ABN Amro and John Symond speak

http://www.theage.com.au/news/natio...l/2005/07/03/1120329326019.html?oneclick=true


Economist predicts long house prices fall
By Tim Colebatch
Economics Editor
Canberra
July 4, 2005


Australians will see their wealth decline for the first time since the last recession as housing prices fall, investment bank ABN AMRO has warned.

In a new analysis, the Dutch-based bank's chief economist in Australia, Kieran Davies, said house prices had entered a period of decline, which was needed to bring prices back towards their normal relationship to household income.

The housing bubble almost doubled household wealth between 1998 and 2004, creating a "confidence effect" in which consumer spending boomed. As that process goes into reverse, Mr Davies warned, it will damp consumer spending and economic growth.

It could put a significant brake on economic activity, he said. Household spending accounts for 60 per cent of demand in the economy, and in recent years it grew faster than household incomes. Households now spend more than they earn.

"The economy is facing a period where declining household wealth should be a significant and ongoing drag on growth as the massive bubble in house prices slowly deflates," he said.

Economists predict that this week's economic data will show the unemployment rate has risen for the first time in four years.

With surveys reporting fewer job vacancies, a Reuters survey found market economists expect Thursday's figures to show no growth in jobs, with unemployment rising to 5.2 per cent.

Commonwealth Bank chief economist Michael Blythe warned markets not to expect an interest rate cut, as futures markets are suggesting. He said constraints in the economy and the rapid growth in household debt would keep the Reserve Bank inclined to raise rates, most likely in the December quarter.

Some commentators have said house prices are likely to flatten out at their peak rather than fall, but Mr Davies said we were more likely to see "modest outright declines in prices over the next year or so".

"The fundamentals will slowly catch up with prices, and valuations should gradually return to more sustainable levels," he said. "As this happens, declines in real home prices should see declines in real net household wealth."

ABN AMRO's research found that almost two-thirds of Australian household wealth is now in housing, with a market value of $3.2 trillion - almost six times households' annual income. Over the past 45 years, the value of housing has, on average, been just 31/2 times household income, and for much of that period interest rates were as low as now or lower.

While 64 per cent of Australian households' wealth was in real estate, just 6 per cent was in ownership of shares, the bank said. Another 18 per cent was in superannuation, 8 per cent in cash or bank deposits, and 3 per cent in cars and other durables.



http://www.thecouriermail.news.com.au/common/story_page/0,5936,15809472%5E3122,00.html

Rates 'to head south' as buyers head north
James McCullough
04jul05
THE man who held a blowtorch under the belly of the country's major banks in the early 1990s, John Symond, has not lost his ability to make bold predictions and stand up to establishment forms of home lending.

"Don't panic on interest rates – probably this time next year they will be lower than they are now," Mr Symond said in Brisbane at the weekend.

The Aussie Home Loans chief was in Queensland as part of his ambition to form a national network.

On Saturday he opened the group's first two retail outlets in the state at Sunnybank Plaza Shopping Centre and Centro Taigum Shopping Centre – and plans more outlets over the next 12 months. The Aussie Home Loan outlets will offer a one-stop shop, providing a home finance advisory service, a large range of home loans along with customer advice.

The shops will feature private consulting rooms, as well as a great "kidzone" to keep children entertained while their parents get expert help in what is their largest investment in life – their house or apartment.

Mr Symond said Queensland was feeling the effects of a slowing property market, but had not impacted as much as Sydney or NSW.

"The Sydney market really is slowing and southeast Queensland has started to experience a bit of a slowdown but the market is still quite buoyant," he said.

The Aussie chief pointed out Queensland enjoyed the benefit of a net growth in population which is offsetting the property run off, proving a far more resilient market than NSW or Victoria.

He said Queensland had also benefited from NSW vendor taxes, resulting in a number of southern investors putting money into Queensland investment property.

Mr Symond gave the Australian banks a serious jolt in 1992 when he launched Aussie Home Loans, the first major non-bank mortgage originator, but concedes today the country's major banks have cleaned up their acts.

"They have certainly got a lot better and a lot more competitive," Mr Symond said.

Aussie now offers a range of projects, which included bank offerings, leading many to suggest Mr Symond had simply sold out to the banks, something he strongly denies. A breakdown of the Aussie loan book reveals that new lending is growing at about $800 million a month, of which $650 million would go into bank products.

"We do still compete with the banks but we also offer the best of their products but our major competitors remain the big banks because they are still the majority provider of home loans," he said.

"Today I think consumers want choice and trust and people are saying that so we must provide a range of products and services other than just Aussie products."
 
thefirstbruce said:
http://www.theage.com.au/news/natio...l/2005/07/03/1120329326019.html?oneclick=true

While 64 per cent of Australian households' wealth was in real estate, just 6 per cent was in ownership of shares, the bank said. Another 18 per cent was in superannuation, 8 per cent in cash or bank deposits, and 3 per cent in cars and other durables.

I am curious as to how they calculated it and how debt was treated.

Let's supposing you had a house worth $300k, owed $200k and had $100k of other assets for a total net wealth of $200k.

1. Your equity in the house is $100k. As you have $100k of other equity, your total net wealth is $200k, of which property equity comprises 50%.

2. But if we look at gross total assets, the amount would be $400k, of which the house is $300k, or 75%.

Ratios seem to vary depending on how dollars are counted and debt is treated. The differences vary with gearing, even though with 90% LVR your debt could be heavily skewed to property, but your equity could mostly be in other things.

