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Do you think the cessation of the FHG will have a big impact?

Discussion in 'Real Estate' started by Jono, 20th Jul, 2009.

  1. Jono

    Jono Member

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    So we all know that the First Home Grant is going to be extended until at least the end of this year, and probably even longer.

    What are the effects on the market likely to be when the cut does evenutally come? Will it be subtle, or more jarring?
     
  2. davo6253

    davo6253 Well-Known Member

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    I think the drop off in first home owners will be quite rapid, I mean if you were in any position to buy for the past year or in the next couple of months you have decided against it because you don't want to or you have already and with the end of the grant what real rush is there now? Whether this will have a dramatic impact on lower end house prices immediately is different as I heard investor finance is starting to pick up, which could mean sustaining the prices or at least cushioning them down. We will see though :)
     
  3. Chris C

    Chris C Well-Known Member

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    It's hard to say, though looking at recent statistics I just don't think it is possible for investors and non-FHO's buyers to entirely picking up the slack once the FHO's have left the market and as such I think we will probably enter a phase of very flat housing prices (maybe trending marginally down) assuming the economy continues to plod along without making any major recovery nor any new crises emerging.

    That said it is hard to say what credit markets will be like in 6 months from now, given what has happened over the last 6 - 12 months. I'll be very interested to see the RBA's financial aggregates for June and July when they are released.

    Credit is still a lot tighter than it once was, and businesses and consumers are still paying down debt at a rapid rate, so until these figures really start turning around I don't see things in the economy moving upwards at any great rate of knots.

    I think the bigger risk will actually be if investors don't step into the market over the next 3 - 6 months there is the very real possibility that that might be the catalyst for debt deflation within the housing industry through falling price expectation given that businesses and consumers are already aggressively paying down their debt, and owner occupier housing credit growth slowing and looking like it will slow considerably further once the FHOG boost expires, not to mention rates are already low, dropping them further probably won't stimulate credit growth significantly, and I think the government isn't a position where it can just throw money at new problem with our government debt already set to explode over the next couple years without any further stimulus.

    So it might well be the case of a self-fullfilling prophecy. Though of course both the government and RBA would be savvy to this and I find it hard to believe they'd stand idle while it unfolded, because once these sorts of things start they are very hard to stop. So I expect we will see more moved by the government and RBA to prevent housing prices falling.

    So the question is then who will win the tug of war - the market or the manipulators?
     
  4. davo6253

    davo6253 Well-Known Member

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    Chris do you or anyone have any idea as to what % of market share investors have taken up previous to this period? I mean what can be expected in peak times for that part of the market?

    Cheers,
    David
     
  5. Chris C

    Chris C Well-Known Member

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    I think you need to pay a visit to my best friend Google. He knows everything.

    :D

    I haven't read much recently, but off the top of my head I think the ownership split is roughly like 2/3 owner occupied and 1/3 IPs, but I don't know what percentage they make of up sales market. I'd assume investors churn their properties more often than owner occupiers, but that's just an intuitive guess.

    My understanding (and I'm really not a reliable source of latest property data) is that for the first 6 months of the year owner occupiers were making up a much higher than normal percentage of home purchasers, this more than likely to the fact that a lot of FHO jumped into the market. There is a nice graph on this post by Steven Keen:

    FHB Boost is Australia’s “Sub-prime Lite” | Steve Keen's Debtwatch

    I also read this recently:

    I also found this image:

    [​IMG]

    This was also an interesting image:

    [​IMG]
     
  6. Jacque

    Jacque Team InvestEd

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    I can't recall where I read it but FHB's currently make up 30% of the buyers out there. This means the other 70% are effectively home owners and investors. With record low IR's and stagnant prices starting to turn, they figure it's a good time to jump in and buy too. Low IR's help rental returns to look increasingly good (though for how long is the great unknown) and drive affordability- one of the key drivers of this recent activity, alongside govt handouts and boosts :D

    My thoughts are that it's going to be more of a subtle effect, if prices move downwards, and it will be greatly affected by govt intervention, IR's and sentiment. Lots of investors waiting on the sidelines, however, so no sharp price drops, in my opinion. At least, not based on what we now know, but that can change overnight...
     
  7. D&K

    D&K Well-Known Member

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    IMHO, I'm not of the belief that investors will prop up the market effectively after the FHOG finishes. They might provide some support, but not the same amount. Couple of reasons:

    Many existing investors are/were diversified, geared, and have suffered losses on the shares side. They might want to shift to property or buy more :( but have lost discretionary cash needed for deposits and fees (especially if equity they had a few years ago has been diminished because it was already leveraged up).

    Valuers, either on their own or under implied directions from banks, are still coming in with conservative house price estimates (not as bad a six months ago), which limits cross-collateralisation / loan extensions (depending on your strategy) for more deposits. Those who used "equity mate" to invest probably haven't gained a lot more equity to use in the last 2 years.

    That house prices have stayed relatively flat won't encourage many first time property investors, despite being scared awaty from shares (and even though there's still good opportunities, these haven't been in the media to encourage them).

    FHOs buying about 30% - that's a very big proportion on of the market! That is, you can only be a FHO once but you can be an upgrader / downsizer / investor a number of times. It's just too big a number for a diminished pool of investors to replace. :(

    Not being too negative, there's still opportunites, but I expect low volumes of sales and steady prices until at least mid next year (when you'll want to be seriously looking or already in). A shortage of houses overall might do more for holding up prices than investors for the next 12 months.

    Be interesting to look back on this post in a year to see how accurate this turns out to be. ;)

    Dave
     
  8. GregR

    GregR Reid Consultants

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    Berwick Vic
    Jono,
    You talk as if there is one market, where I think there are multiple markets out there. The market segment that may be hit hardest is the outer suburbs, where house and land packages are being offered at affordable rates. Inner suburbs are unlikely to be much affected by the run down of the Boost (the FHOG will continue, it is just the Boost and State Bonuses that will cease).
    Chris C is right about the overall split, 2/3 PPOR and 1/3 IP's although I'd suggest that investors hold their IP's far longer than OO's who tend to trade/down up etc. There are some investors who are traders, quick reno, development approval etc but there are a number of OO's who do the same.
    At least in melbourne market (which I follow) the clearance rates are very high recently but that may be more a function of lower stock available. I think this more than anything else will prevent significant falls in housing prices. If people don't need to sell, they won't. Unlike shares, there are no margin calls.

    Unlike the 1987 share market crash where many investors moved to property and the 1988 prices went through the roof, this does not appear to have happened this time around. It may be thatthe restriction of credit that has prevented this. I also think that more investors will start considering the property market over time due to the devastating falls in the share market and as people see their superannuation balances having lost years of contributions. Most of these investors will look at a buy and hold strategy of quality inner suburb properties with reasonable rent yields and close to cash flow neutral.
    Just an opinion based on recent feedback from new clients.