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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 18 February 2015

Vacancy rates fall again in January 2015

Vacancy rates fall in main cities

SQM Research released its vacancy rates figures for the month of January 2015.

After a seasonal spike in December national vacancy rates declined again in January, with the main declines seen in Sydney, Melbourne, Brisbane and Canberra "as workers and students sought rental accommodation after the break".

Key market trends

The headline figures reveal of a few things.

Firstly, the trend in Darwin is alarming as total resources employment declines.

After an extraordinary boom in the Top End, Darwin may be facing a corresponding reversal if current trends persist.

Vacancies are also rising steadily in the resources-influenced Perth market.

On the other hand, vacancy rates in Hobart are now very tight and the Tasmania capital is rapidly becoming a landlords' market.

After a dreadful decade within which dollar-exposed parts of the state economy were crucified by the soaring currency (some of which will never recover cf. Gunns), Hobart is now set for a property market upturn as the dollar comes all the way back down to earth and tourism picks up.

The local economy is not nearly strong enough to sustain an expensive property market over the long run, but the local real estate market is at last due for a boost, albeit from a comparatively very low base.

Adelaide's market is also now fairly tight after a dearth of price action for the past 6 or 7 years.

The real stand-out trend is in Darwin.

Sydney still tight

The figures also help to explain why Sydney's property boom will inevitably continue unabated for now.

The last property boom was pulled up by a twin "double tap" hike in interest rates in November and December 2003 to 5.25 percent, while vacancy rates climbed all the way to 4-5 percent.

Today the vacancy rate is 1.7 percent city-wide and much lower than that in a number of inner suburban regions, such as some of those favoured suburbs in the inner west.

Moreover, interest rates are still heading lower, not higher.

The market absorbed the words of the Minutes of the Monetary Policy Meeting released yesterday, which were somewhat ambivalent about the likely immediate direction of interest rates - perhaps suggesting a bit of an "each way bet".

That's exactly how futures markets interpreted the wording, thereby pricing a March interest rate cut as a 58 percent likelihood.

However, cash rate futures markets do see another rate cut to 2 percent by Q2 as almost a certainty and a likely further cut to just 1.75 percent in Q3.

Price spike?

The Sydney Morning Herald ran an article yesterday noting that implied yield curve would likely see property prices spike by 15 percent.

I opined something very similar 5 days ago on this blog, though I don't believe that there is one "property market", rather the boom would continue to be Sydney-centric for now. 

Plenty of other property commentators are morose about this prospect, having previously recommended investing in a plethora of mining towns and goodness knows where else as "hot tips".

At least one forecaster has made sense on the Sydney boom, Louis Christopher himself from SQM:

I think on balance this is probably correct.

Back-to-back interest rate cuts may be slightly more muted in their impact on the property investor set in Sydney.

However, the long, shallow yield curve with implied yields declining as low as 1.785 percent by Q4 2015 and remaining below 1.9 percent all the way out to Q3 2016 will likely keep investors coming back for more.

The only thing I can see stopping that now is purely a lack of availability of credit.

Over to APRA.