Access → Opportunity → Prosperity

Prosper Australia Press Release:

Time to get Real

13 December 2012

Citizens deserve the truth: property prices are down -8.6 per cent nationally in real terms.

Removing inflation from real estate prices reveals falls from peak of -11.2 per cent in Melbourne and -11.6 per cent in Brisbane in real terms, according to fresh analysis by researcher Philip Soos, deflating the ABS house price series by CPI.

“Brisbane peaked in March 2008; the rest in March to June 2010. Recent home buyers, and anyone expecting a return on their investment beyond somewhere to live, have lost money since then,” David Collyer Campaign Manager Prosper Australia said today.

FALLS FROM PEAK

Source: ABS,Soos

“Real estate is a tangible asset. Most believe it should match or beat inflation. It has not for the last two and a half years. It has been actively correcting the past excess.

The Reserve Bank targets inflation of 2-3 per cent over the cycle. The level is modest enough to be nearly invisible year-to-year, but has a significant, compounding effect on multi-year comparisons.

“It must be understood these figures understate the fall, as the ABS 8 Capital Cities House Price Index lags the market by about five months and other data providers show further recent price falls.

“The correction to date is very modest in comparison to the solid price rises 1992-2008.

TROUGH TO PEAK

Source: ABS,Soos

In real terms, from 1986, Melbourne and Perth prices tripled, Sydney and Hobart prices doubled and other cities came in between.

“The Great Australian Land Bubble enriched anyone bold enough to sign a loan. These gains convinced many they had the touch of Midas, and prompted the myth property only goes up. Location was irrelevant. Rental returns a detail. Capital gains descended on landowners like pigeons on a granny with stale bread – it was effortless,” Collyer said.

Now, prolonged first homebuyer disinterest due to high prices is affecting the key metrics around housing. Building activity is weak, stock on market elevated and sales volumes subdued. Official interest rates at 3.0 per cent are highly supportive, but with little benefit yet. Further cuts will smell of desperation and likely cost savers more than they benefit borrowers.

“Do not underestimate the private advantages being seized while Australia’s negative gearers and modest homeowners bravely stand their ground to hold up prices. The smart money left the land market long ago – sold its holdings, paid off debt, and is quietly sitting out the bust in cash. When prices have stabilized after the reset, the money will return to pick up cheap assets.

“Did you remember to sell?”

Comment: David Collyer 0413 248 193

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise and capture the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax.