To a great many people a rising rate of interest comes as no surprise and the majority of mortgage holders  have been factoring a more normal level of mortgage rates into their upcoming budgets.The proportion of new borrowers who have spread their finances too fine are not likely to represent a great proportion of the market due to the fact that banks have been exceptionally risk averse in their lending criteria, generally requiring at least a 10% deposit and a demonstrated track record of genuine savings without any defaults.Economists seem to be in line with the financial markets with most stating an additional 50 basis points to be added to the cash rate before Christmas this year. First home buyers now represent only 24.7% of all owner occupier housing finance commitments, down from the recent peak of 28.5%. For this reason the mortgage default rate is likely to remain low, which is currently less than 5% of all mortgages that are in arrears. Housing finance commitments for property investors were up by 7.6% in August this year,  highlighting the increase in investor numbers in the market as first home buyers wind back after the boost wind down. If financial markets are anything to go by we are likely to see the cash rate lifted in both November and December bringing the official cash rate up to 3.75%  and the average variable mortgage rate to around 6.5%. This is also having an effect on the Australian dollar as overseas investors cash in on the higher rate. The increasing of interest rates will have an effect on demand in the first home buyer segment the most as this is by far the most price sensitive segment of the market currently.investors enter the market. First home buyer demand is winding back as the boost to the First Home Buyers Grant has now been reduced to half and the fall back of first home buyer numbers is more than likely to continue. It is expected the overall affect on the housing market from 3 successive increases is not likely to be massive. In all likelihood Australia should see investor numbers continue to increase over the rest of 2009 and into 2010. Additionally, Australia is likely to see the continued trend of more upgraders returning to the market as both these segments are much less price sensitive to rate rises. This is important to have the upgraders buying as it generally means they have a home to sell, creating stock that currently is not there. Locally we have seen sales go through the roof literally. As soon as well priced homes hit the market they are under offer within days, in some cases hours. The rental market has seen a reduction in the numbers of applicants turning up for inspections. Rental values have also stabilised at this point as well.

09/10/2009

As the world economy recovers,  

Australia is seeing a population boom that  

continues to put pressure on housing

Population expansion is a fundamental key to the property market as it brings on more demand for housing. According to the ABS, Australia’s population expansion has hit a new record with an increase of 439,000 new residents over the year to March 2009. To provide a little perspective, in real numbers Australia’s population growth has never been this high. The higher the population growth, the more homes need to be built to accomodate the increase. In percentage terms, the population growth has not been at this level since the baby boom. Unfortunately, there is a major difference between housing demand and housing supply; to put it in simple terms there is simply far too few new homes and units being constructed to provide accomodation for our growing population. Rental markets around the country have shown large increases in rental rates over the last three years. However, over the last three months rental rates have peaked and in some areas have fallen. Rental rates will most likely start to increase again due to a shortage of rental housing and a pull back of first home buyer demand coupled with record levels of population growth. With vacancy rates remaining at historic lows across the capital cities, any relieif for renters is likely to be short-lived. Demand for rental accomodation has temporarily eased as many renters have taken advantage of the improvement in housing affordability brought about by both low interest rates and the boost to the First Home Buyers Grant. Locally there are still very few homes for rent and the rent being asked is still increasing in the regional areas. Sales are still going strong with anything hitting the market going under offer very quickly. many agents are experiencing a great shortage of stock to sell. Some agents have even closed their doors due to a lack of property to sell. If an agency depends on sales alone, they could end up in trouble. 

  www.nobullrealestate.com.au

25/09/2009

As the first Home Buyers Grant

is heading towards a wind back,

many buyers in the market are

second and third home buyers

as opposed to first home buyers.

Non-first home buyer loan commitments increased over the month of August this year as upgraders stepped up their activity. Consumer confidence and business confidence hit new highs this week with both of these key indicators increasing over the last month.

