I'd like to do a bit of myth busting myself, including the biggest myth - that you can rely on the vast majority of property advice you hear.
The vast bulk of property commentary comes from people who have a very direct interest in seeing property prices and turnover remain high.
The realestate.com.au release is a case in point: this company makes its money through the volume of listings on its website and the number of real estate agents subscribing - when property markets are strong, more activity equals a higher profit.
It's no surprise then that the press release the company puts out says autumn is a great time to buy or sell property - as far as realestate.com.au is concerned any time of year would be a great time to buy or sell, in fact it would be best for the company if everyone just kept buying and selling all the time.
The company says its internal data shows March and May were the most popular months of the year for new property listings.
This would be good for buyers - more properties to choose from and the chance to bargain down prices - except that May also had the largest number of potential buyers browsing, which means more competition and other buyers bidding up prices.
Realestate.com.au's general manager of brand, communication and insight, Joanne Whyte, says this "provides a terrific opportunity for buyers and sellers".
While this may be true in terms of choice of properties, it certainly can't be true in terms of price.
Real estate is a zero-sum game, if the buyer pays more the seller wins and vice versa - there is no such thing as a time that's good for both buyers and sellers.
If you're a buyer, you want lots of properties on the market and not many other people buying, if you're a seller you want the opposite.
Buy in Bendigo
The second myth that realestate.com.au's release seeks to bust is that first home buyers are being forced out of the market by high prices.It says there were 23,000 more properties listed at $500,000 or less on its website in 2011 than the previous year.
Bureau of Statistics figures put average full-time earnings at $72,000 a year (including overtime and penalties) - even before tax that means a $500,000 property is nearly seven times average earnings.
Even with a $100,000 deposit saved, your $400,000 mortgage would cost $2,956 per month at a 7.5 per cent interest rate - that's almost half your pre-tax earnings, which is hardly affordable.
Most potential first home buyers are also likely to earn less than the average wage, given they tend to be younger and at an earlier lower-paid stage in their careers.
It is also worth remembering that 7.5 per cent is around what the Reserve Bank has labelled average interest rates, meaning that rates are likely to be above this level for half the life of your loan.
So the real message is actually that most single prospective home buyers are being kept out of the market, or taking on dangerously unsustainable levels of debt to get into it.
But don't be disheartened. The release quotes property expert Margaret Lomas saying:
"While many of the more exclusive suburbs of capital cities are indeed unaffordable to the first home buyer, considerable affordability can be found in outer suburbs with excellent infrastructure and in larger regional areas which offer diverse employment opportunities and an excellent lifestyle."The note to editors says 'affordable outer suburbs' referenced in the release include, amongst others: Bathurst, Orange and Nowra in NSW; Toowoomba and Townsville in Queensland; and Geelong, Bendigo and Ballarat in Victoria. That's one hell of a commute if your job is in the state capital, as most are.
To be fair, there were some suburbs listed that are within the urban area such as Mt Druitt in Sydney, but I think most Sydneysiders would agree that anything approaching $500,000 for a place in Mt Druitt is getting more than a bit steep (that includes a colleague of mine who is from that suburb).
'Most affordable in a decade'
Margaret Lomas also assures Australians that housing is the most affordable it has been in a decade:"From a peak of 34 per cent of the average household income in 2010, average mortgage payments on the median priced home have declined to 32 per cent and are expected to fall beneath the long term average of 30 per cent by early next year."It is true that home prices fell last year, while incomes have continued rising, thus making housing slightly more affordable.
However, the biggest factor in this improved affordability has been lower interest rates, and there is every chance that the global repricing of financial risk after the GFC will see a structurally higher level of average interest rates develop - we are already seeing this in the banks' independent interest rate rises.
Ignoring the affordability effect of interest rates (which could vary widely over the life of a 25 or 30-year loan), figures compiled by Steve Keen (an associate professor of economics at UWS and well known Australian housing market critic) from RBA and ABS data show the ratio of house prices to household disposable income has increased two-and-a-half fold since 1970.
Most of that increase has occurred since the early 2000s, with the ratio doubling since the late 1990s despite more households now having two income earners than previously (read more here).
And it's not only Steve Keen that thinks Australian homes are overvalued.
Demographia does an annual survey of house prices to incomes in a range of global cities - Sydney ranked third-least affordable, with other Australian cities also dominating the top of the list.
Morgan Stanley global strategist Gerard Minack in 2010 estimated Australia's housing as about 40 per cent more expensive than nations such as the UK, Canada and New Zealand.
Late last year The Economist magazine estimated Australia's housing market was more than 25 per cent overvalued, and even went as far as saying that Australian housing looked more overvalued than America's at the peak of its bubble.
AMP Capital Investors chief economist Shane Oliver wrote in a note in May last year that Australian house prices are overvalued, and at that time were around 25 per cent above their long-term trend.
In that same report, Shane Oliver cited figures from the OECD showing the ratio of Australian home prices to incomes as being 34 per cent above its long-term average, with the ratio of house prices to rents being 50 per cent higher than where history suggests it usually is.
However, he concluded there was no bubble because the market was in the process of deflating rather than racing ahead, and because supply shortages would provide a floor under prices. The Reserve Bank has a similar assessment of the market.
Property interests
While the above sources have their professional reputations at stake when discussing the Australian housing market, most of them don't have any more skin in the game than your average home owner or small-scale investment property owner.Compare that to the institutions that have a habit of talking up the property market and encouraging people to buy.
You have realestate.com.au which, as I outlined above, makes its money from more property transactions taking place.
You also have property experts, in the business of providing advice to people on buying investment property. Less people interested in buying investment property means less potential business.
Real estate agents are no friends of the buyer either: for most of them, the higher the sale price the higher their commissions. They also rely on transaction volumes, so it takes a pretty honest agent to tell you it's a bad time to sell or buy.
Finally, even the major newspapers have skin in the property game.
News Limited owns more than 60 per cent of realestate.com.au and Fairfax runs its main rival Domain.
Property advertising is one of the high value classifieds markets still dominated by the traditional media companies (through their online and print interests) and real estate downturns bite hard on the bottom line.
That's not to say the news journalists from those companies are necessarily affected by those interests (after all, most of us now don't earn enough income to be property owners, let alone investors!), but the specialist property sections rely on agent ads to stay afloat, so I wouldn't expect too much real estate negativity from that source.
In short, just as you wouldn't necessarily take a buy recommendation from a broker who owned a lot of stock in a company and was talking up its price, one has to be careful of property pundits keen to play down talk of home price falls.
Michael Janda is the ABC's Online Business Reporter. View his full profile here.
Article from http://www.abc.net.au/news/2012-03-20/janda-urban-myths/3900906
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