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Perth - Where to from here?; Rational evidence based discussion of Perth fundamentals
Topic Started: 17 Sep 2015, 12:22 AM (5,032 Views)
The Crunch
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Perth is an interesting area right now as it has had a tough year and there are 2 schools of thought on where it is going. The bulls say it's cheap, the bears say we're doomed so what's going on.

Please note the following are my observations on the current market with links to sources of some of the data. I have followed this forum for a whiled and would like to see an open discussion around property fundamentals and data. If you disagree with me I encourage you to challenge my ideas, but don't bother personally attacking me as I can't be bothered to respond to that.

So where is Perth now?
The stock on market has come down from the high in May, although it is still historically pretty high. The rentals peaked later in July and have also come off a bit but not much, with vacancy rates still sitting at 20 year highs http://www.perthnow.com.au/realestate/news/perth-tenants-on-top-as-wa-rental-vacancy-rate-hits-20-year-high/story-fnhlgriw-1227524083658
SQM charts are here- http://www.sqmresearch.com.au/graph_vacancy.php?region=wa%3A%3APerth&type=c&t=

So are these recent reprieves signs of green shoots or just a breather?

Personally I think it is only a temporary reprieve for the following reasons.

Roy Hill will be finishing construction in the next month, and Gorgon is also expected to pass peak construction workforce this month/ next month. From then there will be a lot of construction jobs lost and no projects to fill the void. Add to that big mining companies still squeezing operational and capital costs, and domestic construction is also coming off now, and although this will help a bit because not as much stock will be being added, I believe it will still be a net loss from the increased unemployment/ population loss. http://www.perthnow.com.au/realestate/news/oversupply-risk-for-perth-houses-not-apartments-says-real-estate-expert/story-fnhlgriw-1227530741434

Then finally add to this the fact that the huge Wheatstone and Icthys projects will also both finish in 12-24 months, as well as all the major government infrastructure projects (and after that the WA government will be in major deficit). Due to this and the fact I can't see any major emerging employment opportunities in the West I believe it will be a very tough 2 years in the WA housing market.

The only possible saviours could be foreign buying (Like Sydney and Melbourne) but with the government clamping down on foreign investment and making domestic investment borrowing harder to try and cool down the East coast I can’t see it happening to the same extent here. Also there has been some excitement about new planning restrictions to stop the urban sprawl driving up prices, but without an increase in demand I cannot see it making an effects in the short term.

Falling interest rates and a falling dollar will obviously help but it looks like there is a lot more downside risk than upside potential

To round out my view Here is an interesting chart on the correlation of WA migration flow and iron ore price

Look at the trend in migration I believe that it will be negative for the next 2 years if it is not already.
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newjez
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The Crunch
17 Sep 2015, 12:22 AM
Perth is an interesting area right now as it has had a tough year and there are 2 schools of thought on where it is going. The bulls say it's cheap, the bears say we're doomed so what's going on.

Please note the following are my observations on the current market with links to sources of some of the data. I have followed this forum for a whiled and would like to see an open discussion around property fundamentals and data. If you disagree with me I encourage you to challenge my ideas, but don't bother personally attacking me as I can't be bothered to respond to that.

So where is Perth now?
The stock on market has come down from the high in May, although it is still historically pretty high. The rentals peaked later in July and have also come off a bit but not much, with vacancy rates still sitting at 20 year highs http://www.perthnow.com.au/realestate/news/perth-tenants-on-top-as-wa-rental-vacancy-rate-hits-20-year-high/story-fnhlgriw-1227524083658
SQM charts are here- http://www.sqmresearch.com.au/graph_vacancy.php?region=wa%3A%3APerth&type=c&t=

So are these recent reprieves signs of green shoots or just a breather?

Personally I think it is only a temporary reprieve for the following reasons.

Roy Hill will be finishing construction in the next month, and Gorgon is also expected to pass peak construction workforce this month/ next month. From then there will be a lot of construction jobs lost and no projects to fill the void. Add to that big mining companies still squeezing operational and capital costs, and domestic construction is also coming off now, and although this will help a bit because not as much stock will be being added, I believe it will still be a net loss from the increased unemployment/ population loss. http://www.perthnow.com.au/realestate/news/oversupply-risk-for-perth-houses-not-apartments-says-real-estate-expert/story-fnhlgriw-1227530741434

Then finally add to this the fact that the huge Wheatstone and Icthys projects will also both finish in 12-24 months, as well as all the major government infrastructure projects (and after that the WA government will be in major deficit). Due to this and the fact I can't see any major emerging employment opportunities in the West I believe it will be a very tough 2 years in the WA housing market.