In data released this week, housing finance commitments fell over July as first home buyer showed the first evidence of pulling back on purchases. Interestingly, despite total housing finance volumes declining, the value of both owner occupier finance and investor finance increased for the sixth consecutive month; reinforcing the idea that buyer activity is rippling through into the middle and upper end of the price line.

The improvement is likely to have a positive effect on both the residential and commercial property markets as there is strong correlation between confidence and market activity. Rental rates across the country increased by 36% over the last three years up to March 2009. Since this time weekly rents have peaked, with every capital city apart from Darwin recording declines in weekly rental rates over the last three months.

The recent fall in rental rates can be attributed to a decrease in demand as more renters looked to buy, taking advantage of low interest rates and the boost to the First Home Buyer Grant. Such low vacancies as well as the low supply of dwellings across the nation will continue to place upwards pressure on rents over the longer term. With vacancy rates across the nation’s capital cities generally below 5%, it is highly likely the recent fall in weekly rents will be short lived.

Locally we are finding there are still many applications on vacant rentals, but are seeing the quality of those applications are poor. Many applicants are listed on tenant databases and are not showing affordability for the property they are applying for. It is becoming more difficult for landlords to find good tenants that can demonstrate that they can pay the rent and look after the property.

www.nobullrealestate.com.au

11/09/2009

As stock levels are still very low, it comes as no surprise that leading economists are all saying the same thing, that new housing stock is desperately needed.

In a speech given recently, Mr Stevens, the Reserve Bank governer agreed with others that the fall in interest rates together with the extra grants for first-home buyers has resulted in a large pick-up in demand for property.

A very real challenge in the following term is how to guarantee that the ready availability and low cost of housing finance is translated into more houses and units, not just higher prices,’ he said. The scheme has also been extended until the end of September, and then it will start to wind back ,halving from October until December.

Glenn Stevens said in a major speech in Sydney that property prices need to be kept under control and that means more supply is required. He added that the global outlook had improved and emphasised the role of business and consumer confidence in helping to lift the current economic conditions.

The low cost of finance available and a reduced supply of new housing in the market threatens to create a property bubble in Australia. In contrast to many other countries, house prices are tending, if anything, to rise, and the rate of arrears on the majority of mortgages remain very low by historical and international standards,’ said Stevens.

If we fail to do that, if all we end up with is higher prices and not many more dwellings, then it will be very disappointing, indeed quite disturbing,’ Stevens said. The real estate market in Australia has held up well during the current global economic downturn, which economists have attributed to the government’s increased first home owners grant, amoung other things.

Given the circumstances the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs, this ought to be the time when we can add to the dwelling stock without a major run-up in prices,’ he added. He also explained that the value of loan approvals has risen by about a third since the low point in the middle of 2008, but it is the upcoming months that will be crucial for the Australian market. Locally there is still a strong number of buyers who are having difficulty with finance.

Most can get the finance from the bank, but are then having difficulty with mortgage insurance. Many examples of small defaults of $50 and $70 from overlooked phone accounts from 3 and 4 years ago is enough to stop the best applicant for finance. Buyers really need to be in a strong financial position with no bad history at all.

