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An August rate cut was always going to be improbable, barring a rogue core inflation number (something equal to or less than 0.3%) or a “surprisingly” negative shock out of Europe, which takes some effort these days. The RBA has for a long time been banking on heightened global economic volatility, so the day-to-day ructions rumbling out of Europe should not change its already very stimulatory stance.
How do I assess the impact of today's inflation data? The policy-making decision should be clear. Firstly, the most credible information we have on economic growth ­–the first quarter National Accounts – surprised the RBA (and dovish economists) significantly on the upside. Over the 12 months to March, GDP was at trend or higher – certainly nothing that ostensibly warrants 125 basis points worth of cash rate cuts (or punishment for prudent savers).
Secondly, as the Governor revealed yesterday – and I had argued here for some time – the unemployment rate has remained stubbornly below the RBA's current forecast of around 5.5%. That's not to say it will not get there in due course. But, as the Treasury's David Gruen has shown, the geographic dispersion in unemployment has also declined over time, rather than an increase one might expect with an economy undergoing structural adjustment. So the labour market, which is a key variable the RBA uses to forecast future inflation, has also surprised the Bank on the positive side.
Thirdly, rightly or wrongly, the RBA's board decided to cut the cash rate on four separate occasions since the start of November last year, which has pushed variable mortgage rates a chunky 50 basis points below their inflation-targeting average. If we stretch our time horizon back further – say to 1980 – current housing finance rates look even more accommodating. While the RBA was likely disconcerted by the weakening in house prices in April and May on purely financial stability grounds, it would have been equally comforted by the striking rebound in prices over June and July (see chart below). I expect APM's index results for the June quarter to be similarly benign.
<img height="284" width="469" src="/images/stories/2012/CJ_graph.jpg" alt="CJ_graph">
The bottom line is that the bulk of the RBA's rate cuts since November were rationalised on the basis it needed to furnish Australians with "insurance" against adverse future contingencies (specifically, the December, May and June cuts). The good news is that these catastrophes have yet to materialise, notwithstanding the efforts of some in the popular media to convince us otherwise.
The point that some analysts appear to miss is that the RBA's research indicates that a cash rate change today takes two years to have its full affect on inflation. Accordingly, we have not come remotely close to yet understanding the practical influence of the RBA's repeated (and seemingly reflexive) spate of cuts.
What we have seen in the producer and import price data is that the absence of currency appreciation has translated almost immediately into elevated (import) price pressures. With core inflation apparently troughing at the bottom of the RBA's deliberately “wide” 2% to 3% band (note most central banks consider inflation of 2% per annum quite normal), and much economic stimulation yet to be fully transmitted through the system, the RBA is understandably keen to watch and wait.
This is why I expect most of the remaining economists predicting a rate cut in August to discard their calls. As I previously showed here, a total of 10 economists had dropped their August cuts over the last month. I suspect most (although not all) of the holdouts will quickly follow. To be clear, a cut is still a possibility, albeit a low probability.
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chrisjoye-JYhJsTrNRC

Watch economists run from rate cut calls: Christopher Joye

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The RBA minutes only refer to <a target="_blank" href="https://www.propertyobserver.com.au/https://www.rba.gov.au/monetary-policy/rba-board-minutes/2012/03072012">one set of house price index data</a>, explicitly highlighting the "up-tick" in prices recorded by RP Data-Rismark's daily index prior to the RBA's last board meeting on July 3: "In contrast, indicators suggested that the housing market remained subdued. Dwelling activity was likely to have fallen further in recent months and indicators generally suggested that activity would remain relatively weak in the near term. Notwithstanding an apparent tick-up in June, dwelling prices were around 6 per cent lower than in early 2011, with the largest falls in Melbourne and Brisbane. Household credit continued to grow at around the pace of the past year (broadly in line with incomes). Interest rates on housing loans were around 50 basis points below their 15-year average." It is a subtlety, but what is most profound in the paragraph above is that Australia's central bank is describing movements in house prices over the month of June only three days after the month has ended! This is a transformational world away from the house price technology that existed several years ago, whereby quarterly, as opposed to daily, data was reported with a multi-month lag. Even today APM and the ABS report their quarterly data with a one-month lag. To be clear, while the RP Data-Rismark index is the only price data highlighted in the RBA's minutes, the central bank prudently reviews information from both APM and RP Data-Rismark, and still includes the ABS index data in the Statement on Monetary Policy.  Rismark and RP Data have a great deal of respect for Dr Andrew Wilson and the Fairfax-owned APM, which report a useful "stratified median price index" based on the pioneering <a target="_blank" href="https://ideas.repec.org/p/rba/rbardp/rdp2006-04">Prasad and Richards methodology</a>. Rismark and RP Data compute this stratified median index internally, in addition to our old adjacent-period monthly hedonic, and simple medians.  It should also be said that it was in part the RBA that inspired Rismark and RP Data to invest many millions of dollars into the research and development of complex regression-based monthly and daily indices that seek to eliminate the compositional biases that arise in housing transactions due to the twin problems attributable to the heterogeneity of the housing asset itself (no two homes are identical), and the "non-synchronicity", or infrequent trading, associated with the overall stock (note that in absolute terms transaction volumes are very high at north of 400k per annum).
Christopher Joye is a leading financial economist and a director of <a href="https://www.ybr.com.au/savings/index.cfm" target="_blank">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
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RBA refers to RP Data-Rismark index in July minutes: Christopher Joye

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As I expected, the RBA’s decision to – rightly or wrongly – slash interest rates to historically very low levels (the discounted rate at which most people borrow is around 6%) has had a near-immediate impact on Australian house prices. 
RP Data-Rismark’s hedonic index, which reprices a portfolio of 5 million homes using all historical sales and the incoming flow of approximately 1,500 new sales RP Data collects each day, has recorded a 1.8% increase in Australian capital city dwelling values since the end of May (refer to the blue line the chart below) to July 16. Dwelling values in Melbourne (black line) and Sydney (red line) have risen more sharply, with capital gains of 2.8% and 2.1%, respectively.
Click to enlarge
<a title="Click to enlarge" rel="shadowbox" href="/images/stories/2012/07/july16.gif"><img src="/images/stories/2012/07/july16thumb.gif"></a>
Recall that June and July are seasonally very weak months given the tapering in activity over winter. RP Data-Rismark’s daily index, which is published by both the ASX and the RBA (in its monthly chart pack), is produced in raw, non-seasonally adjusted terms since it is used as an investment benchmark. (Tradeabe financial market data are not normally seasonally adjusted.) Yet seasonally adjusting RP Data-Rismark’s index is an instructive analytical exercise, and doing so would show even stronger price appreciation than that which is displayed in the chart above. 
Over the period December 31, 2011 through July 16, 2012, inclusive, Australian dwelling values are now more or less unchanged (off -0.4%). In Sydney, dwelling values have actually risen 1.7% over the first six months of the year. And after a steep drop during April and May, home values in Melbourne have recovered quickly to be down 2.4% in 2012. This compares much more favourably with the Melbourne housing market’s -5.6% nadir reached on June 10. 
Despite the wealth of empirical evidence supplied by RP Data indicating that dwelling prices have started creeping up again in Sydney and Melbourne, SQM’s Louis Christopher has assuredly argued otherwise. (While SQM competes against RP Data, it does not actually publish a price index of its own.) 
Following the release of RP Data-Rismark’s June data, which is being directionally reaffirmed in July, Christopher issued a media release that contained several incorrect statements, which were addressed in a <a href="https://www.propertyobserver.com.au/residential/rp-data-rismarks-defence-of-the-daily-hedonic-home-value-index/2012070555447">response from RP Data’s Tim Lawless</a>. 
One of Christopher’s most surprising arguments, however, was the declaration that, "I do not believe for a moment that house prices are now rising in Sydney or Melbourne as RP Data-Rismark has claimed." Christopher has been backed up by Sunrise television host David Koch. 
Setting aside RP Data-Rismark’s findings, the REIV has <a href="https://christopherjoye.blogspot.com.au/2012/07/more-on-melbourne-house-prices">separately reported</a> that median house prices in both Victoria and Melbourne rose by about 3% in the June quarter. Averaged over the last six months, the REIV concludes that Melbourne house prices have not fallen at all. 
As I explained here, the RBA prudently leverages off multiple house price data providers since it can never be absolutely certain that the quality of any one company’s information will always remain the same. Having said that, the RBA has communicated a clear preference for the “hedonic” and “stratified median” proxies published by RP Data-Rismark and the Fairfax-owned Australian Property Monitors (APM). 
Australia is somewhat unique among OECD countries in collecting 100% of all residential sales transactions through valuer-generals and land titles offices and then making this data available to private information vendors. In contrast to the US and UK, where the most widely used indices have large sample selection biases (because they only draw on a sub-section of sales), APM and RP Data-Rismark’s benchmarks ultimately include all sales. 
To the extent Christopher genuinely believes that house prices are falling in Sydney and Melbourne, he will presumably defer to APM’s numbers, which will be published late next week. 
Christopher publicly says he “created” APM’s stratified median index, which is a point disputed by Fairfax’s APM. In its media releases, APM notes – correctly, I have been informed – that the stratified median index derives from a methodology <a href="https://ideas.repec.org/p/rba/rbardp/rdp2006-04" target="_blank">developed</a> by two RBA economists, Tony Richards and Nalini Prasad (more detail on the dispute between RP Data/APM and Christopher can be found <a href="https://christopherjoye.blogspot.com.au/2012/07/rp-data-responds-to-louis-christophers" target="_blank">here</a>). 
The APM results should be one telling litmus test of RP Data-Rismark’s analysis. While it harnesses similar underlying information, APM employs a very different technical method. I will be personally focusing on the price action APM evidence in Sydney and Melbourne, and the national market more broadly. 
The ABS house price index data are much less useful since they completely exclude all forms of “attached” housing – i.e., apartments, townhouses, and terraces – which make up around one-quarter of the housing stock in the major cities. This is why this data is largely ignored by the RBA and most market economists. 
 