The only possible saviours could be foreign buying (Like Sydney and Melbourne) but with the government clamping down on foreign investment and making domestic investment borrowing harder to try and cool down the East coast I can’t see it happening to the same extent here. Also there has been some excitement about new planning restrictions to stop the urban sprawl driving up prices, but without an increase in demand I cannot see it making an effects in the short term.

Falling interest rates and a falling dollar will obviously help but it looks like there is a lot more downside risk than upside potential

To round out my view Here is an interesting chart on the correlation of WA migration flow and iron ore price

Look at the trend in migration I believe that it will be negative for the next 2 years if it is not already.
Stock on market has come down? Are you sure?
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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The Crunch
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Yes. The below is a chart with weekly SOM for Perth greater region from realestate.com.au

I think the lumpy nature is due to a lot of contracts finalizing at the end of the month (I did exclude under contract from the search but believe it must still have an effect), but the trend is pretty clear.
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Elastic
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Your analysis is pretty spot on. A couple of tough years ahead for Perth.
I suspect that changes in stock on market and vacancies will have some seasonal basis. Expect both to keep rising over the next few months.
Only a rat can win a rat race.

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newjez
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The Crunch
17 Sep 2015, 12:22 AM
Perth is an interesting area right now as it has had a tough year and there are 2 schools of thought on where it is going. The bulls say it's cheap, the bears say we're doomed so what's going on.

Please note the following are my observations on the current market with links to sources of some of the data. I have followed this forum for a whiled and would like to see an open discussion around property fundamentals and data. If you disagree with me I encourage you to challenge my ideas, but don't bother personally attacking me as I can't be bothered to respond to that.

So where is Perth now?
The stock on market has come down from the high in May, although it is still historically pretty high. The rentals peaked later in July and have also come off a bit but not much, with vacancy rates still sitting at 20 year highs http://www.perthnow.com.au/realestate/news/perth-tenants-on-top-as-wa-rental-vacancy-rate-hits-20-year-high/story-fnhlgriw-1227524083658
SQM charts are here- http://www.sqmresearch.com.au/graph_vacancy.php?region=wa%3A%3APerth&type=c&t=

So are these recent reprieves signs of green shoots or just a breather?

Personally I think it is only a temporary reprieve for the following reasons.

Roy Hill will be finishing construction in the next month, and Gorgon is also expected to pass peak construction workforce this month/ next month. From then there will be a lot of construction jobs lost and no projects to fill the void. Add to that big mining companies still squeezing operational and capital costs, and domestic construction is also coming off now, and although this will help a bit because not as much stock will be being added, I believe it will still be a net loss from the increased unemployment/ population loss. http://www.perthnow.com.au/realestate/news/oversupply-risk-for-perth-houses-not-apartments-says-real-estate-expert/story-fnhlgriw-1227530741434

Then finally add to this the fact that the huge Wheatstone and Icthys projects will also both finish in 12-24 months, as well as all the major government infrastructure projects (and after that the WA government will be in major deficit). Due to this and the fact I can't see any major emerging employment opportunities in the West I believe it will be a very tough 2 years in the WA housing market.

The only possible saviours could be foreign buying (Like Sydney and Melbourne) but with the government clamping down on foreign investment and making domestic investment borrowing harder to try and cool down the East coast I can’t see it happening to the same extent here. Also there has been some excitement about new planning restrictions to stop the urban sprawl driving up prices, but without an increase in demand I cannot see it making an effects in the short term.

Falling interest rates and a falling dollar will obviously help but it looks like there is a lot more downside risk than upside potential

To round out my view Here is an interesting chart on the correlation of WA migration flow and iron ore price

Look at the trend in migration I believe that it will be negative for the next 2 years if it is not already.
I think I'd probably agree with you. Nothing terrible in the pipeline, but no upside. Just general demise for the next couple of years. Unless of course there is a major world changing event, in which case I would say Perth looks vulnerable to a shock.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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Foxy
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Zero is coming...

The Crunch
17 Sep 2015, 12:22 AM
Perth is an interesting area right now as it has had a tough year and there are 2 schools of thought on where it is going. The bulls say it's cheap, the bears say we're doomed so what's going on.

Please note the following are my observations on the current market with links to sources of some of the data. I have followed this forum for a whiled and would like to see an open discussion around property fundamentals and data. If you disagree with me I encourage you to challenge my ideas, but don't bother personally attacking me as I can't be bothered to respond to that.

