by Neil Jenman

On Friday, May 8, 2009, the Australian Stock Market closed at 3,919.60. In the past week, stock prices rose 4.9 per cent.

The stock market has now risen 26 per cent since its record low of March 9, 2009; however, it is still 42.5 per cent under its record highs back in November 2007.

Isn't it good to have clarity with the stock market? Everyone can see the same factual data.

Not so with the property market. If you ask ten property experts what's happening with property prices, you can be certain of one thing: you'll get ten different answers.

Every property expert has a different opinion. And each one makes a compelling argument about why their data is correct and the others are all wrong.

Consequently, we end up with the farcical situation in property where, basically, the public don't have a clue what's going on.

Are prices booming? Are they falling? Are they steady? Are they going up soon or down soon? Whom do we believe?

Just get a look at what's happened in the past few days.

On Thursday April 30, 2009, Australian Property Monitors (APM) released its latest property data. We were told that Australian property prices had risen by a piddling 0.1 per cent for the March quarter.

On the same day, RP Data-Rismark also released its data. We were told that Australian prices had risen by 1.6 per cent.

And then, on Monday, May 4, 2009, the Australian Bureau of Statistics (ABS) released its latest property data. Now, if you can't trust the ABS, who can you trust?

We were told that Australian house prices had suffered their biggest fall since records were first kept back in 1986. (Yes, it's amazing that it took us nearly 200 years to even decide that we needed to record property prices). According to the ABS, Australian house prices fell 6.7 per cent in the 12 months to the end of March 2009.

All three of these record-keeping organisations are generally well respected. [Unlike self-serving bodies such as those villains at the Real Estate Institute of Victoria (REIV) who have been deliberately fudging property statistics for yonks.]

So, if the genuinely honest experts can't agree, how can the public possibly know whom to believe and what's right? Sadly, they can't. At best, there are many different methods of measuring property data and, at worst, the property industry is filled with so much distorted misinformation (both deliberate and accidental) that it is impossible to produce honest and accurate national property data.

Here's an example. Let's say a home is bought for $500,000. Two years later, it is sold for $600,000. The records of sale show only two figures ($500,000 and $600,000).

And so, many of the 'experts' say the price has risen by 20 per cent in two years or an average of ten per cent a year.

But the person who bought the home for $500,000 spent $120,000 on renovations which means that the 'true cost' of the home ($620,000) is never recorded, never mind that, instead of a gain of $100,000, the property has actually shown a loss of $20,000 (Cost $620,000 less sale of $600,000).

And that doesn't even count the costs of buying and selling (factor in around another ten per cent!).

Each year Australian home-owners spend around $20 billion renovating their homes. This, of course, means that their homes increase in value - not because of a "rising property market" (as many spruikers want us to believe) but because of the renovation. But where is this $20 billion of renovation money recorded in property data? Nowhere.

Anyone trying to buy their first home over the past few months doesn't need an expert to tell them that prices have been rising. As soon as the Federal Government increased the First Home Owners' Grant (FHOG), prices, as predicted, shot up by at least the amount of the Grant (thereby delivering the extra cash straight to the sellers instead of the buyers. Oops!).

Since then, as the poor first homebuyers have been whipped and flogged into a frenzy of "hurry hurry hurry" by unscrupulous spruikers (and quite a few agents), prices in the lower brackets (under $500,000) have certainly grown, by as much as $50,000 in some areas.

Here's an ABS figure you can trust. In the past seven months (since the FHOG was increased by up to $14,000) the average loan taken out by first home buyers has increased by $19,700.

Today, the average first homebuyer is borrowing a whopping $280,600. But it's okay because interest rates are at record lows. Oh really? And what happens when (not if) interest rates go back up again?

Many of those first homebuyers who are stretching themselves to their maximum in their rush to "get in quick" before the increased FHOG finishes at the end of June are going to find themselves in a lot of trouble in a year or two from now.

This current "boom" in the lower end of the market is one of the greatest (and most obvious) false booms in property history. Whip away the increased FHOG at the end of June or reach the inevitable limit on the number of first homebuyers and, whoosh, watch the rug be pulled out from under this "boom" really quickly.

As another respected property expert, Louis Christopher of SQM Research said recently, "Now is not the time for first homebuyers to rush in. If they wait, demand will dry up and prices will fall."

It's a brave call for any person to say, with certainty, what will happen with property prices but Christopher's prophecy somehow feels ominously right at the moment.

Remember a year or two ago when the so-called "leading agents" were telling us that the top end of the market was roaring along and the bottom end was in the doldrums? Well, they were all proved wrong. The top end tanked big time.

Love the story of the beachfront Gold Coast home that was sold the other day for $18 million, a reduction of $15 million from its $33 million asking price. That's an asking price fall of 45 per cent.

Of course, the same thing can't possibly happen in the lower to middle price brackets, can it?

Just ask the experts and they'll all tell you that prices seldom fall and, if they do, it's never by very much. They just "correct" (which, by the way, is the latest word for "fall").

Three things we know for sure about property prices.

First, despite what the spruikers tell us, property prices do not "double every seven years". Over the long term, the true property prices will about match the inflation rate.

Second, due to the nature of property (as well as the scoundrels in the industry) there are no Australia-wide accurate price records. Probably never will be.

And, third, it doesn't matter what property prices are doing, as long as you, if you are buying a home for yourself, make sure that you buy within your means. And, if you're an investor, you make sure the rental return covers most, preferably all, of your outgoings.

It's not easy, but then the property market is rarely easy - or simple.

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