Today, we’re diving into three critical areas to be wary of:
We have solid data on Australian property prices, but be wary of how they’re interpreted, especially by certain analysts.
This commentary isn’t about long-term performance, but rather a critical look at today’s property values.
Take this table:
I will pick on Melbourne as it tells the story.
Commentators would look at this and typically come up with:
There are four key terms to know/take notice of:
This is not a stats lesson, but median will always skew towards the lower end of the market where the volume is weighted e.g. apartments
So, then we can look at house prices:
This turns the narrative on its head.
Melbourne has the second most expensive houses in the country!
Nothing can touch Sydney (and never will) as they are over 60% more expensive.
That then brings us to the balancing number. Units.
Melbourne has a much higher proportion of units than any city, especially Brisbane, Adelaide, and Perth.
Going back up to the “dwelling prices” in the first table they are all in here.
For me, the interesting this is marked by the red box, is how units have much the same price point.
This is intuitively right as most of their value is in the construction cost and very little underlying in the land value.
Construction costs do not differ much across the country – think building supplies and labour.
The small difference is probably only due to the size and mix of the units.
No doubt, DT, turned the world of free trade and globalisation on its head this week.
No one should be surprised. He has been saying this since 1990. Yes 35 years ago. Look up Playboy magazine article. I kid you not.
Despite the domestic political BS, Australia got off relatively lightly, however there is panic in many parts of the world. Just look at the share markets this week.
Why is all this good for us.
To butcher an election quote of Donald instead of “drill baby drill” it could be to the RBA “cut baby cut”.
There is sure to be an economic slowdown around the world. The RBA does not want to be high and dry with this one with current market consensus not being for a 1% decrease in interest rates this year, spread across four 0.25% =decreases, the first being 20th May, the week following our election.
This form the AFR on Wednesday:
As highlighted in section 1, construction costs do not differ much regardless of location.
According to the ABS, the average cost to build a new home is $537,000.
Essentially the remainder is land value.
Here are the lot prices by city.
Regardless of where you are building these number are important.
Take your construction costs + land costs and then compare to the median house prices in your city.
Using Brisbane, with land of $400,000 and if construction is $540,000 then you are up for $940,000.
Checking against the median price in table two od section 1. Above, then median house price is $1,011,508.
Considering time to build, costs overruns, risks etc. much the same.
Importantly the median house price is all houses, so includes for more established, central locations with good infrastructure.
This is a very quick reckoner but please do it before yourself before signing up for a new home construction.
Be wary!