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I want to make some final remarks on the quality of media reporting in this country. Australia’s specialised economic commentary is typically outstanding. In the wider mass media, however, there is an emerging bias towards gloom, spin, and sensationalism when it comes to covering economic topics, and housing more specifically. In an unusual move, the ordinarily very dry RBA governor, Glenn Stevens, recently drew attention to this problem in a speech, <a href="https://christopherjoye.blogspot.com.au/2012/07/rba-governors-complaint-about-quality" target="_blank">arguing</a>: 
“[T]he nature of public discussion [in Australia] is unrelentingly gloomy, and this has intensified over the past six months. Even before the recent turn of events in Europe … we were grimly determined to see our glass as half empty. Numerous foreign visitors to the Reserve Bank have remarked on the surprising extent of this pessimism. Each time I travel abroad I am struck by the difference between the perceptions held by foreigners about Australia and what I read in the newspapers at home.” 
The vastly experienced economic commentator Ross Gittins has echoed the governor’s concerns in an SMH <a href="https://www.smh.com.au/business/prejudices-rule-when-judging-labor-20120715-224cu">column today</a>: 
“The conundrum is why so many people could be so dissatisfied when almost all the objective indicators show us travelling well: the economy growing at about its trend rate, low unemployment, low inflation, rising real wages, low government debt – even a low current account deficit. And yet the media are full of endless gloom… Increased competition has made the media more relentlessly negative - more uninterested in anything but bad news - which must eventually have some effect on the public's state of mind.” 
One example of the biases canvassed by Stevens and Gittins is found in the coverage of the first-quarter GDP results, which were the most significant economic news in the year-to-date. Within a few hours of the numbers being released, which literally doubled the estimates of economists (and showed the local economy expanding at an above-trend pace), Chris Zappone’s article in the Age/SMH had been buried as the number three news item under the <a href="https://christopherjoye.blogspot.com.au/2012/06/as-predicted-good-economic-news-buried" target="_blank">stunningly spun headline</a> (written by the sub-editor) “More rate joy fades as economy revs up” (emphasis added). 
 
Yes, the best economic news of 2012 had been twisted into bad news for borrowers. Seriously. And by the end of the day the article had dropped to number eight on the list of The Age/SMH's top stories behind a piece about a “<a href="https://christopherjoye.blogspot.com.au/2012/06/best-economic-news-story-of-year-ranks" target="_blank">bored billionaire</a>”. The SMH screen-shot is enclosed below.
<img src="/images/stories/2012/07/joyesmh.jpg">
Doom-spruiker-in-chief, Steve Keen, still gets quoted by respectable media despite consistently misleading the public about the housing market. In 2008 he was regularly referenced confidently calling for a 40% fall in house prices (and double-digit unemployment).
After watching prices awkwardly rise 13% in 2009 and 5% in 2010, Keen revised his prediction to a more modest 20% decline. For what it is worth, Australian home values are currently around 15% above the lows they touched in December 2008.
At the first sign that the RBA’s monetary policy tightening was squeezing steam out of the property market in mid-2010, Keen eagerly claimed that the rate of price declines would “accelerate” thereafter. They did nothing of the sort.
Following a temporary drop in prices in April and May this year, Keen <a href="https://www.propertyobserver.com.au/residential/abs-figures-show-australia-s-housing-price-bubble-is-bursting-steve-keen/2012050254514" target="_blank">reiterated his view that the price depreciation would accelerate</a>, and then on Twitter said he would let the data do the talking.
Well, the house price figures are talking, just not according to the tone Keen anticipated.
Christopher Joye is a leading financial economist and a director of <a href="https://www.ybr.com.au/savings/index.cfm" target="_blank">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
 
Update: <a target="_blank" href="https://www.propertyobserver.com.au/residential/sqm-director-louis-christopher-responds-in-index-debate/2012071655588">SQM director Louis Christopher has tweeted a response to this column and suggests readers look at a 2005 Australian Financial Review article.</a>
RP Data-Rismark’s house price index did not exist in 2005 when the AFR article was published, as it was not launched until end 2006.
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House prices rise sharply in July after June RBA cash rate cut despite media bias towards gloom and spin: Christopher Joye

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After each monthly board meeting, the RBA publishes its official "<a href="https://www.rba.gov.au/chart-pack/household-sector" target="_blank">chart pack</a>", which is a detailed 30-page presentation on the Australian economy that it uses to brief members. The RBA's chart pack includes one chart on Australian house prices, covering the individual capital cities, a national weighted average of the capital cities, and a rest of state index. For many years the RBA used to only use the ABS house price data in this chart. Some time ago the RBA switched to RP Data-Rismark. RP Data-Rismark's <a href="https://www.rpdata.com/research/rp_data-rismark_home_value_index" target="_blank">new daily house price index</a> is the only house price data used by the RBA in the chart pack. Specifically, the RBA takes the daily index number for the end of each month, and then seasonally adjusts the data over time. (The RBA was also consulted as part of the daily index development process.) The chart below was published by the RBA yesterday. It illustrates RP Data-Rismark's daily index data through to the end of May (i.e., it does not include the latest June data). Further to my <a href="https://christopherjoye.blogspot.com.au/2012/07/house-price-indices-for-dummies-redux" target="_blank">post here</a> on different house price measures, I would note that the RBA's team of 100-plus economists can use whatever house price data that they deem provides the best possible insights into the market. In every quarterly Statement on Monetary Policy the RBA chooses to report three different indices – from RP Data-Rismark, APM and the ABS – although the charts in the SMP, and the RBA's official conclusions in the text, all normally reference the RP Data-Rismark findings.
For the avoidance of doubt, the RBA does not rely exclusively on any one index provider. The RBA inspects and analyses at least three (i.e., RP Data-Rismark, APM and the ABS). But given the significant differences in the technical methods, it has developed preferences over time.
 
