2007-2010 - FHBs - Purchasing Power

[willair]

Gold/Silver Stocks. I drew a LOC against the property (now own freehold as sold the house) and purchased heavily around August/September last year before Gold flew past $1000.
.

Hobo=jo..,with the Dow Jones Industrial Average down over 2% overnight,Gold-Oil down,you will be watching the next few weeks
with open eyes,the last time this started ,real estate prices stillwent up,and most short term equities traders after the first margins calls
were sold up from under them..willair..

 

[hobo-jo]

Hobo=jo..,with the Dow Jones Industrial Average down over 2% overnight,Gold-Oil down,you will be watching the next few weeks
with open eyes,the last time this started ,real estate prices stillwent up,and most short term equities traders after the first margins calls
were sold up from under them..willair..

There won't be any margin calls as there is no leverage in my portfolio.

Actually willair, real estate prices started to drop in 2008, IMO that is why the government introduced the double FHOG to prop up the market. It worked, but will prices continue to stay propped up and rise without the extra stimulus? I suspect not.

 

[jingo]

Property was/is a great investment vehicle for a lot of reasons, I just don't think it's going to do well short to medium term.

I'm a long term player - so no too worried about what happens in the short to medium term. It won't affect me. In fact, if prices do drop it could open up buying opportunities - so all the better for those of us who are prepared for this situation. (ie pre-approvals, LOC's, cash etc ready to go).

Regards Jason.

 

[willair]

There won't be any margin calls as there is no leverage in my portfolio.

Actually willair, real estate prices started to drop in 2008, IMO that is why the government introduced the double FHOG to prop up the market. It worked, but will prices continue to stay propped up and rise without the extra stimulus? I suspect not.

Maybe down in SA,QLD in some areas has done well or maybe its just the catchup in small undervalued pockets that turn from low level housing
into up market areas ,Brisbane still has several small inner pockets like that,plus every time i go for a walk there seems to be so many new people from overseas in medical-dental- starting to settle and buy not rent in the inner city river areas,just because the Aussie working in a factory can't afford to buy a ppor,does not mean the people that step off the plane can't,from what i see at some auctions everything changes ,even if Mr Keen is right and property drops 40%over the next ten years,makes no difference to someone who bought in 2001 or 1990 or 1982 ..willair..

 

[wobbycarly]

There won't be any margin calls as there is no leverage in my portfolio.

But what happens to your long positions when others get their stocks sold out from under them due to margin calls, the prices drop, more margin calls... hello 2008!

 

[RumpledElf]

Property was/is a great investment vehicle for a lot of reasons, I just don't think it's going to do well short to medium term.

The funny thing is, I have almost the opposite view in my own universe. Shares and gold and stuff are borderline pointless to buy into without large amounts cash. Renting is extremely expensive compared to buying. Owning an investment property (from my experience with only two houses) is a 20%+ yield game. The only thing capital gains does is make other houses even more expensive and less affordable, so it is not something to consider. From where I stand, property wins pretty easily. I'd probably say something completely different if I earnt more, but it works great on a low income.

Whatever works for you ...

 

[Property Meister]

I am sure this has been answered before so I apologise, but I couldn't find it.

ive been looking for a 2nd hand property in the past and did note that the FHOG hit a peak in mid last year and slowly the bonus has been reduced every quarter.

and I did not pay any attention to the FHOG for new properties as I had no intention of buying OTP for all the reasons that most forumers know about....

my understanding is that the FHOG for new properties has actually stayed the same at approx $38k.

if this is the case, to take full advantage of it, but didn't want to buy OTP,

for any first home own buyer, wouldn't it be better to buy a block of land, and build on it, or buy a large block of land, subdivide, and just build the one on it, this will enable you to get the FHOG at its peak, PLUS you won't buy the premium prices of OTP???

just a thought

 

[hobo-jo]

First-home buyers struggle as interest rates rise
January 31, 2010

ALMOST half of first-home buyers lured into the market by the Rudd Government's $14,000 grant are struggling to meet their mortgage repayments and many are already in arrears on their loans.

Thousands of young home buyers are using credit cards or other loans to meet obligations, while those in "severe stress" are missing payments.

Just weeks after the grant was withdrawn, a survey of more than 26,000 borrowers conducted by Fujitsu Consulting has found 45 per cent of first-home owners who entered the market during the past 18 months are experiencing "mortgage stress" or "severe mortgage stress".

The number of first-home buyers in debt is likely to worsen in the next 12 months as interest rates rise by an expected 1 percentage point.

On Tuesday, the Reserve Bank is almost certain to raise the cash rate by 25 basis points to 4 per cent, taking the typical standard variable mortgage rate to about 6.90 per cent. If lenders pass on the rise in full, it will add $47 a month to the typical $300,000 mortgage.

"The dream of home ownership has turned sour for many thousands of first-home buyers now that the reality of rising interest rates is kicking in," said Fujitsu Consulting managing director Martin North.

"Rising utility costs and school fees are also cited as reasons for hardship, and many first-home owners are living without proper furniture or carpets as they divert all their cash to their monthly repayments."

Not really surprising, I'm sure we'll see more articles like this over the year as the over leveraged FHBs realise they've bitten off more than they can chew.

