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


Noise: A Summary

One of the effects of urbanisation is an increasing number of people choosing to live in the inner city, particularly in high density neighbourhoods. Re-zoning has allowed many residential areas to become mixed use zones whereby apartment high rises, houses and restaurant strips exist all on the same street. In Victoria, these zones are often centred around transport hubs, nearby either tram lines or train stations. All these elements make the hustle and bustle of the city, but one might argue it’s getting a little too noisy. External noise has become a modern day pollutant that is difficult to escape, and has captured our attention.

In our Healthy Environments report, we recommended buying property that is not located on a main road or nearby train stations to avoid high levels of external noise while at home. Noise can have detrimental health effects such as cardiovascular disease, even if you think you’ve become accustomed to the low grumblings of traffic and passing trains.

We recently discovered that, in addition to poor health outcomes, external noise can negatively impact the value of property. These are some of our findings.

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The Secret Agent Report – The Yield Curve

We have just released our latest Secret Agent report!

When deciding to invest in the property market, most of us will first obtain approval for a loan, find a suitable property to buy and then pay off the mortgage accordingly, dealing with any rate rises as they come. It can be that simple. A more clever way to invest would be to consider how mortgage rates are likely to change in the near future, prior to making the decision to purchase. This is where the yield curve plays an important part in making general predictions about future mortgage rates.

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the Yield Curve report now!

The Yield Curve Report


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.

Table1


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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Yield Curve and RBA Cash Rate

Bond yields provide a reliable way to make predictions about monetary policy. This week’s bulletin explores why this is the case.

What is a yield curve?

A yield curve is made by plotting the interest rates of bonds against their maturity dates. A normal yield curve occurs when long-term rates are higher than short-term rates. This is important for an economy’s liquidity, as banks can make a profit by borrowing at the (lower) short-term rates and lending at (higher) long-term rates.

What is a cash rate?

When banks borrow funds from each other in the overnight market, they can charge a special interest rate set by the Reserve Bank of Australia. This is known as the cash rate.

Let’s look at the current yield curve on Australian Treasury bonds with maturities between 90 days and 10 years (above). Parts of the yield curve are inverted (pointing downwards), meaning short-term rates (90 days) are higher than some long-term rates (2, 3 and 5 years). This creates a disincentive for banks to lend and if the entire curve is inverted, it can lead to a “credit crunch”. This happened in the US during the global financial crisis, when money suddenly dried up because banks could no longer profit from lending out money.

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The Secret Agent Report – Sound

We have just released our latest Secret Agent report! In this report, we discuss an important yet often overlooked consideration prior to buying a home: sound. Why does sound matter, especially in today’s highly urban environment? And does proximity to noise, such as busy roads and railway lines, affect the value of inner city property?

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the Sound report now!

The Sound Report


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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Welcome to 2016!

 
We are anticipating more activity in the coming months as summer comes to an end – and the heat returns to the market.
 
Next week, we will be releasing our report on sustainability in the home. Our team has put together a list of things you can do to make your home a more environmentally friendly place to live in.
 
Secret Agent understands the value of information to a buyer of real estate. On top of our monthly reports, you can now catch up on tidbits of property knowledge with our upcoming weekly bulletins on this blog.
 
We look forward to bringing you more research content as 2016 progresses.
 
If you are a buyer and need advice on your next purchase, feel free to send us an email at [email protected].