Those of us who watch these things have noticed a disturbing trend over the last month or two - The national and international newspapers talking up the housing market quite aggressively. Much to the ire of their readers who are rightfully questioning the information being given. These are a few examples.

The Guardian UK

Housing rescue must be the foundation of UK recovery

some analysts believe fixing the downward spiral in house prices is essential to bringing the economic crisis under control. Story.

The Times UK

Detached House Prices rise in price, but finance s harder to come by

The cost of an average detached house rose by 4.9 per cent between December 2008 and January 2009, pushing up average prices by 0.2 per cent for the month, the figures from the Department for Communities and Local Government show. Story.

The New York Times USA

Markets Climb on Upbeat Housing Report

Cheered by reports showing a surprising increase in home building last month, stock markets climbed higher throughout the day, with major market indexes rising to their highest levels since late February. Story.

Bloomberg USA

U.S. Housing Starts Unexpectedly Increase on Condos

Housing starts in the U.S. unexpectedly snapped the longest streak of declines in 18 years in February, adding to signs that the pace of the economy’s decline may be easing. Story

New Zealand Herald NZ

Housing crisis lies in lack of supply, not falling prices

New Zealand is facing a housing crisis, but it’s not about prices falling … It’s the lack of house supply for a growing population that is approaching crisis point.Demand has already started to recover this year and sales volumes are beginning to recover. Story

And so on and so on. The print newspapers are perhaps even worse, and this phenomenon is being seen all over the world. Judging from the comments left on the online stories, a lot of people are becoming angry and confused as to why the newspapers would be doing this. Our Australian writer wondered “how much of their ad revenue is from real estate these days?” because the Australian newspapers are saying now is the time to buy property as an investment !

It is not quite that simple, but it is pretty simple. Here is the simple explanation;

The purpose of newspapers is not to bring you the news - it is to sell advertising space.

Advertising revenues are drying up because the advertisers are going broke. Lest we forget here are a few companies that have gone broke recently:

Citibank have gone broke
Royal Bank of Scotland have gone broke
AIG have gone broke
Norwich Union (Aviva) have gone broke
Ferretti Yachts have gone broke
Aston Martin have gone broke
Saab have gone broke

I think that will do for now. The newspapers rely on advertising dollars/pounds/bottle tops from these and other companies which have stopped advertising because they have gone broke.

The newspapers are also under the delusion that the housing bubble was responsible for the luxury yacht bubble, the banking bubble, the insurance bubble, the luxury car bubble, the consumer goods bubble and all the other bubbles that have just burst. And that if they can help to re-inflate the housing bubble, all the other bubbles will also re-inflate

Whilst this is partially true, in that the housing bubble was the beginning, all the other bubbles have since taken on a life of their own, and no amount of pumping up the housing bubble is going to re-inflate the others - or prevent the newspapers from also going broke. The newspapers need to adapt or die.

Our advice -

Property prices are going to continue to decline for the foreseeable future. If you are a long term investor with property that provides an income - keep it rather than sell in this market. If you are a short term speculator, distressed at the fact that your “investment” is now worth 20% less than you paid - get out now and re-enter when the market has bottomed.

And just remember - the next time you read a newspaper article and wonder why your favorite property journalist is calling bottom - he/she probably has an editor breathing down their neck saying “Blow harder.”

It looks like WA property owners are also facing huge increases in land tax bills. At least in NSW the announced the changes to land tax, WA landowners are being caught by stealth!

Land tax increases of up to 400% have landlords in Perth and elsewhere in WA seeing red. The bills are increasing because the Office of State Revenue is increasing the assessed value of the property.

To make matters worse if you the owner has multiple properties the tax is levied at a the rate of the combined properties, not on the appropriate rate for each property.

On the face of the increases are insane - particularly when you remember Perth has had a flat market for the last year or so. The West Australian is reporting that one owner of industrial properties, Joe Pintaudi was faced with:

The assessed value of my properties has gone up from $4.6 million to $9.5 million in the past year. That is ridiculous. Mr Pintaudi said his rents would have to rise by 25% to cover the $67,000 land tax bill

The Property Council of Australia wants the government to introduce reforms that include placing a cap on the percentage increases and land tax to be applied to individual properties, not aggregated values.

