Are we on the cusp of an upswing for property?

[Nth Brisbanite]

that's not an RBA cut, that's just big 4 banks not ripping us off to the same extent they were before. there would be nothing in it for customers of B rate lenders

Even so, any decrease would be welcome and may even help to turn prices around.

 

[sash]

I very good point Norm. There is talk the the federal government is going to relax skilled immigration and student visas. There is a feeling that they went too far and number of skilled immigrants and overall immigration has dropped. The feds know that having labour supply is important to containing wage inflation. Also the education industry which is the second largest exporter is now in its knees and as part of the budget both of these will get relief.

Migration might be slightly lower (demand) but construction (supply) is down. Low housing starts, will in the near future, result in a shortage of rental housing producing an increase in rents for the 2011/2012 and bring investors in to try to benefit from the situation. Where are migrants going? Melbourne and Sydney.

I read this too. My feeling is with the number of loans dropping the banks will have be warring for customers.

I also feel that the RBA will be looking to relieve the pressure of high dollar by reducing rates. Once the Feds release the budget with more skilled immigrants on the cards the wages inflation issue will be less of a concern. So my feeling is a rate cut of at leat 0.25% this year. The other numbers such as retail sales, home loans, building approvals are woreful!

So we could see at 0.4% cut if the banks chip in also. As I said 2012 will be an interesting year for property. I also see the dollar back in the 90s by year end...caused by a rate cut her and rate increases in the US.

What effect will a reduction on interest rates have on property? Article in today's papers seems to indicate that we may be on the verge of a surprise cut:

HOMEOWNERS could soon be graced with a surprise gift from the major banks - a small interest rate cut.

Banking experts believe the major lenders are considering trimming their variable mortgage rates in the coming months, if the cost of their funding stays at current levels.

Since shocking customers by raising rates by upwards of 0.45 per cent in November, the major banks tight lending margins have eased slightly. It is enough to give them breathing space to offer more competitive rates.

A senior banking executive said yesterday he was anticipating a downward move from one of the major banks before winter, if the current lending margins remained and if official rates stayed on hold.

 

[Giddyup]

No appears to have focussed on the one of the main factors that drives the property market – supply and demand.

You're right, it is a matter of supply and demand, but there is more supply and less demand at the moment. There is NO under supply of housing. There are a huge amount of properties for sale, and not enough buyers.

It sounds like you havent moved on from the start of 2010. The market has changed, so should your mantra.

"The latest figures from the ABS reveal that the month to month level of home loan approvals has hit its lowest point for 10 years, leading to predictions that the housing market could see big falls in 2011.

According to ABS figures, the seasonally adjusted estimate for the number of home loan approvals for owner occupied housing in February fell by 5.6%.

When broken down into categories, the number of home loan approvals for new dwellings fell by 12% in seasonally adjusted terms, the figure for established dwellings fell by 0.6% and the figure for the construction of dwellings rose by 1%.

Noting that the demand for housing is now weaker than it was during the second half of 2008, when house prices fell by 5% as an average for the country’s eight capital cities, SQM Research Managing Director Louis Christopher warned that “the market is falling and is likely to fall at least 5% this year as an average for the capital cities”.

http://www.yipmag.com.au/news/5316/default.aspx

Note the spiel at the end from the HIA trying to continue the undersupply of housing myth. Of course they want to prop up new starts in building, they are the lobby group for builders!

 

[Aaron Sice]

oh man bring on big falls - we're buying up this year so cross fingers eh?

currently in Perth still paying a premium - i look forward to getting in under intrinsic value.

 

[DaveM]

You're right, it is a matter of supply and demand, but there is more supply and less demand at the moment. There is NO under supply of housing. There are a huge amount of properties for sale, and not enough buyers.

It sounds like you havent moved on from the start of 2010. The market has changed, so should your mantra.

I certainly agree with this. FHB's have gone relatively quiet, there is a lot of stock on the market, and houses are taking far longer to sell than before.

People are panicking about a value drop and are trying to cash in beforehand.. which is putting excess stock on the market which in itself causes the value to drop by their own doing.

 

[myoung]

1 year 6.99% p.a. 7.77% p.a.
2 years 7.19% p.a. 7.75% p.a.
3 years 7.34% p.a. 7.74% p.a.
4 years 7.69% p.a. 7.84% p.a.
5 years 7.74% p.a. 7.86% p.a.
7 years 8.19% p.a. 8.14% p.a.
10 years 8.14% p.a. 8.17% p.a

ANZ Fixed rates.

Looks like ANZ bank are betting on a moderate rise in rates over the next few years or cashing in on the downward cycle?