www.nobullrealestate.com.au

04/09/2009

As more renters leave the rental market

and opt for their first new home,

rental rates are starting to stabilize

 More recently the rental market appears to have peaked with national weekly median rents falling slightly in each month post March. On average weekly house rents fell by 5 percent ($15) over the June quarter. As demand for rental accommodation grew, the supply of new housing and investor numbers remained consistently low (the market is reliant on private investors to provide the vast majority of rental housing).With rental affordability becoming a real issue it is likely more renters are choosing units rather than houses for the lower rents, lower upkeep and the fact that they can live in more desirable locations compared to detached housing rents. At the other end of the spectrum, the only mainland capital city to record an improvement in the median weekly rental rate was Darwin which now has the most expensive weekly rental rate for houses of any capital city. The resilience of the rental market for units is not surprising. As more households were financially blocked from buying a home the only other option was to rent. The largest falls in house rents have been recorded in Canberra where the median weekly rent is down just over 6 percent for the June quarter. On average, renters in Darwin are paying about $100/week more to rent a house than someone renting in Sydney.The net result of this high demand and lack of new supply is that there has been a large amount of upwards price pressure on weekly rents. Investors shouldn’t be discouraged by the recent peak in rental markets. With such low vacancy rates and not a great deal of new supply entering the market it is logical to expect weekly rents to avoid any significant declines for the foreseeable future. The average gross rental yield for units has fallen only slightly (4 percent to 3 percent over the June quarter) thanks to rents staying relatively firm and a lower rate of growth in unit values over the quarter (2 percent). The figures presented above outline the broad trends in the market – astute investors need to be digging below the surface of these macro trends and identifying strategic markets that will satisfy their investment criteria. In fact, rental rates have been rising steadily since housing affordability became a real issue in the early part of the new decade. Rental yields remain historically higher than the long term average and competition amongst investors hasn’t gathered too much pace just yet. The improvement in housing affordability together with declines in rental affordability has caused many renters to assess whether buying is now a better option than renting. Additionally capital growth has once again become evident which demonstrates the resilience and consistency of returns in the Australian residential property market. Nationally, the gross rental yield for houses peaked at 7 percent in March and has since fallen to 4 percent due to a fall in weekly rents and increase in house values of 1 percent over the quarter. With rental rates now coming off the boil and property values once again rising we are seeing the first signs of rental yields being eroded. The median weekly rent for a Canberra house has fallen from $530 in March ‘09 to $498 in June. Unit rents have been much more resilient, recording a fall of just 6 percent over the June quarter. Renters have been hit hard over the last three years with rents across the country rising by an average of 30 percent over this period; renters, on average, are now paying $95/week more to the landlord than three years ago.The easing in weekly rents comes as housing affordability returns to levels not seen since 2002 thanks to interest rates reaching 75 percent and modest falls in housing values. Vacancy rates remain tight across the nation with all capitals recording less than 3 percent vacancy in rental stock. Renters shouldn’t get their hopes up too much however. For investors, units have historically provided stronger rental yields and it looks set for this trend to continue. Unit rents have virtually remained steady since March and actually improved in Brisbane, Darwin and Adelaide over the June quarter. Commonwealth Bank of Australia showed there had been a substantial increase in the number of suburbs around Australia that are now cheaper to buy than rent. Locally vacancy rates still remain very low with any property listed for rent receiving enormous amounts of enquiry. Many tenants are experiencing landlords selling the property from under them, thus having to find other suitable housing. As the grant is starting to be wound up for the first home buyers boost, we are going to experience more vacancy shortages.

