Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Thursday, 9 April 2015

Do house prices rise faster close to the CBD?

Inner suburban property

Historically, there's clearly no question that property prices have risen more quickly closer to the centre of Australia's capital cities as covered in several Reserve Bank research papers - for the reasons explained here.


Sure, that's the longer term data, but what about over more recent years? Well, more of the same actually.

Graph 11: House Price Gradient

You can look at the data until you're blue in the face, but the conclusions are obvious.

And, moreover, the effects of frictions in housing production mean that we can expect yet more of the same in the future.

But what about the regions?

Of course you can torture any figures until they confess, and plenty do.

In Sydney lot prices have gone screaming higher by 19.7 per cent (HIA) over the past year, while regional lot prices have barely increased even in line with benign inflation.

Any decent property in Sydney would have seen capital growth of ~50 per cent or more since 2009.

But very often the "growth" in regional property prices since peak household debt is trickery within the data whereby new construction of house and land packages skews median prices higher.

NSW south coast

Look at the south coast of New South Wales. 

If you drive down to the south coast a bit for recreation as I do, you'll no doubt have raised your eyebrows at the number of turnkey homes sprouting up on greenfield sites.

This new building often skews median prices higher.

Take the example of Nowra which has allegedly "given property investors a solid capital gain of 20.4 per cent for the last year" (!) and 34 per cent (!!) over the past five years.

I'd be willing to take a bet that if you looked at a sample of like-for-like sales over any kind of meaningful time horizon that not a single one of those sampled properties has shown anything like that level of capital growth.

In fact, what the heck, I have access to a sales database so let's do exactly that and pick a sample of recent sales, excluding new builds.


There you have it, an average CAGR of 2 per cent per annum, with some properties recording 3 per cent compounding annual growth, before transaction costs.

We see this time and time again with regards to regional property market commentary.

Generally speaking "capital growth" was very solid post financial deregulation broadly from 1990 to 2006 when household debt peaked, and has done very little since.

No doubt the counter-argument is that property is a long-term investment and you should wait for the next boom.

But what's going to cause another boom?

High inflation? No. Yesterday's war.

Population growth shifting to regional Australia? The stats don't suggest so, with capital cities attracting the overwhelming bulk of the growth, and more of the same forecast.

The mining boom which will last "for generations"? 

Another household debt binge? Doubt it!

Household Finances graph

To be blunt for many investors in regional property over the past 7 years or so would have fared much better - and with much less hassle - just by dropping money into bank shares and enjoying the tax-favoured dividend streams.

I'm not saying don't invest in property in regional areas (OK, I kind of am), but the expectations of many would-be investors need to be seriously moderated. 

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Add Blackwater to the lengthening list of regional property market disasters, with median prices down by 43 per cent over the past three years.