<img src="/images/stories/2012/07/rbajuly4.png" style="display: block; margin-left: auto; margin-right: auto;">
Christopher Joye is a leading financial economist and a director of <a target="_blank" href="https://www.ybr.com.au/savings/index.cfm">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
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The house price data the RBA uses: Christopher Joye

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Guess what? Contrary to the silly claims of some, Australian house prices are not falling through the floor. In fact, Aussie dwelling prices surged back by a surprisingly strong 1% in the month of June assisted by a tail-wind in the form of the RBA’s generous rate cuts over the preceding 60 days. And these gains (not losses) were experienced by around 90% of the nation’s capital city owners. 
Over the entire month of June, RP Data-Rismark’s “daily” hedonic index, which RBA remarks imply is its preferred benchmark, documented healthy capital growth in Sydney (+1%), Melbourne (+1%), Brisbane and the Gold Coast (+1%), Perth (+2%), Hobart (+2.7%), and Canberra (+2%). Only Adelaide (-1.1%) and Darwin (-0.7%) suffered losses. 
The first chart below illustrates the change in the value of homes situated in the major east coast cities while the second includes the remaining conurbations. As I correctly anticipated in <a target="_blank" href="https://www.businessspectator.com.au/bs.nsf/Article/house-prices-interest-rates-RBA-property-housing-m-pd20120622-VH4AZ?OpenDocument&amp;emcontent_spectators">this column</a> two weeks ago, it would appear that the RBA’s 75 basis points worth of rate cuts over May and June, which have translated into about 55 basis points worth of variable lending rate reductions, has had a rapid impact on housing conditions. Indeed, the commonality in the recovery in home values across most cities since the end of May is arresting.
Click to enlarge
<a title="Click to enlarge" rel="shadowbox" href="/images/stories/2012/07/july2.gif"><img src="/images/stories/2012/07/july2thumb.gif"></a>
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<a title="Click to enlarge" rel="shadowbox" href="/images/stories/2012/07/july22.gif"><img src="/images/stories/2012/07/july22thumb.gif"></a>
Whereas at the end of May the year-to-date change in Australian dwelling values was estimated to be -2.2%, this has now fallen to just -1.2% as at June 30. It is entirely conceivable that the Australian housing market could end the year in the black. 
Rismark’s quantitative forecasting models, which are used by banks, insurers and various government agencies, imply that national dwelling values will be flat over the next 12 months, which would be a materially better outcome than the 3.8% nominal loss experienced in 2011 (according to RP Data-Rismark’s eight capital city index). 
One of the most significant insights from the June data release was the exceedingly sharp improvement in Melbourne conditions. Melbourne home values have jumped 1.7% since June 11 alone (refer to the back line in the first chart above).  Regular readers will recall that Melbourne dwelling values appreciated by a remarkable 35% between January 2009 and December 2010. Yet the indigestion caused by this boom – and Melbourne’s unusually low rental yields – arguably contributed to a circa 8% correction in the period since. 
The June data offer the first preliminary signs that the RBA’s preparedness to slash rates may have helped break the back of Melbourne’s housing malaise. And the sensational auction results garnered by Channel 9’s The Block show last night do nothing to dispel this possibility. 
RP Data-Rismark’s June findings are also impressive because their daily index numbers represent actual changes in dwelling values; that is to say, there has been no “seasonal adjustment”. We know that the winter months of May through August, and June and July especially, are typically very weak. So in “seasonally adjusted” terms, the capital gains recorded in June would have been larger again. 
Dispassionate analysis reveals that Australian housing market’s fundamentals look increasingly benign. The national dwelling price-to-income ratio is at its lowest level since March 2003. (In fact, applying Rismark’s hedonic adjustments, disposable household incomes have grown more quickly than house prices for the past nine years.) As the RBA’s Dr Guy Debelle <a target="_blank" href="https://boardroom-pc.streamguys.us/files/RBA/RBA20120626_GD/">pointed out last week</a>, mortgage arrears remain low, and there is no evidence of overbuilding. Indeed, most credible experts, such as the government’s independent <a target="_blank" href="https://www.nhsc.org.au/">National Housing Supply Council</a>, have concluded that there is a structural housing shortage. The labour market is purportedly close to being fully employed, while wages have been expanding at a healthy clip. Finally, all-important mortgage rates are way below their long-term averages. <a target="_blank" href="https://www.ubank.com.au/ub/web/home">Banks are offering</a> discounted variable rates and three-year fixed rates today as low as 5.62% and 5.75% per annum, respectively. 
It will be fascinating to see how the Sydney and Melbourne broadsheets cover the June house price results given their predilection for peddling gloom in favour of more sober analysis. This persistent bias in popular reporting has led RBA governor Glenn Stevens and other senior media commentators, such as Ross Gittins, to argue that some in the media are misleading the community as to the true state of our economy. This may help explain why many confidence surveys depart so dramatically from the real economic data.
Christopher Joye is a leading financial economist and a director of <a target="_blank" href="https://www.ybr.com.au/savings/index.cfm">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
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Recovering house prices across most Australian capitals buck the typically weak June trend: Christopher Joye

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In encouraging news for prospective property owners, Aussie housing continues to get cheaper when deflated using disposable incomes. According to Rismark, Australia’s all regions, average dwelling price-to-average disposable household income ratio has fallen to around four times, which is its lowest level since March 2003 (abstracting away from a temporary dip during the GFC).
This analysis is based on both “average” and “median” dwelling prices calculated using all home sales recorded across the country during the March quarter. The quarterly income estimates are extracted from the ABS’s National Accounts data, which publishes a regular “disposable household income” aggregate. To translate this figure into a “per household” unit, Rismark divides through by the number of households each quarter. It is important to remember here that this income estimate reflects that there are multiple income earners per household, and is an “average”, not a “median”, and likely to be biased upwards somewhat due to right-skew in the distribution of incomes.
Click to enlarge
<a href="/images/stories/2012/06/june281.gif" rel="shadowbox" title="Click to enlarge"><img src="/images/stories/2012/06/june281thumb.gif"></a>
The second chart below seeks to remove one of the main “non-cash” items that is captured in the ABS’s disposable household income series: “imputed” owner-occupied rents, or the rents you effectively save by buying a home rather than renting it. As you can see, this boosts the dwelling price-to-income ratio to about four and a half times.
Click to enlarge
<a href="/images/stories/2012/06/june282.gif" rel="shadowbox" title="Click to enlarge"><img src="/images/stories/2012/06/june282thumb.gif"></a>
The exact levels of the price-to-income ratio are relatively trivial: it is the change in the ratio over time that affords much more useful insights.
From the analysis above we can infer several things. First, disposable household incomes in Australia have grown as quickly, if not more quickly, than nominal Australian house prices over the last nine years. Indeed, when we measure changes in house prices more precisely using a “hedonic regression” technique, we arrive at even lower house price inflation numbers. In particular, we find that disposable incomes have actually out-paced house prices by about 15% over this period.
A second learning is that the price-to-income ratio seems to have risen by about one-third from circa three times to four times since 1993. In fact, there was a very distinct regime change in the late 1990s and early 2000s.
There is a sound explanation for this innovation: the long-term cost of mortgage debt in Australia declined by north of 40% between 1980 and 1995, and 1995 and today. This was largely a function of the long-term reduction in realised inflation and measured inflation expectations, which in turn allowed Australia’s central bank, the RBA, to permanently lower its cash rate.
The radical reduction in the day-to-day cost of mortgage debt permitted Australian households to significantly increase the amount of debt they were servicing without a noticeable rise in underlying mortgage default rates. Notwithstanding a peak in headline mortgage rates of around 9.5% in August 2008, system-wide arrears have remained no higher than their last spike in 1994-95.
Here we are able to document another development. The striking rise in Australia’s household debt-to-income ratio from the mid-to-late 1990s onwards ceased altogether in about 2006, a year or two prior to the onset of the GFC. That is, credit growth started tracking income growth, which is what you would expect through the cycle. Households evidently discovered that they had maxed out their debt servicing capability, and rationally stopped leveraging up.
Rismark’s price-to-income ratio analysis does not, of course, account for changes in interest rates. Today mortgage rates are well below their long-term averages. You can get discounted variable rates as low as 5.6% per annum, and three-year fixed-rates at about 5.8% per annum.
Factoring in the change in both incomes and interest rates is important. As one exercise, Rismark took the median Australian dwelling price in 1985 and indexed it up by changes in per household disposable incomes and adjustments in borrowing capacity afforded by changes in mortgage rates (i.e., holding the repayment-to-income ratio constant).
Rismark found that they could explain 93% of the actual increase in median Australian house prices over the 1985 to 2011 period simply referencing these two variables.
Christopher Joye is a leading financial economist and a director of <a target="_blank" href="https://www.ybr.com.au/savings/index.cfm">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
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Australian housing at its most affordable level for nine years: Christopher Joye