The reality is that its pretty crazy that states charge land tax at all. Wasn’t it supposed to have disappeared with the introduction of GST in 2000?  And if you are going to have a tax based on property values then it should be an independent organisation that is assessing the property’s value - otherwise this type of rort is just waiting to happen.

The reality is that the landlord who does try to hike his rents 25% is not going to be in business for long in the current economic climate, where many small businesses are folding  as the mining industry cash cow drys up. Even keeping the tenants at their current commercial rate might be an issue.  This is not a good time to be a commercial or industrial property investor in WA

Well we’ve reported before on the fragility of Western Australia’s mining towns property values. Towns such as Karratha, Newman and Port Hedland have boomed because of two factors: the jobs and the shortage of land to build more accommodation.

Now the boom is at least temporarily on-hold, with no hiring going on at all in the mining industry and many contractors finding their hours cut or their contracts not renewed. How much longer are there going to be people willing to pay the average rental of $1800/week for an average Dampier house. As soon as those cash-rich tenants dry up you can be sure of one thing - that the average 3-bedroom house in a dismal industrial town and port 1550 kilometres north of Perth will not hold its “value” of $910,000.

Instead in might be worth looking further south at Geraldton, a real town, which does not live by mining alone. Sure the town has been helped by the mining boom: but if you didn’t have a job, you may just choose to live there. Geraldton is a regional centre with a sunny Mediterranean climate which is lot more gentle than the 50 plus temperatures places further north see in the summer. With a population of 30,000 its approximately 435 kilometres north of Perth. Tourism and agriculture is important here along with gold, iron ore, mineral sands and garnet mining. And a typical house only costs $300,000. The local Council expects the population to increase to 80,000 by 2020 which sounds sustainable.

The State government has just spent $400 million on Geraldton’s infrastructure including expansion of the port. The port is still over-loaded though and future projects include the $3 billion dollar Oakajee port just south of town. Other major projects include the $2 billion Square Kilometre Array which is a radio telescope. If Geraldon wins this project then it will also host the largest super-computer in the Southern Hemisphere to process the data. Who said there weren’t high tech jobs in the regions?

It appears that there is no shortage of land in Geraldton - which is what is keeping the prices in check, so you won’t get the spectacular capital gain that investors further north have enjoyed, but you also will not see the huge capital losses that the Pilbara will see if the mining boom stays on hold for more than a few months

It looks like the Federal government’s increase of the first home owner’s grant for purchasers of new homes or home and land packages is translating to increased interest at land sales offices and display homes.

Many builders at the lower end of the market have reported an increase of visitors by as much as 30% since the the government announced the increase of the grant to $21,000 on the 14 October. The increase was announced as part of the $10 billion fiscal stimulus package and applies until 30 June 2009.

This incentive which is an extra $14,000 over the existing first home buyer’s grant, combined with rapidly decreasing mortgage interest rates appear to be sparking the interest of buyers who, until recently felt priced out of the market.

It seems likely that in the fast growing state of Queensland and Western Australia these measures may work especially as rents are still hard, and rental availability still tight. What landlords could see over the next 6 months though is a weakening in demand as tenants become owners themselves.

On the other hand if the resource industry catches cold, that is if China stops buying, then boom will turn to bust very, very quickly. Both Queensland and particularly Western Australia absolutely depend on the revenues from the mining industry. The ripple effect through the economy will be quick and nasty as commodity prices fall they will take the value of all resource based companies with them.

Raising money is already difficult for smaller exploration firms with the sub-prime fallout and many investors either having no cash or investing in the bargains to be had in under-valued companies with proven resources and significant cash reserves.

These companies will start to move quickly to divest themselves of day-to-day expenses which means the immediate cut to drilling programs which in turn will put sub-contractors and assay labs either out of business or at least holding a whole lot of bad debts. The contractor end of the market is already reporting cancelled jobs and empty order books.

If on the other hand confidence returns to local investment and the commodity prices return then the good times will return. At the moment though they are definitely on hold and I actually think it would be a brave first home owner who made that size of financial commitment on the back of a “secure” job. There are precious few of those in mining boom states: well-paid yes, secure no.