That being said i have a feeling we will see a small cut late this year as Sash has predicted. Gut feeling..... but I think we may sneeze as others around the world catch a cold.

 

[HiEquity]

i'm waiting for what is very obviously bubbling away under the surface of WA properties to boil and it'll be one of three ways - rents up/values stag, rents up/values up or rents stag/values up.

Hi Aaron

I'm voting for the first option. As others have pointed out there is no new construction going on because of construction / business finance restrictions. The same finance restrictions will constrain values in the short to medium term unless banks learn to lend again in a meaningful way for construction risk. That statement applies to CIPs as well as RIPs.

However there is still strong population growth in certain areas (some of which still have quite depressed RE markets...). More people and little new supply with constrained capital price growth due to finance = increasing rents. There are some signs of vacancy rates dropping already. With rents coming off such a low base there is far more room for and likelihood of upside there than there is with values IMO. Although there are locations where it must be said that values look pretty low ATM so picking the right property could give a good yield alongside future price and rental growth, which is of course the trifecta we are all after...

Sash - nice thread...

 

[Aaron Sice]

hi Antony, yes the first option is almost a given impo. i don't think the other two are as likely.

we must note that if 80% of australian homeowners are OO's, then statistically 80% of what is on the market would be the same.

these people won't be selling something vacant, so it doesn't abate the rental demand from a growing population.

therefore i see values stagnant, if a little depressed and rents rising.

it's almost the perth 2001-2003 picture all over again - and we know what happened after that.

 

[bene313]

1 year 6.99% p.a. 7.77% p.a.
2 years 7.19% p.a. 7.75% p.a.
3 years 7.34% p.a. 7.74% p.a.
4 years 7.69% p.a. 7.84% p.a.
5 years 7.74% p.a. 7.86% p.a.
7 years 8.19% p.a. 8.14% p.a.
10 years 8.14% p.a. 8.17% p.a

ANZ Fixed rates.

Looks like ANZ bank are betting on a moderate rise in rates over the next few years or cashing in on the downward cycle?

My understanding is that the long term fixed rates set by the banks have little to do with their forecasts of long term variable rates. They don't make a "bet" that rates will go one way or another. Rather, they lend out at say 8% and borrow at 8-X% where X is the margin required. If they lend on fixed terms they will borrow on fixed terms thereby eliminating the need to "bet" on where variable rates will head.

 

[Ausprop]

They don't make a "bet" that rates will go one way or another.

Yes which is why i was suprised to see Bouris make some silly comment like "banks are obviously predicting IR decreases"

 

[buster]

Yep....which also means that they will start moving up the manufacturing hierarchy. The will leave things like shoes, clothes, and other low priced items to the Indonesians, Vietnamese, Indians, Pakistanis, Bangledeshis, and Africans as their wages will make it costlier.

However, to replace this they will move into machinery such as Airplanes, Cars, Ships, Heavy Machinery...you might poo poo brands like Chery, Geely, etc....but in 5 years they will like what Hyundai was in the 1990s.

This is good for Australia..as goods from the countries above is cheaper. Also, remember....we pay a lot for our food because we produce most of our food with higher wages. If we imported it would be a lot cheaper.

With the gorcery price wars going on....I think this is good thing...because woolies has dominated for a long time with a 8% retail margin...whereas the UK/USA average is about 3%.

I also feel that government will wake one as the skills crisis bite and ease the foreign labour restrictions. This shoud put a cap on the ridiculous wages paid in Australia. This will also help ease inflation.

Sash, Australian farmers are the most cost efficient farmers in the world , the least subsizied except for N.Z and grow more per labour unit then any-one, the labour costs are insignificant when compared to other cost. Australian food is sold at world parity prices. IT is stupid to say if it is imported it would be cheaper. Just look at what happened with pork for example cheap subsidized pork came in aussie producers couldnt compete, went out of buisness than the price of pork went up above what aussies were getting paid. Cheap imports resulted in higher prices, when the world surpluss cleared and it wasnt dumped in Australia, and no-one left to produce it.

 

[sash]

Okay point taken. So why are food prices in Australia are among the highest in the world?

Is it the 8% Woolies margins (3 times other global retails)?

Ready to be edmucated.

Also....I am sick of paying $10-$12 per Kg for bananas...I appreciate the cyclone hit the industry.....but $10-$12 kg for bananas?? Common?? Coffs did not take a hit did it?