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Have the RBA’s relentless rate cuts had any impact on Australia’s housing market? Today we are going to find out.
One of the important benefits of the new “daily” RP Data-Rismark house price index suite is that we get very timely updates on the current market pulse. I am going to use these indices to look at the performance of both the national market and some of the individual capital cities. Before I do, a word on the underlying data.
When analysts think about house price data they typically do so from two perspectives. The first asks the question: what is happening to “actual” prices; that is, the prices that home owners transact at. The second queries how house price movements compare to similar periods over time; more specifically, this approach seeks to strip out the strong “seasonality” that house prices display at various points during the year.
Both techniques have their merits. Indeed, analysts should always be mindful of the two. On the one hand, there is an argument that we do not normally “seasonally adjust” asset price (or financial market) data, such as stocks, bonds, or commercial property prices. So if you want to measure actual or realised investment returns, you must use the raw housing data.
On the other hand, analysts also want to understand whether current market dynamics are unusually strong or weak. For example, Australian house prices normally fall in the month of December. Accordingly, price declines in December do not actually signal a deteriorating market. This is just what usually happens when the market shuts down over the Christmas break. By seasonally adjusting the December data, we can arrive at more sophisticated conclusions as to the market dynamics at that particular juncture.
In Australia, the housing market becomes seasonally weak during the winter months of May through August, inclusive. With this observation in mind, I will leverage off the raw house price indices for today’s purposes.
In my first chart, I have illustrated the national, eight capital city, “all dwellings”, index. This shows us the change in the value of the housing stock, including both detached homes and units, across all the capital cities on a value-weighted basis. And we can identify four distinct market phases in the year-to-date.
Click to enlarge
<a title="Click to enlarge" rel="shadowbox" href="/images/stories/2012/06/june221.gif"><img src="/images/stories/2012/06/june221thumb.gif"></a>
Over the month of January national dwelling values declined by about 1%. They then fully recovered this loss over the seasonally robust months of February and March. Indeed, homes values continued grinding out gains through to the 15th of April.
Now recall that the RBA cut rates in November and December. Yet the banks unilaterally jacked rates back up in February by 10 to 15 basis points, and one of the major banks, ANZ, hiked by another 15 basis points in the middle of April.
So before the May rate cuts, Australian borrowers had been effectively subject to an interest rate increase over the first four months of the year, which arguably did much to diminish the impact of the December relief.
As we can see from the chart above, Australian home values weakened noticeably from mid-April through to the end of May. This is not overly surprising. While the RBA cut rates by a super-sized 50 basis points on 1 May, the major banks did not respond until the end of the second week of the month. And many lenders delayed the introduction of the actual rate reductions until the end of the month.
Rightly or wrongly, the RBA followed up the May cuts with a third in June. And we can see in the chart that it was at this time – or, more exactly, at the end of May – that Australian home values started grinding out capital gains again. The fact that house prices have been rising in June is especially encouraging given the typically adverse seasonality that grips during the winter period.
What about the individual capital cities? My second chart displays the index data for Sydney, Melbourne, Brisbane, Canberra, the Gold Coast and Perth.
Click to enlarge
<a title="Click to enlarge" rel="shadowbox" href="/images/stories/2012/06/june222.gif"><img src="/images/stories/2012/06/june222thumb.gif"></a>
There are probably three things to take away from this. First, far and away the worst performer has been Melbourne, which as our second largest city, has been dragging down the national numbers. There are, however, some tentative signs that Melbourne values are stabilising.
The second point of note is that all cities included in the chart, and notably Brisbane and the Gold Coast, have recorded synchronous recoveries since in or around the end of May. As I have highlighted before, Sydney’s market led the charge, reacting most quickly to the May rate cuts.
Crucially, home values in the Gold Coast, Sydney and Canberra are all higher than they were at the end of 2011. Brisbane and Perth home values are down very slightly, while Melbourne is evidently still digesting the extraordinary 35% growth in capital values over 2009 and 2010. In the year-to-date Melbourne values are down a chunky 5%, although they have started inflating again in June.
Rismark’s latest forecasts for the national housing market imply that home values will be broadly flat over 2012, albeit with some cross-sectional diversity. Rents, in contrast, are expected to rise at a healthy pace, which means that yields should also continue to increase.
There are grounds for optimism over the remainder of the year. Today borrowers can avail themselves of historically very low mortgage rates: lenders like UBank are offering 5.62% per annum variable rate loans, while you can fix your rate for three years at just 5.75% per annum.
As I have demonstrated in previous columns, the vast bulk of the overall losses in Australia’s housing market since the start of 2011 have been concentrated in the “luxury” segments. This is in turn being driven by the permanent downward shift in the earnings expectations of financial services employees, who benefited from 20 years of extraordinary growth prior to the onset of the GFC.
This dynamic is akin to a company that suddenly downgrades its future cashflow projections – the stock price will fall accordingly. In the ultra-luxury $3 million-plus markets, participants are witnessing very steep valuation adjustments. Eventually asset prices in these areas will find a base. 
Yet the median home owner in Australia is buying a property worth about $400,000 while more than 80% of all sales are for dwellings priced less than $700,000. Across the mass housing market, capital losses since January 2011 have been very modest at less than 3%.
Christopher Joye is a leading financial economist and a director of <a href="https://www.ybr.com.au/savings/index.cfm" target="_blank">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
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Interest rate cuts starting to stimulate house prices: Christopher Joye 

