News

The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.


Category Archives For: Melbourne Real Estate News

Bond Yield Update: April

Yields down since last month and almost back to levels in April 2015

As part of our continued series on interest rates, Secret Agent has been tracking movements in the bond yield curve since late last year. If you don’t know why bond yields are so important for property investors, download our yield curve report.

So far this month, short, medium and long term treasury bond yields are down by between 0.06% for 90 day bills and 0.16% for 10 year bonds. This is shown below.

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Why You Can’t Trust Averages

Changes in average prices are frequently used by commentators to draw conclusions about the property market. Our recent post on Fitzroy’s true capital growth gave some insight into why statistics like averages and medians are not sufficient to make judgements on property value in a given suburb.

To find true growth in value, many factors including property size, location and renovation levels need to be accounted for. This can be done by observing resales of the same property over time, given no structural changes have occurred between sales. When we compare the annual average price changes (reported) and our own index based on resales only, we start to see that capital gains are mostly exaggerated using averages alone.

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Record Breaking Building Permits in Victoria

You might have walked the streets many times over the past 12 months and noticed the substantial number of construction sites and cranes in air throughout Victoria.

The Victorian Building Authority (VBA) has released its latest findings on reported building permits and the total value of building reported in 2015. In summary, this is what they found.

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Fitzroy’s True Growth

Between January 2011 and December 2015, 512 houses and townhouses were bought and sold in Fitzroy. If we compare the average prices in 2011 and 2015, these have increased by about 9.4% per year. That’s the only thing this tells us: people spent more money on each house in 2015 than they did in 2011.

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As a statistic, averages can be very misleading. They ignore any changes to the mix of properties being put on the market. For example, each time a property is refurbished, extended or renovated, the value of the property increases. While this increase in value is reflected in an increased average price, this is not true capital growth, as additional investments had to be made. Also, with only about 100 properties being sold each year, the sale of a very few, very large houses would have a significant impact on the average price in that period.

If we break this down into individual years, we can see that average prices fluctuate, which again shows us the limitation of using averages as indicators of capital growth.

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Predicting Mortgage Rates

Historically, treasury bonds have been considered one of the most secure investments that can be made – especially in a country with a stable government such as Australia. The bond holder is almost guaranteed to receive half-yearly coupon payments plus all their principal once the maturity date is reached. Treasury bonds can therefore be considered a risk-free asset and the yield received is the risk-free rate for investment. For a bank giving out a home loan, the interest rate charged usually depends on the risk-free rate plus the risk premium, determined by the likelihood of the borrower to repay his loan.

We’d expect the average mortgage rate and treasury bond yield to behave similarly – that is, when bond yields increase, so should the mortgage rate, and vice versa. When we looked at the average variable mortgage rate and 10 year treasury bond yields in Australia, both move up and down in the same direction, although not always at the same time.

However, when you compare current variable mortgage rates with 10-year treasury bond yields from 8 months ago, we see that a strong relationship exists (see Fig.1). What this means is that we can now estimate the mortgage rate 8 months from now (September 2016).

Fig1

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21st Century Pollution: Noise

As part of our upcoming report on Sound, we decided to look at one of the downsides of living in the inner suburbs of Melbourne. For some, the idea of living close to – or within – the city is extremely desirable, especially if you’re a young professional. But is it possible to be too close to the centre of all the action? We wanted to find out if inner city properties lost any value being located on noisy main roads.

For our purpose, we defined a noisy road as any street with two or more lanes, or a road with tram tracks on it, and narrowed our study to inner North suburbs. We made sure that the only variable was whether the house was located on a noisy or a quiet street, keeping other property traits as similar as possible.

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A Matter of Price and Size

Is a more expensive house also a larger house? Usually yes, but does a 10% bigger property also cost 10% more? The answer, interestingly enough, is that it depends on the area.

The size of a property and the price do not always move up or down proportionately, but by different amounts depending on the suburb.

Travancore, Northcote and, surprisingly, Hawthorn offer the best value for money in the inner suburbs, while Albert Park, Middle Park and, unsurprisingly, East Melbourne, landed on the other end of the value spectrum.

To figure out what is a good deal on a house in any suburb, look at the percentage that price is greater or smaller than the average price, then compare this to how much bigger or smaller the land area is over the average. Finally, consider additional factors, including build quality, location and surroundings.

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The Secret Agent Report – End of Year Review

We have just released our latest Secret Agent report! Yet another year has passed, so it’s time to look back at 2015 and reflect on the performance of the property market around inner Melbourne.

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the End of Year Review report now!

End of Year Review 2015


The Secret Agent Report – Melbourne Metro Rail Project

We have just released our latest Secret Agent report! This month, we are reviewing the Melbourne Metro Rail Project and investigate its potential effects on property prices.

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the Melbourne Metro Rail Project Report now!

Melbourne Metro Rail Project Report

 


The Secret Agent Report – EOFY Review

We have just released a special mid-month Secret Agent report! In this release, we take an in-depth look at the property market over the last financial year.

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the EOFY review now!

EOFY Review 2014/15