko?
Prices slump
Now, before we go on, a disclaimer. We?ve merely copied these words from the Yourmortgage.com.au website. The website claims the quote is a direct quote from Mr. Kusher. So we?ll trust that it is.
Anyway, we thought we?d check out Tamarama for ourselves.
This morning we counted our pennies and held a whip-round in the office to raise $109.90. We were successful ? even raising a few extra bob to buy a coffee .
We needed the cash to buy the latest suburb report from RPData.
Here?s the first thing we saw when we downloaded the report:
Source: RPData
The green line shows median house prices during 2009. The blue line is for 2010. And the orange line is for 2011.
The second thing we saw was this chart:
Source: RPData
We?ll make this comment: If it?s OK for the property guys to claim house prices in a suburb have gained 865% in 10 years, we?ll assume it?s OK for us to say house prices in Tamarama have fallen 75% since 2009 ? $6 million to $1.5 million.
Or even that they?ve fallen 62.5% since the 2010 peak of $4 million.
Or what about the fact that according to RPData and the chart above, median house prices didn?t budge a penny between 2001 and 2007? and after the 2008 spike are drifting back to the long-term median.
Even using annual data, the median price for Tamarama has almost halved between 2008 and 2010. And based on sales for March and April, it looks set to fall even further.
Why the worst is yet to come
Now, of course the spruikers will say median house prices aren?t a reliable indicator.
They?ll say the number can be distorted by sales in different price brackets. For instance, a one-bedroom house selling for $400,000 hasn?t really gone up a gazillion per cent if a mansion in the same suburb sells for $4 million.
But if that?s their argument, why use median prices when the market is going up?
Because while the median price gains looked great in 2007, and OK in 2008, as the following table shows, the median price drops for 2009 and 2011 have been plain awful:
Source: RPData
Prices down 41.5%, 4.8% and then 34.2%!
That?s why we?re reluctant to believe any of the numbers the index providers release. We?ll believe what we see on the street and what we hear from people who are trying to sell their homes or investment properties now.
And what we hear is the housing market is toast.
The price falls for Perth and Brisbane don?t reflect the real drop in prices. Those selling now have to take 20?40% off the price to even get a sniff.
And the tiny drops recorded for Sydney and Melbourne also don?t reflect the real drop in price and in seller expectations. As we predicted ? and we can say it genuinely, not like those other clowns ? house prices are going down the gurgler.
The light switch has been flicked. Investors and buyers now realise the price gains of years gone by either weren?t real or were just a flash in the pan. But don?t think this is the end of it.
For an indication of how much worse things could get, consider this quote from the Associated Press:
?After adjusting for inflation, the home-price index has sunk to a level not seen since 1999.?
Just think about that for a moment. U.S. house prices are lower today than they were 12 years ago. So much for property doubling every 10 years.
If you know what?s good for you, stay clear of housing as an investment? for now anyway.