www.nobullrealestate.com.au

RP Data Sourced

21/08/09

As the market starts to stabilise,

 the beginning of the end of low rates  

is just about to begin

The Reserve Bank Governor’s statements seem to suggest that the scope for further interest rate cuts is very minor and given this, the latest interest rate futures yield curve is indicating that financial markets believe that rates will not fall any further. With the first increase in rates expected around November or December this year.With fewer properties being built than required to cater to demand, competition for available stock increases and as a result, upwards price pressure is created. In the three largest states, which as a result are the states with the strongest demand for housing and requirement for new dwelling building approvals, the number of approvals on a trend basis rose by: 1.0% in New South Wales, 0.2% in Victoria and 1.8% in Queensland.  Later this week the ABS will release the labour force statistics and many expect unemployment to be recorded at or around 6%. The ANZ released their latest July job advertisements survey this week and the results showed a -1.7% fall in advertisements during July. Even compared to just one year ago, the number of dwelling approvals nationally in June 2009 is -14% lower with approvals in New South Wales -28% lower and in Queensland they were -31% lower. Late last week the ABS released their building approvals data and although building approvals increased by 3% during June on a seasonally adjusted basis, on a state-by-state basis the performance was quite varied.  The yield curve shows an expectation that in one year’s time interest rates will sit 1.5% above their current level. The results although showing a decline in the number of jobs advertised represented a marked slowdown from the previous month when job advertisements fell by -1.7%. In the Federal Government’s Budget they anticipated that unemployment would peak at 8.5% in mid 2010. Despite the fact that unemployment is still rising the rate of increase in the unemployment rate to date coupled with the fact that the rate of decline in the number of job advertisements appears to be slowing suggest that the forecast unemployment rate of 8.5% may have been a little too pessimistic.These results highlight the significant demand and supply imbalance and also provides some insight as to why property values are once again beginning to rise.The Reserve Bank of Australia decided to keep Australia’s cash rate at a near 50 year low of just 3% when they met this week. This is why Governor Steven’s highlighted the under supply issues in his speech last week and why governments need to be much more proactive in allowing additional construction and most importantly, these new dwellings need to be available at affordable prices coupled with provision of critical infrastructure in and around these dwellings. He also stated that economic conditions have been stronger than anticipated in Australia for a few months and that the risk of a severe economic contraction had now abated. In his statement the Reserve Bank Governor pointed to the fact that worldwide economic stimulus was helping the global economy to stabilise. Locally the market has not improved with an under supply of stock. Homes that are listed on the market are receiving offers in the first day of marketing and proceeding to sale very quickly. There is a real sense of panic at the moment with a great deal of buyers. Those that dont have there finance pre approved, are going to find it tough to get the finance in place before October 30th , when the first home buyers boost starts to be wound down. No lenders are financing more than 97% LVR, where most are wanting 10% from the buyers. 

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 www.nobullrealestate.com.au

 07/08/09

As the world is starting to recover from the global financial crisis, Australian property stands strong

Business confidence data released this week by the National Australia Bank showed a significant improvement in confidence levels within the market place. The index still recorded a negative result (-4.0) for the June quarter however, it was a substantial improvement on the -24.0 result for the March quarter. This result follows many recent positive results including significant increases in consumer confidence figures and positive results for property values.

Employment remains the looming threat with the Government’s official forecast at 8.5% however, it appears that this forecast may be a little too pessimistic with the rate of increase in unemployment not as rapid as most had anticipated and many economists are now anticipating a reduced peak unemployment figure. The biggest talking point this week was arguably the Reserve Bank Governor’s speech on the challenges of economic policy. An interesting part of his speech was the following: “A very real challenge in the near term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices. Given the circumstances – the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs – this ought to be the time when we can add to the dwelling stock without a major run-up in prices. If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing. Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over leverage and asset price deflation down the track.”

 These comments have had the vast majority of media outlets jumping on the possibility of a housing bubble, whilst Governor Steven’s does signal that sharp price rises coupled with a continued undersupply of housing could lead to price deflation in the future, the supply side of the equation is probably more imperative. Rpdata.com have long stated the biggest constraint to the provision of new dwellings is the availability and cost of new land and the charges imposed on new development by Local and State Government’s. The lack of suitable amenity in the outer areas of our capital cities where the majority of new housing development takes place also makes the purchasing proposition tough.

Without quality roads, transport amenity, shopping facilities, schools and health care in these areas the appeal to purchase in these locations will likely continue to remain subdued until such time as these areas are either: significantly cheaper housing options than those found throughout other regions of the city or, the provision of localised amenity coupled with the opportunity to own a brand new home at competitive prices provides the incentive to purchase.

As supply and prices in capital cities like Sydney sky rocket, areas like Newcastle and especially West Wallsend will become more favorable. With the proximity to the freeway and only an hour drive from Sydney, more and more people are going to see these areas as desirable.

Locally there is still a high demand for rental properties with an average of 10 enquiries a day for vacant accomodation in the local area. We have  a vacancy rate of zero and has been that way for some time. Sales are at a stand still as all stock has been sold. Other agents are relisting sold properties as the valuation is not coming in on finance, plus a lot are finding it difficult to get mortgage insurance.

www.nobullrealestate.com.au

RPData Property Pulse sourced

31/07/09

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