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What “real” (i.e., after inflation) rate of return should you expect to earn on your savings over the long run? The governor of the Reserve Bank of Australia, Glenn Stevens, offered an unsolicited answer to this thorny question in not one, but two, speeches delivered during the past week.
Central bank governors don't typically wander out in public and proffer specific point estimates for expected through-the-cycle returns generated by diversified investment portfolios. So a related ponderable is why Stevens would engage in such an exercise.
One possible answer is that he was seeking to condition community beliefs. Now this is a valuable undertaking. The next step in Stevens’s argument, which he did not articulate, is that if investment returns in the future are much lower than they were in the past, households will need to do more saving in order to fund their retirements and adequately mitigate the rather perverse “longevity risk” that retirement brings.
In his optimistic “<a target="_blank" href="https://www.rba.gov.au/speeches/2012/sp-gov-080612">Glass Half Full</a>” speech last week, which came hot on the heels of Australia’s exceptionally healthy GDP and labour market data (to say nothing of three rate cuts in two months that have radically reduced the real returns earned by savers),  Stevens argued that household wealth “will surely resume an upward track, sooner or later”.
Now if you want to be negative, this contention is debatable, and the experience of Japanese savers is a sobering counterfactual. But let’s assume Stevens is on the right track and that there are credible differences – population growth chief among them – that argue against a convergence in Australia and Japan’s economic destinies.
Stevens’ key message was that the returns savers realise in the future will probably be less than half of what they have earned over the last 10 to 15 years. More exactly, he said, “When [wealth does start rising again] … it is unlikely to be at 6 or 7% per year in real, per capita terms. I would guess that over the long term, something more like 3% would be nearer the mark.”
In his second speech, the governor obliged with a more detailed exposition. In particular, he presented the chart enclosed below sketching the after-inflation change in real, per capita household asset values over time. The insight he wanted leave us with was that the 6.4% per annum growth rate earned over the 1995 to 2005 period was historically exceptional. In fact, over the three decades that preceded it the average rate of household asset price appreciation in real per capita terms was closer to 3% per annum.
<img src="/images/stories/2012/06/rbajune15.gif">
 If Stevens is right, savers should budget on total net nominal asset price growth of about 6% per annum – i.e., adding in expected future inflation of about 3% per annum – across a well-diversified portfolio comprising, as it historically has, exposures to cash, shares and property.
For the avoidance of any doubt, Stevens believes this is a big deal: “I think this is a profoundly important point and worth emphasising. The decade or more up to about 2007 was unusual. It would be quite surprising, really, if the same trends – persistent strong increases in asset values, very strong growth in per capita consumption, increasing leverage, little or no saving from current income – were to re-emerge any time soon.”
Another way to define asset price growth expectations is to look at sustainable, or “steady-state”, rates of economic growth. One school of thought says that no individual sector can outgrow the overall economy for any lengthy period of time, or it will eventually become bigger than the economy itself.
Since 1974, Australia’s real (after inflation) economic growth rate has been 3.1% per annum. But underlying this figure is quite a bit of population growth. As the population expands, we tend to produce more. If we, therefore, strip out population growth, we find that real per capita economic growth has only been about 1.7% per annum.
As I have shown before, Australia’s central bank has a strong statistical bias to overshooting, rather than undershooting, the mid-point of its “thick” 2-3% inflation target. Over the last decade, core inflation has averaged about 3% per annum. And there is mounting evidence that inflation targets are becoming less important to central banks, including Australia’s, as they wilt under community pressure to foster growth.
Let’s nevertheless assume that future inflation remains contained at about 3% per annum. Combining this with our real per capita economic growth estimate of 1.7% per annum gives us future nominal growth of about 4.7% per annum.
Observe that both these numbers are significantly lower than the figures offered by Stevens: he gave us a real asset price growth estimate of 3% per annum, which in my nominal terms would be closer to 6% per annum.
What might explain this disconnect? In all likelihood, the fact that the household sector is a major supplier of riskier “equity” capital for both listed companies (i.e., shares) and property. Who, then, provides the non-equity, or debt, capital? The banks and bond markets.
When thinking about investments, people forget that the share market is a leveraged play on the Australian economy. That is, most listed companies fund themselves with a combination of debt from the banks or bond markets, and equity capital from shareholders.
The same underappreciated insight applies to housing. Over the last 25 to 30 years, Australian residential real estate has generated a total net return (including both capital gains and rents after transaction costs but before taxes) of about 10% per annum.
Yet gearing across the entire housing market is about 30%, and for those property investors with some debt (as opposed to those that have paid it off), gearing rises to around 45%. Thus the actual returns to equity investors in housing would be significantly higher than the 10% figure I quoted above. This makes intuitive sense because, like equities, an individual property has very high return volatility of about 15% per annum.
So irrespective of whether you are an investor in shares of Australian listed companies, which in the non-bank sector have average gearing of about 25% (note the banks are leveraged about 20 times), or in residential real estate that offers even more attractive leverage of up to 90% at lower rates of interest and longer terms, your “equity” returns (and risks) are going to be greater than the blended equity plus debt returns reflected in my aggregated 4.7% per annum asset price growth estimate. This blended return is like averaging the returns that both the bank and you get.
And this analysis probably helps explain the difference between real per capita economic growth of 1.7% per annum and real household asset price appreciation (in per capita terms) of more than 3% per annum.
Christopher Joye is a leading financial economist and a director of <a href="https://www.ybr.com.au/savings/index.cfm" target="_blank">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
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Savers’ returns in the future will be much lower than they have been in the past 15 years: Christopher Joye

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RBA governor Glenn Stevens delivered a 'solid' <a href="https://www.rba.gov.au/speeches/2012/sp-gov-080612">speech</a> last week. Solid being a favoured, if over-exercised, bromide for central bankers. Stevens made a few interesting remarks, which, if I can say so, echoed points I've consistently pushed here.
First, the local media and local economists have not been dispassionate in assessing Australia's economic circumstances. As I've said before, if you predicted a raft of rate cuts late last year on the basis of a weak Australian economy, you were indisputably right for the wrong reasons. Stevens comments:
“Yet the nature of public discussion is unrelentingly gloomy, and this has intensified over the past six months. Even before the recent turn of events in Europe and their effects on global markets, we were grimly determined to see our glass as half empty. Numerous foreign visitors to the Reserve Bank have remarked on the surprising extent of this pessimism. Each time I travel abroad I am struck by the difference between the perceptions held by foreigners about Australia and what I read in the newspapers at home.”
The good news is that Stevens's speech has had an immediate impact on editorial behaviour and hamstrung the more hysterical gloomers. Most of the major media outlets have jumped aboard, with a notable shift in the tenor of output in the big broadsheets. Let's see how long that lasts.
The second point, which Stevens would never admit, is that the RBA are worried about the effects of excessively low interest rates on asset prices, and housing in particular. This has been compounded by the fact that the RBA made a policy mis-step in cutting rates too hard between November and now on the basis of flawed survey data, financial market speculation, and subjective forecasts.
In his speech, I was intrigued to see Stevens warning Australians against relying on trend house price growth and defensively arguing that the RBA was not cutting interest rates to bolster asset prices. For mine, this is a subtle tell apropos the RBA's policymaking mistakes. Suddenly it is worried about unintended consequences:
“You don’t have to be a believer in bubbles to think that a return to sizeable price increases and higher household gearing from still reasonably high current levels would be a risky approach. It would surely be a false basis for confidence. The intended effect of recent policy actions is certainly not to pump up speculative demand for assets.”
This is not exactly right. First, the RBA thinks there has been massive underbuilding in the housing sector and would like to see a big increase in appropriately located and constructed housing supply over the years to come. The central bank has said this repeatedly.  Second, the RBA (now) knows – as I warned years ago – that it is not going to get investments of scarce capital in risky housing supply while asset prices are declining.
The most germane thing about asset prices is this. On the one hand, the RBA knows that the Australian banking and mortgage insurance systems have been heavily criticised by institutional investors for their high exposures – 60% on average for the banks – to Australia's supposedly over-valued housing market. This is unambiguously regarded as Australia's number-one macroeconomic risk. The RBA spends considerable time and effort meeting privately with global investors trying to convince them otherwise.
The RBA further knows that if house prices were to decline materially, it would imperil the entire financial system. The disaster-delivery-device would, of course, be the banks. Slumping prices would slash the value of collateral on bank balance sheets. This could cause credit rationing that further accentuates the price falls, and so on. Rest assured, the RBA would do everything possible to resist this outcome, and would absolutely use interest rates to support asset prices. This is an integral part of the RBA's "financial stability" mandate, which it is very focused on.
It is also true that the RBA has been somewhat unnerved by the recent house price action, with, thus far, a failure to see any obviously positive response to the central bank's anxious cuts.
Now I don't think there is much chance of this negative asset price/bank credit rationing feedback loop coming to pass. But it is precisely the sort of scenario that gives Glenn Stevens and Phil Lowe heart palpitations.
(As a technical aside, I think it is fascinating to see the RBA referencing Australia's new "daily" house price index data, noting that while prices stabilised in the first four months of 2012, they started slipping again over mid-April and May.)
 
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Recent RBA rate cuts have, therefore, been motivated partly to afford some relief to the struggling housing sector. And there would be much more if the value of housing started plummeting.
This brings me to a third observation. The RBA saw house prices surge nearly 14% across Australia's capital cities in 2009 in response to its ultra-low rates. It watched as Melbourne house prices jumped a remarkable 35% over 2009 and 2010. It genuinely wants to avoid a repeat of this saga. That is to say, it does not want to have to slash rates to the point where they start stimulating unseemly asset price growth.
A fourth nugget buried in Stevens's speech was his belated nod in the direction of Australia's poorly served, and numerically superior, savers (as opposed to borrowers), which regular readers would know has been a topic of much discontent here:
“We cannot neglect the interests of those who live off the return from their savings and who rightly expect us to preserve the real value of those savings. Popular discussion of interest rates routinely ignores this element, focusing almost exclusively on the minority of the population – just over one-third – who occupy a dwelling they have mortgaged. The central bank has to adopt a broader focus. And to repeat, it is not our intention either to engineer a return to a housing price boom, or to overturn the current prudent habits of households. All that said, returns available to savers in deposits (with a little shopping around) remain well ahead of inflation, and have very low risk.”
I would contend that on the basis of the latest information, the real returns being earned by Aussie savers are probably 50-70 basis points too low, especially if you assume core inflation rises in quarter two as a function of fading tradeable disinflation.
Current monetary policy settings reflect too much questionable insurance and not enough fact. Don't get me wrong. The world could end next month, and, as I've explained in detail before, the RBA could be easily compelled to cut the cash rate to 1.9% or lower. But that is not my expected "modal case" for policy right now.
Finally, Stevens returned to a favourite narrative, which I have highlighted in recent presentations. And that concerns the migration of the global centre of economic gravity away from the North Atlantic towards "Chindia". This has been an entirely unplanned and coincidental boon for resources-rich Australia, which hubris-laden policymakers have resisted acknowledging as a critical explanatory variable in our post-GFC economic performance. Stevens redresses this imbalance somewhat, which was comforting to see:
“We face a remarkable period in history. The centre of gravity of the world economy seems to be shifting eastwards – towards us – perhaps even faster than some of the optimists had expected. Granted, that is partly because the relative importance of Europe seems to be shrinking, perceptibly, under the weight of its internal problems. But even if the Europeans manage the immediate problems well, there is no mistaking the long run trend. That this comes just as a very unusual period for household behaviour in Western advanced countries (including Australia) has ended, has been a remarkably fortuitous combination for Australia.”
Christopher Joye is a leading financial economist and a director of <a target="_blank" href="https://www.ybr.com.au/savings/index.cfm">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
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The RBA knows a material housing price decline would imperil the entire financial system: Christopher Joye 