 

[cloudyday]

First-home buyers struggle as interest rates rise
January 31, 2010


Not really surprising, I'm sure we'll see more articles like this over the year as the over leveraged FHBs realise they've bitten off more than they can chew.

I reckon median property prices rose big time in 09 due to FHB grants. It will be interesting to see how the market plays out at the end of 2010 when interest rates are up and unemployment rises.

 

[Property Meister]

can anyone answer my FHOG question, i know its a real newbie question? but I hadnt considered this in the past

 

[keithj]

I reckon median property prices rose big time in 09 due to FHB grants. It will be interesting to see how the market plays out at the end of 2010 when interest rates are up and unemployment rises.

Why would the median rise if lots of low value FHB houses change hands ? Surely it should fall.

 

[hobo-jo]

Note the percentage of FHBs at the peak, 28%, now around 13% after the removal of the FHOG "boost" (though this data only accounts for 10% of overall figures, I believe that is representative enough of what will be seen in ABS stats). Also note the loan size drops in January (from December, although happened the year before, but lesser drops) and increase in refinancing as a percentage of overall loans...

I know you've heard it all before and I must sound like a broken record (although I have never made this sort of prediction before), but tipping point is Qtr 1 2010. I don't think the downturn will be as severe as most bears hope for, but I don't expect to see gains like it would seem most bulls are still expecting.

http://corporate.afgonline.com.au/i.../web_content/mortgageindex-feb10-national.pdf

 

[hobo-jo]

Some more interesting figures from the AFG report show that it's likely a large number of FHBs went for honeymoon rates:

Check out February 2009 compared to a year earlier, a whopping 4x the number of buyers went with the intro rate.

In a market where the majority of FHBs were borrowing 90-95% or greater, borrowing more $ than the non-FHB by record margins, with record low interest rates, buying in record numbers and with record numbers taking honeymoon/intro rates as opposed to fixing...it certainly does not bode well for the property outlook if this group of buyers starts struggling.

12 month resets of intro rates for these buyers is coming up...on top of this we have banks raising their rates independently at times and potential for further RBA rate rises.

 

[Sunfish]

do you know that the FHB thing was 14k (for a new build) a few years before 2008? I think around the time it came in (2000 maybe? I think it was to offset the gst). It was 7000 for an existing house and 14000 for a new house. it was there for a year or two and then it was dropped back to 7000 across the board until this latest lot came in.

I don't remember prices dropping significantly in the time after the first one dropped, in fact, we found the priced skyrocketed for a few years there . this was the period of time that we bought almost all of our properties. One of our houses went up 40% in 2003 alone (and that's on bank valuations).

I personally am expecting a few more investors in the market especially around May because of the changes to the super laws.

If you were to check with your parents (or GPs if you are v young) you would get a different picture. The banks once insisted on 20% deposit (no fudging) and there was no FHOG. There was a time it needed to be "genuine savings" which meant that dad chipping in the cash did not count. We worked 7 days a week running a service station for over two years to fund our home. I can assure you property did not increase 10% a year, every year back then.

But even if the LVR did not go back down to 80% and the FHOG remained and counted as "savings", recent FHOGs will not be back in the market again (upgrading or buying investments) for quite a while unless the boom continues. If it falters for a few years (I did not say collapse) there will be no equity gain to use to borrow against. Just as easy money had a positive reinforcement to values on the way up, tighter money will have an negative forcing effect on the way down.

 

[wobbycarly]

Some more interesting figures from the AFG report show that it's likely a large number of FHBs went for honeymoon rates:

Check out February 2009 compared to a year earlier, a whopping 4x the number of buyers went with the intro rate.

In a market where the majority of FHBs were borrowing 90-95% or greater, borrowing more $ than the non-FHB by record margins, with record low interest rates, buying in record numbers and with record numbers taking honeymoon/intro rates as opposed to fixing...it certainly does not bode well for the property outlook if this group of buyers starts struggling.

12 month resets of intro rates for these buyers is coming up...on top of this we have banks raising their rates independently at times and potential for further RBA rate rises.

Could this be influenced by the exit of the 2nd tier lenders (eg, RAMS, Aussie) with their apparently lower ongoing rates? (Not sure when these guys stopped selling loans directly.)

Nonetheless, this doesn't change the fact that a large %age of fixed rates will be reset very soon!!

 

[Aaron Sice]

If you were to check with your parents (or GPs if you are v young) you would get a different picture. The banks once insisted on 20% deposit (no fudging) and there was no FHOG. There was a time it needed to be "genuine savings" which meant that dad chipping in the cash did not count. We worked 7 days a week running a service station for over two years to fund our home. I can assure you property did not increase 10% a year, every year back then.

but "back then" rental payments weren't considered "effective savings" - which they should be IMO.

 

[Peter Parker]

If you were to check with your parents (or GPs if you are v young) you would get a different picture. The banks once insisted on 20% deposit (no fudging) and there was no FHOG.

How long ago was 'back then'?

There was a substantial FHOG during the mid-1980s. At $7k it was a large proportion of the average house price (around $50-60k), ie a larger percentage than the recent grants.

Agreed that bank lending was more conservative, and some types of borrowers (eg single women) had difficulties getting finance.