Property

The Australian residential property market has had a spring in its step recently. Auction clearance rates have been healthy, and rising prices have prompted media commentary on the possibility of an emerging housing “bubble”.

I’m no property expert, and so it may be wise to avoid putting an oar in on this debate, but let’s put wisdom aside for a moment and think about whether the application of value investing principles can add anything to a discussion on house prices. continue…

by Tim Kelley Posted in Property.

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In this interview with Ticky Fullerton on ABC’s The Business, Roger talks about whether he’s enthusiastic about the property market in Australia – and whether value investors should be.

by Roger Montgomery Posted in Insightful Insights, Property.

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It was interesting to read in yesterday’s Australian Financial Review that auction clearance rates surged past 70% at the weekend. There’s almost an air of desperation at some auctions. The fear of missing out is a much greater influence on investor behaviour than the fear of loss.
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by Roger Montgomery Posted in Insightful Insights, Property.

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Enjoy the next in our 2013 exclusive subscriber-only Whitepaper series.

by Roger Montgomery Posted in Property, Whitepapers.

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Question to the world’s biggest property developer:  Is there a bubble [In China]?

Answer:  Yes of course.

Watch this video broadcast by CBS last week.

Watch here.

by Roger Montgomery Posted in Insightful Insights, Property.

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In his Short Cut column for the Herald Sun published 27 February, Roger highlights how the buoyant share price of GWA Group is not supported by the company’s recent performance.  Read here.

by Roger Montgomery Posted in In the Press, Insightful Insights, Property.

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Ben Hurley – the AFR journo typical of Gen Y – will soon be buying a house cheap from boomers who have no-one else to sell to.

Last week Ben (here) wrote:

“I would love to own a home. I could upgrade my crappy electric stove, get a hot water system that actually fills the bathtub, and stop asking the landlord for permission to put a nail in the wall.
But I’m reluctant because I think buying a home is a dud deal. And renting, while expensive, is less of a dud deal because renters typically give the landlord a return of about 3 per cent on the asset’s value. A lot of my friends in their early 30s feel the same way.”

Ben goes on to explain why renting makes more sense than buying and I reckon he’s right, but for an entirely different reason.

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by Roger Montgomery Posted in Market commentary, Property.

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In late 2008 Steve Keen, Associate Professor of Economics and Finance at the University of Western Sydney had a bet with Rory Robertson, who at the time was Interest Rate Strategist at Macquarie Bank. The bet was Australian housing prices would decline by 40% in two years, and the loser would walk 200km from Canberra to Mt Kosciuszko.  Despite losing the bet, Steve Keen still has his supporters. Last week, Dean Baker the co-founder of US based the Centre for Economic and and Policy Research said the housing bubbles of the United Kingdom, Canada and Australia, are larger, relative to the size of their economies,  than the one that collapsed and wrecked the US economy. In each county, there has been a sharp increase in the sale price of homes that has not been matched by a corresponding increase in rents. In Australia’s case, Baker claims house prices rose by more than 80 per cent between 2001 and 2009, a period when rents rose by roughly 30%.   Baker argues the price of the median house in Australia is 225 per cent of the median house in the US.  Given that wages in the US are higher it is difficult to see how this huge gap in house prices can make sense, said Baker.

by Roger Montgomery Posted in Insightful Insights, Property, Value.able.

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Over the past fifty years, US housing starts have averaged 1.5m per annum. Currently, starts are less than half the long term average.

In recent months there have been some tentative signs of recovery from this record low base. According to the Economist, America’s houses on average “are now among the world’s most undervalued: 19% below fair value, according to our house-price index”.

While Deutsche Bank have cut their 2013 and 2014 housing start expectations in Australia to 128,000 and 144,000, respectively,they are looking for a jump in US housing starts to 1.0m by 2014 and 1.4m by 2016, as follows.

by Roger Montgomery Posted in Insightful Insights, Property, Value.able.

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One of the companies that is bound to suffer amid the western world’s slump in house prices, home starts and weak credit growth is Boral.

Today, Boral (BLD) cut their full year profit guidance by $22m after weak house activity and heavy rain in NSW and QLD have impacted their operations. BLD had forecast profit to be $150m-$175m and now expect $128m-$153m.  Boral’s Mark Selway noted that Australia’s residential building sector is “aweful” and the construction and building materials company blamed continued wet weather and slow housing starts for cutting its profit forecast by the $22 million noted.  In an interview with Dow Jones today Selways said; “The residential housing market looks tough and, by the way, I think it’s going to get a whole lot tougher,” and 2013 was likely to be “the tough year”.

Below: Skaffold.com estimated Intrinsic Value for Boral.

The consensus analysts estimates that produce Skaffold’s current intrinsic value estimate will now decline further as will the estimate of value itself.  Since 2003 Boral’s estimated intrinsic value has been in decline as can be seen in the Skaffold Line Evaluate Screen.  You should also note the hockey stick – like increase from analysts earnings optimism.

Over in the US the situation isn’t much better.  After Warren Buffett noted his 2010/11 prediction of a bottom in housing “was dead wrong” one analyst said “March, housing starts, expected to print at 705K (which is crawling along the bottom as is, so it is all mostly noise anyway, but the algos care), came at a disappointing 654K, the lowest since October 2011, and a third consecutive decline since January. Want proof that the record warm Q1 pulled demand forward? This is it. As the chart below shows, the all important single-unit housing starts have not budged at all since June 2009. So was there any good news in today’s data? Well, housing permits, which means not even $1 dollar has been invested in actually ‘building’ a home soared to 747K, from 715K in February, and well above expectations of 710K – the highest since September 2008. That a permit is largley meaningless if unaccompanied by a start, not to mention an actual completion goes without saying.”

Total starts versus unit starts.

Apparently Harry S. Dent the author of various predictions of impending doom (and someone who’s rpredictions have been wrong as frequently as they have been right, is on Australia and said that we have a real estate bubble that is set to burst. He thinks there’ll be another worldwide economic downturn in 2012, and this will cause Australian real estate values to fall back to where they were 10 years ago.

“People in places like Sydney or Tokyo or Miami say, ‘Hey, real estate can never go down here, we’re a great place, everyone wants to move here, there’s not much land for development’, and what I say is that is exactly the kind of place that bubbles.” “Outside Hong Kong and Shanghai, Australia is the most expensive real estate market in the world compared to income.”

Thanks Harry!  My own definition of a bubble is a debt fuelled asset purchasing binge where the income from the asset cannot pay for the interest on the debt that is funding it.  Actually…that does sounds a whole lot like negative gearing????

Of course, some observers reckon the empty houses in Brisbane as sellers wait for prices to improve is a sign that the market is already crashing.  Others suggest for a crash to happen home owners have to be willing to sell their property at that lower price. A lot of home owners are removing their property from the market if they can’t get the price they want. Whether the lower price gets a print or not however is not relevant.  If my neighbour cannot sell his house for the price he wants, then the market price must be lower.  We don’t need a transaction to occur to confirm it.

Gone are the days when the dream was to have one nice house with a Clark Pool, a BBQ and a new Holden in the carport.  Now everyone wants to be a millionaire DIY developer and fixer-upper with his and hers BMW X5s.  That simple progression leads to more volatility in the prices of assets those investors pursue.  So what’s the impact on QBE and the banks now that Genworth have pulled their float?  Would love to hear your thoughts, insights and observations.  What are property prices doing in your area?

Posted by Roger Montgomery, Value.able author, SkaffoldChairman and Fund Manager, 20 April 2012.

by Roger Montgomery Posted in Property.

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