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So it’s now official. All the analysts, commentators, and policymakers who told you that Australian economic growth was decelerating, “sub-trend” (a popular phrase), “modest”, “below capacity”, or about to head into recession were woefully misguided. Anyone who predicted interest rate cuts over 2011 and 2012 on the basis of a weak domestic economy was right, but for the wrong reasons.
Indeed, if the “sub-trenders” had any intellectual honesty, they would be calling for a spate of rate hikes right now. If the (falsely, and now revised) low real GDP print in the final quarter of 2011 was grounds for hysterical calls for cuts, the last four quarters of growth data combined with the many months of jobless rate data are surely an even more persuasive basis for hikes? One of the smartest strategists in Australia did write to me today, unsolicited, and state, “I was wrong – economy doing OK…[and] yes, you were correct.”
Australia’s economic growth rate over the last four quarters has been a stunningly strong 4.3%, well in excess of estimates of the trend rate of growth of around 3% per annum. Australia’s jobless rate was just 5.1% in May, slightly up from a revised 5% in April, but down on a three-month moving average basis from 5.2% in March. Since 1990, the jobless rate has averaged 6.9%.
At the same time, we know that business investment continues to boom (and businesses plan to invest at record rates for years to come), household consumption, which is the biggest driver of economic growth, is expanding at a rate way above historical trend, housing credit growth is tracking incomes very closely, which is what we would expect, and the total wages bill rose at an above-trend pace in the first quarter.
Based on the information we have available to us today, the RBA’s pre-November monetary policy settings—remember they take 12 to 18 months to have their full effect—were pitch perfect, as I  argued in the past. It was those settings, and not subsequent cuts, that gave us a more acceptably low inflation rate.
Those calling for savage rate cuts in the second half of last year badly misread the economy. The bottom line is, as both Professor Warwick McKibbin and I have previously argued, if you assume the appreciation of the Australian dollar was a once-off event, there was no domestic economy basis for rate cuts as the inflation benefits (in late 2011 and early 2012) would be temporary.
The RBA board and its staff have a lot of explaining to do for their post-November decision-making. Governor Glenn Stevens has repeatedly told the community that the RBA does not believe it can forecast with accuracy over the long term. He repeatedly pushed the notion that it needed to focus on “nowcasting” in justifying its rate cuts in late 2011. When the RBA got a downward revision to the second quarter inflation data in June 2011 from 0.8% to 0.6%, it used this data point to materially change the stance of monetary policy from restrictive to neutral. But it turned out that this core inflation estimate was wrong: it subsequently got revised back up to an unacceptably high 0.8%.
As any inflation forecaster knows, you do not get a consistently low inflation rate with real GDP growth of 4.3% per annum, an unemployment rate of 5.1% and a currency that is stable or declining.
In the latest inflation numbers, domestic (or so-called “non-tradeable”) inflation printed at around 3.5%, well above the RBA’s 2-3% per annum target. Australia’s low inflation pulse in late 2011 and early 2012 was being driven mainly by internationally priced goods and services (or so-called tradeables), which were actually falling in value as a result of the temporary currency appreciation.
So something important in the RBA’s decision-making changed late last year. It stopped nowcasting and started forecasting. It increasingly ignored the very low unemployment data despite the fact that the unemployment rate is the single most important variable in its inflation forecasting models.
It has ignored a great deal of “partial” data – business investment, household consumption spending, wages, domestic demand, and even the narrowly measured monthly retail data – and calibrated policy on the basis of utterly subjective and, it appears, quite incorrect forecasts.
 
 
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In a tiny cohort of analysts – including Adam Carr – I have consistently argued that the December, May and June rate cuts were unnecessary (and received immense push-back for doing so). I’ve maintained that the RBA was bowing to pressure from a community that has not seen a recession since 1991, a public that has become incredibly complacent, with many generations having been exposed to declining interest rates and a falling unemployment rate for most of their lives. The RBA has been relentlessly bullied by both sides of politics and their proxies (e.g., leading union officials and aligned commentators), and, we know, the six private sector doves that dominate the RBA’s board (to say nothing of the Treasury Secretary).
It is clear that the RBA has rejected its own decision-making logic by setting policy not on hard and dependable economic data, but rather on the basis of speculation and, most worryingly, financial market expectations.
The RBA’s inflation forecasts are now all wrong. The pulse of economic growth is much higher than it has assumed. The unemployment rate is well below the 5.5% it expected. Even after today’s terrific jobs report, the Aussie dollar is still materially lower than the 103 US cents it presumed (as are oil prices).
I coined a term late last year: the “Glenn Stevens put”, which insinuated that the RBA was doling out insurance to vested interests and the financial markets when it had no business doing so.
It has punished hard-working Australian savers in preference for less prudent borrowers. On the basis of today’s data, interest rates in Australia are probably a good half to three quarters of a percentage point lower than they need to be.
There are certainly no signs of a household deleveraging induced recession in the manner predicted by the likes of Steve Keen. Sure, house prices have endured a modest correction. Yet this has been largely driven by the luxury sector.
Since January 2011, 80% of all Australian suburbs have experienced total house price declines of less than 3%. Yet the most expensive 20% of suburbs have suffered house price falls of around 7%.
One of my regular memes has been that we have had a valuation re-rating in the million dollar-plus market due to the (permanent) contraction in financial services earnings growth. That’s not a bad thing.
The droves of analysts that called for much lower rates on the basis of sub-trend economic growth should front up and admit they were wrong. An inquiry is needed into the RBA board’s decision-making processes, which appear predisposed to persistent error.  Australia’s average core inflation rate since 2001 has been amongst the highest of our developed country peers. At a minimum, we need to get rid of the RBA board’s highly conflicted private business sector executives and replace them with professionals who understand how the aggregate economy works.
Christopher Joye is a leading financial economist and a director of <a href="https://www.ybr.com.au/savings/index.cfm" target="_blank">Yellow Brick Road Funds Management</a> and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author’s personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.
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The RBA has gotten it entirely wrong – the economy growth rate is stunningly strong: Christopher Joye

The idea of a low-maintenance forever home located close to the city were the two driving factors behind a recent purchaser’s journey at Murcia, the under-construction East Brisbane apartment development by Sarazin.

Last year, Lois and her husband purchased a two-bedroom plus multi-purpose room (MPR) apartment in the new building, which is being constructed by Hutchinson Builders and is on track for completion in late-2027.

[smartcode_project:default project_id=135094 project_image_fid=341638]

The couple’s number one priority was to remain within easy commuting distance of the city for work. Murcia is positioned alongside the new Cross River Rail, with Woolloongabba Station just 300 metres from the front door.

They are currently living in their Annerley unit, which they have owned for several years, after recently moving out of their inner-city apartment, located on the very same street as Murcia.

“We had watched the development for a long time, and when construction activity began, that’s when we felt confident to buy,” Lois said.

[smartcode_project:default project_id=135094 project_image_fid=356540]

The timing also made sense. By moving back into their Annerley unit, they are able to save money ahead of settlement, while looking forward to returning closer to the city once Murcia is complete.