Sash, Australian farmers are the most cost efficient farmers in the world , the least subsizied except for N.Z and grow more per labour unit then any-one, the labour costs are insignificant when compared to other cost. Australian food is sold at world parity prices. IT is stupid to say if it is imported it would be cheaper. Just look at what happened with pork for example cheap subsidized pork came in aussie producers couldnt compete, went out of buisness than the price of pork went up above what aussies were getting paid. Cheap imports resulted in higher prices, when the world surpluss cleared and it wasnt dumped in Australia, and no-one left to produce it.

 

[bluestorm]

Also....I am sick of paying $10-$12 per Kg for bananas...I appreciate the cyclone hit the industry.....but $10-$12 kg for bananas?? Common?? Coffs did not take a hit did it?

Why don't you try a local grocer, or paddies markets, etc, for cheap fruit and veggies instead then, instead of moaning about Woolies.

You can go down to Paddies at 5pm on a Sunday, and they are giving out trays (1-2kg) for $1 or $2 to clear the weekend stock. (of anything really).
You can get enough fruits for $10, that you can do nice fruit salads for a whole week.

Yeah, we know Coles and Woolies mark up- that is no secret. Go to a local butcher for meat instead. Prices are better and quality is good.

 

[sash]

Yaaaawwwwnnnnnn.......streeeetcccchhh..............now........were you making a point???

Why don't you try a local grocer, or paddies markets, etc, for cheap fruit and veggies instead then, instead of moaning about Woolies.

You can go down to Paddies at 5pm on a Sunday, and they are giving out trays (1-2kg) for $1 or $2 to clear the weekend stock. (of anything really).
You can get enough fruits for $10, that you can do nice fruit salads for a whole week.

Yeah, we know Coles and Woolies mark up- that is no secret. Go to a local butcher for meat instead. Prices are better and quality is good.

 

[Beebop]

Yes, a big up swing, as most properties are now positively geared with 100% LVR and limited stock on the market the only way to go is up !

 

[sash]

Word around the traps is that banks have turned the corner ....they have stopped chasing margins as the number of new lends is dropping and refinances are up. So banks are either preventing churn (via offering discounts up to 1.1% off) and or looking to poach customers. See below....

http://www.news.com.au/money/interest-rates/rates-tipped-to-be-trimmed/story-e6frfmn0-1226036911936

This is really good news.

As I have said earlier....watch the 1 year rates....when they move....rates will drop.

The other thing banks are doing are focusing on service provision....new technology is one option...see below..

http://www.news.com.au/money/banking/customers-cash-in-on-innovation/story-e6frfmcr-1226036989795

 

[Melbournian]

Word around the traps is that banks have turned the corner ....they have stopped chasing margins as the number of new lends is dropping and refinances are up. So banks are either preventing churn (via offering discounts up to 1.1% off) and or looking to poach customers. See below....

http://www.news.com.au/money/interest-rates/rates-tipped-to-be-trimmed/story-e6frfmn0-1226036911936

This is really good news.

As I have said earlier....watch the 1 year rates....when they move....rates will drop.

The other thing banks are doing are focusing on service provision....new technology is one option...see below..

http://www.news.com.au/money/banking/customers-cash-in-on-innovation/story-e6frfmcr-1226036989795

interesting sash - they may be some correlation to it - i will try to research more into it.

 

[bluestorm]

Yaaaawwwwnnnnnn.......streeeetcccchhh..............now........were you making a point???

Yeah, the point was to stop your whining about the cost of bananas. Your a rich investor, surely it's just pocket change then.

Word around the traps is that banks have turned the corner ....they have stopped chasing margins as the number of new lends is dropping and refinances are up.

This is really good news.

As I have said earlier....watch the 1 year rates....when they move....rates will drop

Alan Kohler had an interesting graph today on just this topic. Lending has not recovered after GFC, and is still at levels of 5yrs ago. So banks are fighting each other for the little lending that does exist. I wouldn't look at any rate fall as anything other than a bit of competition amongst the banks. But overall rates will be going up this year (the RBA will need to contain increasing inflation).

Can't find the graph, but it's not something I would be celebrating sash. The large drop off in lending means the flow of people at the bottom, and upgraders is drying up. The system of every increasing property prices is unreveling. The bottom will drop out, and we'll see a significant correction is property values.

 

[arriety]

yes, heard it on the news tonight. Very good news if it happens. I think we have a reprieve and the market should pick up as nervous investors return to property.

 

[sash]

Yes...good news indeed if it made the evening news....

I suspect that this was more than coincidence.....bank PR departments are increasingly more sophisticated and are adept of leading the media to what lies in the horizon......

Will be interesting....I am of the opinion that the NAB will be the most agressive in terms of winning market share. As a result, I am looking to get some of my portfolio across to them......

yes, heard it on the news tonight. Very good news if it happens. I think we have a reprieve and the market should pick up as nervous investors return to property.