So where is Perth now?
The stock on market has come down from the high in May, although it is still historically pretty high. The rentals peaked later in July and have also come off a bit but not much, with vacancy rates still sitting at 20 year highs http://www.perthnow.com.au/realestate/news/perth-tenants-on-top-as-wa-rental-vacancy-rate-hits-20-year-high/story-fnhlgriw-1227524083658
SQM charts are here- http://www.sqmresearch.com.au/graph_vacancy.php?region=wa%3A%3APerth&type=c&t=

So are these recent reprieves signs of green shoots or just a breather?

Personally I think it is only a temporary reprieve for the following reasons.

Roy Hill will be finishing construction in the next month, and Gorgon is also expected to pass peak construction workforce this month/ next month. From then there will be a lot of construction jobs lost and no projects to fill the void. Add to that big mining companies still squeezing operational and capital costs, and domestic construction is also coming off now, and although this will help a bit because not as much stock will be being added, I believe it will still be a net loss from the increased unemployment/ population loss. http://www.perthnow.com.au/realestate/news/oversupply-risk-for-perth-houses-not-apartments-says-real-estate-expert/story-fnhlgriw-1227530741434

Then finally add to this the fact that the huge Wheatstone and Icthys projects will also both finish in 12-24 months, as well as all the major government infrastructure projects (and after that the WA government will be in major deficit). Due to this and the fact I can't see any major emerging employment opportunities in the West I believe it will be a very tough 2 years in the WA housing market.

The only possible saviours could be foreign buying (Like Sydney and Melbourne) but with the government clamping down on foreign investment and making domestic investment borrowing harder to try and cool down the East coast I can’t see it happening to the same extent here. Also there has been some excitement about new planning restrictions to stop the urban sprawl driving up prices, but without an increase in demand I cannot see it making an effects in the short term.

Falling interest rates and a falling dollar will obviously help but it looks like there is a lot more downside risk than upside potential

To round out my view Here is an interesting chart on the correlation of WA migration flow and iron ore price

Look at the trend in migration I believe that it will be negative for the next 2 years if it is not already.
Well put,
Foxbat explained all of this to me 3 years ago.
But let's keep it simple.
The Perth economic system must adjust to the post mining boom normal.
There is no mystery.

To make it even simpler, and in the vernacular, the fuckwits have less money to burn.

Peter
Edited by Foxy, 17 Sep 2015, 08:22 PM.
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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The Whole Truth
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You can't really separate Perth from the other capitals just like that. Consider Brisbane, a Capital of a mining state that has seen similar lost income yet the prices there have gone nowhere in 7 years. The Gold coast is still a basket case, why?

Back of it all are drivers that go well beyond mining booms and interest rates. Drivers such as total debt servicing costs, taxation, and the ability of banks to shed risk as they easily could over the past decade and a half via bank bonds and RMBS (remember those)

These are the factors that will dictate Perths future, not some rebalancing of population numbers.
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
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Matthew
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foxbat
17 Sep 2015, 08:13 PM
Well put,
Foxbat explained all of this to me 3 years ago.
But let's keep it simple.
The Perth economic system must adjust to the post mining boom normal.
There is no mystery.

To make it even simpler, and in the vernacular, the fuckwits have less money to burn.

Peter
3 years ago being 2012.

Was prices hitting a record high in 2013 and maintaining that throughout 2014 part of this particular pissed dream of yours Peter? Prices skyrocketing in real terms and all that?
My only hope for my three boys is that they turn out nothing at all like Chris.
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The Whole Truth
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Perth has been a rollercoaster for 7 years and all those ups and downs has brused your brain mattie.
It's turned you into an idiot
and every post you make confirms this diagnosis.
You are an idiot

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"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
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Matthew
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The Whole Truth
17 Sep 2015, 10:09 PM
You can't really separate Perth from the other capitals just like that. Consider Brisbane, a Capital of a mining state that has seen similar lost income yet the prices there have gone nowhere in 7 years. The Gold coast is still a basket case, why?

The measures geographically are simply different and your postulation below shows how simple you are peanut.

The Perth Median house price is calculated on a very narrow geographic area, not even Mandurah is included. Spread the love to cover a similar sq/km area as Brisbane and you pick up Mandurah ($340k median), Pinjarra ($365k median), Northam ($265k median) and Toodyay ($255k median) and the medians would look incredibly similar.

Of course because you are an east coast centric gold hoarding fuckwit none of this will sink in, but people smarter than you (99.4% of the population) get it.
My only hope for my three boys is that they turn out nothing at all like Chris.
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