“We see Murcia as a forever home, as opposed to an investment, or something we need to appreciate massively in value and move on from in a few years,” Lois said.

“We secured an apartment large enough to grow a family, so we’re expecting to call Murcia home for a very long time.”

The couple plan to grow their family, but without the added maintenance demands of owning a standalone house further from the city. Working with Sarazin and architect HAL, they were able to slightly tweak the floorplan, converting the two-bedroom plus MPR layout into a functional three-bedroom apartment.

An added bonus was the recently revised communal space plans, which now incorporate a dedicated working-from-home area, complete with work pods, and shared desks.

“It means the third bedroom doesn’t have to become a part-time office and part-time bedroom,” Lois said, adding that residents have the benefit of working from home without actually being inside their apartment.

The rooftop wellness amenity was another standout compared to living in an established complex or a house. A signature feature of Sarazin developments, the rooftop will include a full gym, hot and cold plunge pools, a steam room and sauna, and a hotel-style pool with cabanas.

[smartcode_project:default project_id=135094 project_image_fid=214682]

Buyer journeys can vary significantly, from purchasing in the established market to buying new, or choosing between houses and apartments. Lois said they knew immediately that buying off the plan was right for them.

“We wanted something new, with less maintenance, and we weren’t quite ready to make the full financial leap straight away. The timing and deposit structure gave us the flexibility we needed.”

Designed by HAL Architects and inspired by the Spanish city of Murcia, the development takes a Mediterranean-influenced approach to architecture and landscaping, with a strong emphasis on shared spaces.

“The design feels considered, the amenities support how we actually live, and the location keeps us connected to the city without feeling right in the middle of it.”

Murcia is Sarazin’s second development in the area, following the completion of Silk One just up the road in 2022. They have several more projects coming to market in Woolloongabba ahead of the 2032 Brisbane Summer Olympics.

[smartcode_project_cta:default project_id=135094]

Joel Robinson

Close to the city, built for the future: Inside a growing family’s move to Murcia in East Brisbane

While most developers are aiming high across the Gold Coast, John Kearney’s <a href="https://www.apartments.com.au/developers/immerse-projects">Immerse Projects</a>&nbsp;has scaled back its plans for its Kirra Beach project.

As first reported by Apartments.com.au in April 2025, Immerse <a href="https://www.apartments.com.au/news/qld/first-look-immerse-projects-plan-new-apartments-at-kirra-beach">lodged plans for 105 apartments</a> on its 2,026 sqm Haig Street site.

The developer has now revised the proposal, reducing the 14-storey building to nine storeys and cutting the total number of apartments from 105 to 65.

The new scheme will also feature a broader mix of apartments. It will comprise 23 two-bedroom units, 17 three-bedroom units, and 25 four-bedroom apartments, the latter a configuration that was not included in the original proposal.

<img alt="Lot 11 C2859, 7 Haig Street, COOLANGATTA QLD 4225" data-entity-type="file" data-entity-uuid="972e3bbf-c3e6-4308-b098-5821e571f829" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Haig%20Street%20perspective%201.png?VersionId=3jkyNU0n7TW08DpkoEsY62bXWTb3UHxY" />

The building will rise to a compliant height of 29 metres, aligning with the Building Height Overlay.&nbsp;

The built form incorporates three basement levels accommodating 197 resident car parks and 13 visitor spaces, alongside storage and servicing areas. Level two is dedicated in part to communal amenity, including a lap pool along the western boundary, pool deck, spa and cold plunge pools, gym, work-from-home and meeting spaces, and landscaped areas designed to enhance privacy and outlook.

The typical floorplate will have eight apartments per level.

<img alt="Lot 11 C2859, 7 Haig Street, COOLANGATTA QLD 4225" data-entity-type="file" data-entity-uuid="002d2594-9cf4-4ee4-bb2a-9a0546ac1cc5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Haig%20Street%20site.png?VersionId=Qk.Cm0K9RziXrWu0Q4u2eOjEM3CwNhhC" />

The subject site is currently occupied by two 1970s-era walk-up buildings, Giraween and Caribbean, comprising 14 apartments.

Immerse Projects, led by building veteran John Kearney, who also heads construction firm Greyburn, has become increasingly active in the Kirra and broader southern Gold Coast market. The group recently completed Rhyhthm Kirra Hill on Garrick Street. They have another site locally, on McLean Street, which has approved plans for 58 apartments.

First Look: Immerse favours four-bed apartments in Kirra Beach switch

The development wave is continuing in the affluent suburb of Woollahra following last year’s planning reforms introduced by the Minns Labor Government.

In early 2025, the NSW Government implemented significant changes to its Low and Mid-Rise Housing Policy, altering planning controls to allow greater density for new apartment projects within an 800-metre walking distance of stations and town centres in the Woollahra Local Government Area, overriding existing local controls. Buildings are now permitted to rise up to six storeys within 400 metres of a station or centre, or eight storeys where affordable housing is incorporated, and up to four storeys within the 401 to 800 metre radius, which can increase to six storeys with affordable housing.

Since then, a significant number of development applications have been lodged, and numerous sites have transacted, some at record highs, with the increased density provisions now working in favour of developers.

Lower North Shore developer Abadeen are behind the latest project. They are planning a six-storey residential building at 101–115 Edgecliff Road, on the border of Woollahra and Bondi Junction.

<img alt="First Look: Lindos Group plans six-storey adaptive reuse apartment project in Woollahra’s Fletcher Precinct" data-entity-type="file" data-entity-uuid="17a75a04-3ecd-4b0f-af9f-54514690721b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Edgecliff%20DA%20front.png?VersionId=r0MiKualBGqKrjVj6hJZHsEiwl9QzF0D" />

The proposal would replace a trio of interwar flat buildings on the amalgamated 1,514 sqm site, which has three street frontages to Edgecliff Road, Adelaide Street and Australia Lane.

Importantly, as noted in the documents, the project represents a 200 per cent increase in bedroom density, from 32 bedrooms to 66, rather than a significant increase in the number of apartments, which will rise only slightly from 28 to 29.

The scheme proposes four one-bedroom units, 13 two-bedroom units, and 12 three-bedroom apartments. The submitted planning documents note that, based on market research and background analysis, one of the primary target markets will be downsizers seeking to remain in the local area while moving out of larger freestanding homes they no longer require.

“This allows for new housing supply opportunities beyond just the subject site,” the Design Report by architecture firm Squillace states. The current unit mix comprises 24 one-bedroom apartments and four two-bedroom units.

The top level of the new development will feature a rooftop deck with a pool, barbecue facilities, integrated seating, and a communal vegetable and herb garden.

“Providing these facilities is beneficial in encouraging increased interaction between occupants, which in turn fosters a greater sense of community,” Squillace’s report notes. The firm adds that the vegetable and herb garden, in particular, offers social value, with volunteering opportunities creating further interaction among residents.

<img alt="First Look: Lindos Group plans six-storey adaptive reuse apartment project in Woollahra’s Fletcher Precinct" data-entity-type="file" data-entity-uuid="9619b7bb-291d-417a-a006-f36d14a97cb1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Edgecliff%20DA%20perspective.png?VersionId=PYeMKcgOnEV7XVztARQ_YVDlvHcuyZaW" />

Squillace describes the intent as delivering additional housing supply while maintaining the heritage character of the Fletcher Precinct.

“Our objective is to design a high-quality benchmark building that enables considered additions and the adaptive reuse of the existing three brick residential flat buildings,” the architecture firm states.

The site is located within a heritage conservation area, with all three existing buildings identified as contributory items in the Woollahra Development Control Plan. Rather than pursuing wholesale demolition, the proposal retains the primary brick façades and tiled pitched roof forms along Edgecliff Road and Adelaide Street. New upper-level additions are set back from the existing parapets and articulated with horizontal and vertical shadow lines to provide visual separation.

“The proposed design seeks to retain the primary brick façades and roof forms to the street, demonstrating how existing building fabric can be preserved while increasing housing density within conservation areas,” the report adds.

Prior to Christmas, around <a href="https://www.apartments.com.au/news/nsw/rose-bay-apartment-market-fires-up-with-200m-in-new-developments-filed">$200m of new projects</a> were filed in Rose Bay alone, within the Woollahra LGA.

