property prices up 2.8% this year

Hi all,

I saw this article on the money website today and i must admit I was a little surprised at the increase. I'd like to know what everyone else's opinion on it is. personally I think that the increase won't hold up for long. My reasoning being based solely on job losses which the article failed to mention.

However i could easily be wrong and maybe this is the unfortuate end of property affordability. What do you think?

Property values surge in 2009

Cheers,
Paul

 

I think the weaker dollar has been attracting quite a number of overseas investors during the first part of the year. As the dollar strengthens we will see this demand fall away.

The first home buyers' grant has been propping up demand in the middle of the market too. This will fizzle out a bit after September when the grants are reduced (Personally I think the imminent reduction in the first home buyers grant means that a lot of people are getting sucked into buying houses now that will be a good deal cheaper next year)

I think any "surge" (lol - 2.8% is a surge?) can be seen as a dead cat bounce, and that property prices can be expected to continue to fall in the second half of the year.

The same journalist also recently wrote that ACDC was being blamed for the financial crisis

AC/DC blamed for financial crisis

so take with a pinch of salt

 

I am not a seasoned property investor, but I have been in the market since July last year. People are saying, now is a GREAT time to buy!!

Am I missing something here? but low interest rates and government handouts reduce barriers to the market which means a saturation of buyers.

increased demand has never driven prices down...in my experience

I am rubbing my hands together waiting for the withdrawal of the fhog (of which I am eligible) because while I might miss out on 14k or however much it is, right now, to "take advantage" of it would be to shell out on an overvalued piece and defeat the purpose (my purpose) of the grant.

i have a feeling there are plenty of first home owners that are over extended because of the "need" to take advantage of government money, and when they can't pay the margin call...i will be there to pick up the pieces - at 60% of the price.

pessimistic view on human nature? optimistic view on possible falls in prices?

time will tell.

sooner or later

time will tell

[/rant]

 

Wow! That's bearish...

Firstly I think one of the biggest things I'd mention is where you get your stats from, RP Data seems of late have had higher growth figures than the ABS. So between the two of them I think the best inference you can make is that the housing market is pretty much flat, at best.

As for what it all means... well I think prices holding or even slightly growing is a great thing for the economy if we can manage to pull ourselves out of it sometime later this year. However if things aren't on the improve later this year, then as the FHOG is removed coupled with higher rates of unemployment will put a lot of selling pressure on the low-mid sector, which really has been the only part of the housing sector to hold up well in the last year or so.

That said, even if we do start to come out of this recession later this year, I definitely don't think it will be a quick recovery like many are projecting for. Though I am becoming more bullish about a lot of the major emerging economies of the world, and they will more than likely end up needing to compete aggressively for the now limit commodities of the world. So Australia will benefit from this - though we will still need to do more about our long history of trade deficits.

Of course the other big factor over the next 6 - 12 months will be interest rates and government bond yields. The government bond yields of highly indebted developed countries have really started to blow out over the last couple of months, culminating with the massive spike in US Treasury yields mid week. Despite the Friday rally, I think the world is now very alert to the notion that many developed countries may not be the safe investment they once were and moody's ratings outlook downgrade of the UK to negative is the first of many ratings downgrades I'm sure. This of course will drive yields up and further hamper increased government spending as well as the volume of credit moving back in to the market.

So with this in mind Australia also will need to be careful going forward, as we as a nation are very exposed to increases in interest rates given our extremely high levels of debt. So whilst I'm expecting we will probably be able to navigate through this issue over the next two or three years, at the same time I expect that most will now be highly aware of the pitfalls of high leverage as as such housing price growth will be very subdued going forward, though I'm definitely not as bearish as I once was (ie I'm not sure we'll see the next 10% - 15% of price drops that I once saw as imminent).

That's my two cents.

 

i agree with you chris, 60% was probably overly bearish, I was going to go back and edit it but I don't like realism getting in the way of a good rant

 

Hey hey Judge bring on the rants I love them
I just wish the selling agents I confer with on a daily basis would concur!!

You are being bearish- 60% of current prices (and in which price bracket are you hoping for?) is ambitious. It's interesting - this whole FHOG environment, because on the one hand, you have investors waiting until it's all over (2010) to purchase- are they hoping for lessening demand? Perhaps they and the other 100,000 investors all counting on lower prices when they flood the market at the same time... hmm.