Rgds, Peter
 
and then this............
http://afr.com/articles/2005/07/04/1120329362933.html


June mortgage sales down
Jul 04 12:03
AAP

The Australian housing market has continued to cool, with new figures showing national mortgage sales fell by 9 per cent in June.

The Australian Finance Group's (AFG) mortgage index shows a national downturn of 9 per cent with mortgage sales falling by more than 10 per cent in NSW, Queensland, Victoria and Western Australia.

South Australia was the only state to buck the trend, with sales increasing by 5.6 per cent in June.

AFG executive director Malcolm Watkins said June mortgage sales totalled 6569, compared to 7243 in May.

"We always seem to have a dip in June, but nowhere near as significant as this year," Mr Watkins said. "We are not sure why, but being the end of the financial year may have an impact."


The housing market is likely to remain quiet in most states over the coming months, Mr Watkins said.

"The heat has come out of the market, so we expect July to be similar to June," he said.

"Perth still has legs, but Sydney and Melbourne will probably plateau.

"We expect the housing market generally to level off and take a breather for the next 12 months."

AFG Mortgage Index shows the popularity of fixed rate mortgages has also decreased to its lowest level since October 2004.

Mr Watkins said this figure suggests the overwhelming majority of buyers believe that interest rates are unlikely to rise much in coming months.

"Mortgage brokers have been insulated from the full effects of a cooling housing market for quite some months, as buyers use them to shop around for the best deals," he said.

"While these figures may indicate that the cooling effect is reaching brokers too, it's never wise to read a major trend into a single month's data."

The index also shows a sight decrease in investment property mortgages in June accounting for 26 per cent of all mortgages, down from 27.5 per cent in May.

Mortgage sales to investment buyers was proportionately highest in WA, where 31.8 per cent of all new mortgages were to property investors, compared to 28 per cent in Queensland, 26 per cent in NSW, 19.3 per cent in South Australia, and 17.2 per cent in Victoria.
 
Aceyducey said:
Is anyone who considers ownership of a car as wealth worth listening to?

Cheers,

Aceyducey
That's a pretty unfair call (although funny :D ). They clearly recognise that various assets decline in value. In fact as traditional economists they would consider virtually all assets apart from land as declining in value. "Wealth" is the total current equity position and it's up to the individual to increase the asset column faster than spending, depreciation and other factors, including waste, reduce it.
 
Commonwealth Bank chief economist Michael Blythe warned markets not to expect an interest rate cut, as /futures/ markets are suggesting. He said constraints in the economy and the rapid growth in household debt would keep the Reserve Bank inclined to raise rates, most likely in the December quarter.


TheFirstBruce,
good post, imho Micheal Blythe has it all in a nutshell,
but when do economists ever try to cultivate positive thinking
among investment groups..
good luck
willair
 
I'm happy to sit back and watch.

I reckon prices are going to stagnate, not putting money on a big drop in prices for the median priced property, some of the expensive $3mil + places might drop but the median price stuff for each city should hang around the same level for the next few years.

What other factors could influence house prices over the next 2 years?
Imigration?
Building material costs?
Labour costs?
Salary/Wage increases?

Cheers
quoll
 
quoll said:
What other factors could influence house prices over the next 2 years?
Imigration?
Building material costs?
Labour costs?
Salary/Wage increases?

Cheers
quoll

You forgot the big one.

Investor Sentiment. That's gone out of the property market.

See Change
 
Your right SC, the hype has gone.

In it's place is doom and gloom.

We know the hype will come back a year or two after the boom starts.

Have you seen any sharemarket investing TV shows lately?;)
I haven't noticed any but then I'm not watching much TV anymore.

Cheers
quoll
 
Thinking about it a bit more.

Investor Sentiment is down because the numbers just aren't stacking up anymore, low capital growth, low yield. = put your money in shares.

So most serious investors are out and most of the bandwagon investors are out.

cheers
quoll
 
quoll said:
Your right SC, the hype has gone.

In it's place is doom and gloom.

We know the hype will come back a year or two after the boom starts.

Have you seen any sharemarket investing TV shows lately?;)
I haven't noticed any but then I'm not watching much TV anymore.

Cheers
quoll

Actually , according to the economic clock , you have a period where Cash is King. This gives a chance for valuations to come back to a more fundamentally reasonable level.

See Change
 
Willair, personally, I am starting to think there might be some reknewed interest in property up to Christmas. I am seeing signs of significant rent increases being absorbed by the market in the burbs of Brisbane, and a lack of rentals around. This wasn't obvious 2 months ago. I have put offers in on two houses which would gross me 7%, and they came back prepared to let the property go at 6% gross yield. I think once the media see signs of property yields improving, there could be a little more interest for a short while.

Nevertheless, there is certainly a lot more stock on the market, and it is moving slowly.
 
Sentiment and Fear are huge drivers.

Everyone was talking RE up to 2003/4. :D

Now fear has its icy grip. :(

Petrol is also playing a huge role despite it having a low impact compared to others like food. :confused: Wait until unemployment startes to move up :eek:

Whilst the experts here will start buying soon many will wait IMO. Any reports or boom will be 12months after it started. ;)

Keiran Tass talk of Propery Cycles at SIG on the 12th should be good. :)

Peter 147
 
Peter 147 said:
Keiran Tass talk of Propery Cycles at SIG on the 12th should be good. :)

Pitty we can't do a web cast for some of these, the country and interstat folk miss out most of the time. I'm Adelaide is that country? maybe

Cheers
quoll
 
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