The suburb of Woollahra is subject to the most change in the Woollahra LGA, with the&nbsp;Minns Labor Government to deliver&nbsp;Sydney’s first new heavy rail station in more than a decade, enabling up to 10,000 new homes by rezoning land around&nbsp;<a href="https://www.apartments.com.au/developments/woollahra-nsw-2025" target="">Woollahra</a>&nbsp;and&nbsp;<a href="https://www.apartments.com.au/developments/edgecliff-nsw-2027" target="">Edgecliff</a>&nbsp;stations.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/next-stop-woollahra-train-station-delivering-up-to-10-000-new-homes-in-the-heart-of-sydney">Next stop Woollahra train station - delivering up to 10,000 new homes in the heart of Sydney</a>

First Look: Woollahra development wave continues as Abadeen plots six-storey apartment block

<a href="https://www.apartments.com.au/new-apartments/crest-broadbeach-13-armrick-avenue-broadbeach-qld-4218">Crest Broadbeach</a> continues to record strong sales momentum more than a year after the launch of second tower, reinforcing buyer confidence in the <a href="https://www.apartments.com.au/developers/morris-property-group">Morris Property Group</a> development as construction progresses on site.

The two-tower project on Armrick Avenue is now around 70 per cent sold. Around 90 per cent of the apartments in the first tower have been snapped up, with more than 40 per cent of sales achieved in the second tower since its mid-2025 release. With both towers now under construction and completion targeted for late 2027, Crest continues to attract buyer interest well after its initial launch.

The project’s sales success reflects Morris Property Group’s long-standing commitment to premium locations, delivery certainty, and apartments designed for long-term owner-occupiers.

[smartcode_project:default project_id=112024 project_image_fid=343113]

Crest occupies a rare position on Armrick Avenue, a leafy Broadbeach address that has seen minimal apartment development despite the suburb’s wider growth. The site overlooks expansive green space, including Broadbeach Park and the neighbouring bowls club grounds, offering leafy outlooks and immediate access to open space just moments from the beach.

That scarcity has been a key driver of urgency, particularly among buyers seeking a full-time coastal residence in an area where new supply opportunities are increasingly limited.

Delivery certainty has also played a central role. Morris Property Group is delivering Crest using its in-house construction team, with both towers being built concurrently, providing buyers with clear construction visibility at a time when confidence in project timelines has become a decisive factor.

The developer’s long-standing presence in Broadbeach has further reinforced buyer confidence. Crest is Morris Property Group’s ninth apartment development in the suburb since 2006, following recently completed projects such as Malo Broadbeach and with Maison Broadbeach currently under construction nearby.

[smartcode_project:default project_id=112024 project_image_fid=5430]

Pricing has also been carefully positioned relative to comparable beachfront and near-beach product. With two and three-bedroom apartments starting from $1.199 million, Crest has attracted both local downsizers and interstate purchasers seeking value without compromising location or build quality.

According to Apartments.com.au enquiry data, interest has remained broad-based, with Queensland buyers forming the core market and New South Wales accounting for around 20 to 30 per cent of enquiries since early 2024.

Apartments have been designed with owner-occupiers in mind, prioritising generous floor plans, practical storage, and low ongoing costs. Hybrid timber flooring, Bosch appliances, ducted air conditioning with condensers positioned away from balconies, and low body corporate levies, averaging around $90 per week for two-bedroom apartments, have resonated with buyers planning to live in the building long term.

[smartcode_project:default project_id=112024 project_image_fid=286005]

Resident amenity has been curated to support everyday use rather than short-term spectacle, with a gym, pool, barbecue facilities and landscaped outdoor spaces integrated into the development.

As broader market conditions continue to reward projects that combine location discipline with delivery certainty, Crest’s sales performance highlights where buyer demand is consolidating in Broadbeach, towards established streets, proven developers, and apartments designed for permanence rather than turnover.

[smartcode_project_cta:default project_id=112024]

Sustained sales momentum underpins demand at Morris Property Group’s Crest Broadbeach

<article data-scroll-anchor="true" data-testid="conversation-turn-4" data-turn="assistant" data-turn-id="request-WEB:2cd0935f-64f2-4642-8736-f0c056a17aa8-1" dir="auto" tabindex="-1">
South East Queensland developer SIERA has lodged a development application for a 27-storey residential tower on Chevron Island, marking its third project in the Surfers Paradise area and second within the island precinct.

Designed by Gold Coast-based BDA Architecture, the proposal comprises 130 apartments across a slender tower positioned opposite Chevron Island Park. The 1,518 sqm site at <a href="https://www.apartments.com.au/new-apartments/17-19-anembo-street-surfers-paradise-qld-4217">17-21 Anembo Street</a> sits at the western entry to the island and offers protected view corridors towards the Nerang River and hinterland.

According to SIERA Founder Brent Thompson, the design intent has been to create what he describes as “a Queenslander in the sky,” with a narrow floorplate to minimise overshadowing, maximise cross-ventilation and respond to the subtropical microclimate.

The podium has been articulated with layered materials and cascading landscaping to provide a transition between the park frontage and the residential tower above. A full-floor communal amenity level on level four will capture elevated park and river views, providing residents with wellness and recreation facilities in a private setting.

<img alt="Siera" data-entity-type="file" data-entity-uuid="7d1008c8-e1b5-4923-a568-29f356068e3f" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-02-16%20at%204.06.44%E2%80%AFPM.png?VersionId=p_0qI12aHgz3M8aHFbUoduXBOKDhcrqV" />

Thompson said the project continues the developer’s focus on Chevron Island, a precinct he believes has been “significantly underrated” but is now gaining broader recognition.

“The demand we’ve seen at Tapestry, nearing sell-out and completing later in 2026, confirms this is where Gold Coast residents want to live,” he said.

“It offers something rare: quiet neighbourhood character with wide, tree-lined streets, genuine local amenity, cafes, quality restaurants, medical services, daily necessities, and excellent connectivity to the light rail, beaches, river and HOTA, without feeling touristy or transient. As one of only two true island residential communities on the Gold Coast with limited development opportunity, this will become one of the coast’s most coveted addresses for those seeking a genuine residential lifestyle.”

Chevron Island has undergone steady evolution in recent years, benefiting from its proximity to HOTA and improved connectivity to Surfers Paradise and the light rail network. Thompson described the location as presenting “a unique window of opportunity”, noting that while buyer activity is strong, “pricing hasn’t yet caught up to comparable locations.”

“For buyers who understand the precinct’s trajectory, particularly its proximity to HOTA and the cultural activation happening there, this represents compelling value,” he said.

Apartment configurations will comprise two- and three-bedroom layouts targeted primarily at local owner-occupiers. Thompson said the homes are designed for “practical living,” with natural light, cross-ventilation and generous outdoor spaces central to the planning approach.

“We’re not chasing volume,” Thompson added. “We’re focused on delivering projects in the right locations for genuine owner-occupiers. Chevron Island offers an incredible combination of lifestyle, connectivity and value that we believe is significantly underappreciated in the broader Gold Coast market.”

The Anembo Street proposal follows SIERA’s 113-apartment Tapestry development on Chevron Island, currently under construction and due for completion in 2026. The developer recently completed Pipis in Bilinga and is preparing to commence construction on <a href="https://www.apartments.com.au/new-apartments/exhale-surfers-paradise-8-enderley-avenue-surfers-paradise-qld-4217">Exhale</a>, a 54-apartment project in Northcliffe, Surfers Paradise, in the second quarter of 2026, with 40 per cent of apartments reportedly secured ahead of its formal launch.

SIERA operates as a vertically integrated builder-developer, managing acquisition, design, sales and construction in-house.

“We’re builders at heart who develop exclusively for ourselves,” Thompson said. “We don’t build for others; we refine what we do for our residents and owners. That focus allows us to control and oversee every detail, every communication, every interaction with stakeholders from neighbours to owners to council. We’re relentless in pursuing thoughtful design for practical living.”

Pricing for the Anembo Street project has not yet been released and remains subject to development approval. The application is currently under assessment by Gold Coast City Council. If approved, construction is anticipated to commence in late 2026, with completion targeted for 2028.
</article>

Christopher Joye

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