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January Figures Displayed By the Property Market May be Deceptive

residential propertyIn an article for the website, Paul Thornhill talks about a great start to the property market in 2014 but also asks us to be wary of the figures, for they may flatter to deceive. Thornhill gives a few reasons why the summer figures are too good to be true.

Prestige Market sales

As a first, summer is the time when those real ‘big fishes’ of the Prestige Market are put up for sale. The beach homes are nearly always accorded the summer time-frame. Properties, especially in the Gold Coast and the Portsea area, are likely to add cool millions to the kitty of the property market, thereby inflating the total sales figures.

Poor Christmas run magnifies January figures

In addition, Thornhill also believes that many sales pertaining to the last year are carried forward to January and the numbers, coming in wake of a persistently poor Christmas figures, give an impression of being really big.

Sustainable growth

Australians, warns Thornhill, will do well to believe in sustainable levels of market growth. Yes, the good news is that the demand-supply dynamics in Sydney and Melbourne should bode well for the mega cities; what with short supply paving way for further price hike.

You can read the original article here.

I will definitely allow for the trends in my evaluation but at the same time I think that the market buoyancy and rallying consumer sentiment may be largely unfounded. No way can we go on expecting the same levels of price hikes (and value growth) in capital cities as has been the case in recent years.

Unaffordable housing syndrome

Any economy has to respect its constraints, as and when they emerge. I am not saying that the time for price correction has come. All I mean is that the growth chart won’t be as spectacular from here on. Prices of detached houses and units have both risen way in excess of 10% over the last year. Such growth cannot be sustained and if unchecked, it will create grounds for unaffordable housing syndrome.

Cash Rate

The government’s move to reduce cash rates has given the required impetus to the construction industry and real estate but we will be served well by believing in a more moderate bigger picture- one that talks about 5%-6% growth in 2014 and 2015.

If we can hold true to our intrinsic economic values, there is a good reason to believe that such sustained growth will provide consistently right answers to us over a long run.

Do you see a cash rate hike soon, now that the rate reduction has served its purpose?