Then you have those who are jumping in now alongside the FHB's because they believe that prices are going to rise anyway (which they are in the sub $600K brackets) and then even plateau, but not necessarily drop... oh and with record low interest rates their cashflow is looking good so why not buy now, maybe lock in historically low fixed rates, decent rent and hang on for the long term? (as you should ideally with all IP's)

It's a dilemma and not one that I really think has a definite forecast answer. Sure, I think that artificial stimulation is occurring and may continue to occur (esp in the 4-6 weeks previous to end of Sep) but who's to say that prices will necessarily go backwards by 40% after this? After all, we have low IR's, solid rental returns, investors re-entering the market.

We've been bowled over with the amount of enquiry this year and it's not all home owners either- approx 50% of our current enquiries are from investors. I only expect that to increase next year with all those holding back "waiting" for the anticipate price drops- drops that may not come at all.

 

yeah as i said before, i realised that 60% was pretty bearish. i am looking at one-bedrooms (or big studios) in the lower north shore. my bracket is around the 200k - 300k mark.

Jacque - you make a good point. With all these people saying "now is a great time to buy" I forget that there are a handful of people out there that don't follow the hype.

What I also forgot is that this handful could number in the 100,000s :|

 

Jacque if what you say is true in regard to investors waiting to after the FHOG is brought back down to earth, won't their actions be influenced by interest rates (fixed rates have gone up twice in the past month) also the availability of credit, will they have access to enough capital? Do you think these factors will come into the post FHOB market.

Cheers,
David

 

Look, the bottom line is no-one has a crystal ball or can forecast interventions into the housing market like govt policy, for example, as that's seen to be a major influencing factor on price movements over the past two decades here in Australia.
Yes, I do believe, as always, that IR's will affect prices but at the moment the variable rates are stagnant and not likely to be rising upwards anytime soon. Sure, credit is tightening and that will have an impact on new investors or those with little equity. No doubt about it.
But at the end of the day, if the yields look good, the numbers add up and the investor or home owner can afford to buy, then there's still going to be an active market. We are, after all, the leaders when it comes to home ownership.

 

Interest rates will move up if they need to move up. The RBA doesn't set commercial bank lending rates. Just like in the US, if the FED sets the fed funds rate to 0% that doesn't meant the banks are going to lend at 2% - as it stands according to bloomberg 30 year US mortgage rate sits at 5.5% up over 75bps from just a few weeks ago.

The Australia market is subtly different, but the fundamentals of supply and demand of money is just as relevant here in Australia, and I think it is unrealistic to expect rates to stay this low for any extended period.

I think most respectable economists would be suggesting that going forward in the medium to longer term average interest rates will almost certainly be significantly higher than the level of interest rates we experienced in the last decade or so.

 

Depends on how we define "soon", obviously

Agree wholeheartedly that rates will rise (it's only a matter of when) but given the current climate, I think we're going to see rates stay this side of 7%for at least the next 12mths, if not 24. After all, the full impact of unemployment and the repercussions hasn't yet hit home and probably won't until the latter half of this year. I know retrenched people who are still living off their savings and can afford to do so for the next 3 mths or so until they hit the panic buttons. The recession is certainly not over and I can't see part of the RBA's plan to increase rates anytime soon as anything but a backwards step in where we appear to be headed.

 

Well when I think of "soon" my soon is much sooner than everyone is presently talking about and I personally think the idea that rates (or inflation) will stay low for 24 months is very unlikely. The only reason why I think lending rates could stay below 6 - 7% for even the next 12 months is because Australia is in an ambiguous position given that we are structured like the rest of the developed world, like US, UK, Europe etc along with our high levels of debt and large trade deficits, but at the same time we are in the very fortuitous position of probably being able to ride the Asian growth story when it kick starts again.

See in my mind the writing is all over the wall for the US, UK, and many other European nations, interest rates are going up regardless of central bankers policies to suppress it, but the likely future is a lot cloudier around Australia's prospects.

High interest rates and high unemployment aren't mutually exclusive. The US unemployment rate is continuing to climb dramatically, the only thing that is climbing faster is their mortgage rates...

Even if the RBA doesn't increase rates, that doesn't mean the banks won't. Most financial institutions have been reducing their margins in recent years while increasing their leverage (and of course risk) if all banks suddenly return to safer policies of holding higher reserves then I don't think it is unreasonable to expect that they will try to make up the difference in their margins.