I have been pondering what is going to happen to property prices when the FHOG finishes at the end of June. I really don't need to think much I just need to look at what happened in 1988 in the UK for an exact parallel.
In March 1988 the then chancellor, Nigel Lawson, announced that he would abolish the double tax relief on mortgages where unmarried couples bought a house. It was a bit of a loophole but essentially both people could claim their own £30,000 allowance until 31st July 1988 after which there would only be one allowance per property. Many couples who would not normally have considered buying a house jumped on the housing ladder for fear of missing out. It was like a feeding frenzy and prices rocketed during the last few month before the tax relief was abolished. Gazumping was rife and these poor couples would buy anything just to get the benefit of the tax relief.
So guess what happened on the 1st August 1988 - Sales pretty much stopped altogether. Anyone who was going to buy had already bought. The whole property market ground to a halt as the majority of the people buying for the tax relief were first time buyers. Without them the party was over. The 1st August 1988 was when the property bubble burst and then the rot set in with prices dropping over the next 4 years, in some cases to less than 50% of the original sales values with new build flats.
This all happened after the 1987 stock market crash. - See the parallels.
Here in Australia we have an almost identical situation with the FHOG. Because the incentive may be withdrawn at the end of June we have all the first time buyers trying to get on the housing ladder. Anyone who has any vague ideas of buying a house is out there looking. The Real Estate agencies and developers are out there targeting this group. You can go to seminars and at every opportunity Rudd tells us how he is helping working australians with the increased grants.
So what is the likely outcome? Firstly, there is talk that it might be extended but you can bet your bottom dollar that the property salespeople are putting the fear of god into these first timers to get them to sign in case it is abolished and we won't know until it's too late. So come the 1st July, regardless of if the grant is extended or not, there will be no buyers. Just as in the UK, anyone who was going to buy had already bought. If it is extended there may be a sigh of relief amongst the ones left out and they will put their feet up and say "we have more time to consider this now, there is no hurry to buy"
We have also just had a stock market crash as in 1987.
Which way for property prices anyone?
In March 1988 the then chancellor, Nigel Lawson, announced that he would abolish the double tax relief on mortgages where unmarried couples bought a house. It was a bit of a loophole but essentially both people could claim their own £30,000 allowance until 31st July 1988 after which there would only be one allowance per property. Many couples who would not normally have considered buying a house jumped on the housing ladder for fear of missing out. It was like a feeding frenzy and prices rocketed during the last few month before the tax relief was abolished. Gazumping was rife and these poor couples would buy anything just to get the benefit of the tax relief.
So guess what happened on the 1st August 1988 - Sales pretty much stopped altogether. Anyone who was going to buy had already bought. The whole property market ground to a halt as the majority of the people buying for the tax relief were first time buyers. Without them the party was over. The 1st August 1988 was when the property bubble burst and then the rot set in with prices dropping over the next 4 years, in some cases to less than 50% of the original sales values with new build flats.
This all happened after the 1987 stock market crash. - See the parallels.
Here in Australia we have an almost identical situation with the FHOG. Because the incentive may be withdrawn at the end of June we have all the first time buyers trying to get on the housing ladder. Anyone who has any vague ideas of buying a house is out there looking. The Real Estate agencies and developers are out there targeting this group. You can go to seminars and at every opportunity Rudd tells us how he is helping working australians with the increased grants.
So what is the likely outcome? Firstly, there is talk that it might be extended but you can bet your bottom dollar that the property salespeople are putting the fear of god into these first timers to get them to sign in case it is abolished and we won't know until it's too late. So come the 1st July, regardless of if the grant is extended or not, there will be no buyers. Just as in the UK, anyone who was going to buy had already bought. If it is extended there may be a sigh of relief amongst the ones left out and they will put their feet up and say "we have more time to consider this now, there is no hurry to buy"
We have also just had a stock market crash as in 1987.
Which way for property prices anyone?
