FHOG to be boosted again??

[UrbanPlanner]

http://www.perthnow.com.au/news/western-australia/barnett-stays-mum-on-first-home-grant-rise/story-e6frg13u-1225966824230

What's everyone's thoughts on the above? It is a bit unclear as to whether it will actually happen and what the details are but apparently it's set to be rolled out early next year. I think it would be a good tool to bring FHB back into the market as they are slim to nil at the moment (in Perth) and being a FHB myself, would certainly welcome it.

Do you think it may have the same affect as the last time where FHB rush into property without considering the consequences and then end up having it foreclosed?

Anyway just after some thoughts, opinions etc..

Cheers

 

[Propertunity]

What's everyone's thoughts on the above?

He might well do it in the May state budget (or leak it before then). In NSW First home owners can receive up to $29,490 in benefits if they buy “off the plan” in the pre-construction stage under the 'NSW Home Builders Bonus’. It has not led to the 'end-of-the-world-as-we-know-it'.

Do you think it may have the same affect as the last time where FHB rush into property without considering the consequences and then end up having it foreclosed?

FHB being foreclosed does not seem to be the experience here.

Governments are always 'stimulating' housing one way or another. The D&G people won't like that because "property is supposed to crash, or its non-existent bubble is supposed to burst" or some other such non-sense that runs against the tide of RE cycles for the last hundereds of years

 

[bluestorm]

Governments are always 'stimulating' housing one way or another. The D&G people won't like that because "property is supposed to crash, or its non-existent bubble is supposed to burst" or some other such non-sense that runs against the tide of RE cycles for the last hundereds of years

Frankly, how sound are the fundamentals in the property market currently, when the property market constantly needs to be propped up with ever increasing grants
If the supply/demand argument were true, then the effect would be that the market should be able to sustain itself, without any artificial injections of money.

Colin Barnett has refused to say whether he backs Troy Buswell's suggestion that WA first home grants be tripled.

This gives me confidence, because 1) if they are again propping up the market, it means they are worried it's gonna fall 2) like in Australian, (and the US which had it's own Home owner grant), once the grant is reduced again (which it eventually is), the trend reverts back to a downturn (as it's starting to in Austarlia as well.
Just more nice gullible lambs drawn into the the slaughter house ;-), while the baby boomers get a little more time to cash out for retirement.

 

[tcocaro]

The view that when a market is proped up automatically means its a bubble perpetually ready to burst is absurd and points to a complete lack of understanding about basic economic principals.

Conversly are you trying to suggest that when interest rates go up and the government tries to pull back the property market from overheating that it too means its a bubble ready to pop? (like now? Do you see the Australian economy as a bubble? The minining boom as a bubble?)

(its possible under certain circumstances but you cannot constantly have it both ways and claim that when rates go up to slow the property market its a sign theres a bubble and when rates go down or fiscal incentives are introduced it too means there is a bubble ready to pop. Somehow D&G see the world and bubble or non-bubble how about up and down? or trend up and trend down or just a cycle? noo somehow up is bubble and down is crash (bubble burst).

Its just basic economics when governments interevene to try and smooth out cycles. Without intervention via macro policy and/or fiscal we would have wild booms\busts and thats not good for anyone.

The fact governments intervene doesnt mean its perpetually holding up a failing market it simply means its ensuring a downturn doesnt turn into a crash just like it tries to avoid an upturn turning into an unsustainable boom.

The same principal is applied to the economy, its trying to avoid an overheating economy.

Somehow D&G seem to think that the Australian government is hell bent on sustaining a bubble, caressing it and somehow making in not pop for years and years and years on end. Its just absurd it really is.

I dont think the government is skilled enough to tie its own shoelaces let alone perform a balancing act like that would involve.

So if the FHOG comes in again (i doubt it) then I am sure all the D&G will come out ooooooooooonce again and claim oh we were right but those pesky governments and central banks intervened.

Frankly, how sound are the fundamentals in the property market currently, when the property market constantly needs to be propped up with ever increasing grants
If the supply/demand argument were true, then the effect would be that the market should be able to sustain itself, without any artificial injections of money.

Colin Barnett has refused to say whether he backs Troy Buswell's suggestion that WA first home grants be tripled.

This gives me confidence, because 1) if they are again propping up the market, it means they are worried it's gonna fall 2) like in Australian, (and the US which had it's own Home owner grant), once the grant is reduced again (which it eventually is), the trend reverts back to a downturn (as it's starting to in Austarlia as well.
Just more nice gullible lambs drawn into the the slaughter house ;-), while the baby boomers get a little more time to cash out for retirement.

 

[tom32]

The most dangerous thing about talk like this is that people build this into their expectations.

I am a first home buyer and keenly looking around for my first PPOR. (I know people don't want to hear about it here, just IP's!) Anyway why this is important is if I hear rumors of boosted FHOG etc why would I buy before this happens?

I think this sort of thing really should not be leaked before it happens!

 

[Propertunity]

I am a first home buyer and keenly looking around for my first PPOR. (I know people don't want to hear about it here, just IP's!)

No, that's not true tom. Most people here are very happy to see newbies get their first PPOR. Then as you build equity through either organic CG, or manufactured CG through renovations etc, you can leverage off that into IPs.

Anyway why this is important is if I hear rumors of boosted FHOG etc why would I buy before this happens?

I agree to a point but bear in mind if this happens that vendors pull existing FHB stock off the market and relaunch it with the FHOG increase in the asking price
I've seen it all before

 

[HomeBuyAU]

I think they should raise the FHOG back to 14k for all homes like they had in place before although have it for new & older homes, it would boost the housing market at a time it could do with a boost.

 

[bluestorm]

The view that when a market is proped up automatically means its a bubble perpetually ready to burst is absurd and points to a complete lack of understanding about basic economic principals.

basic economic principals, haha. When you prop up something, it generally points to the fact that it's not doing to well without the assistance.
The fact that it even needs to be propped up is absurd (see below). This combined with the federal grants, what's that now, maybe $35-40K. Maybe in 2yrs the grants will be up to $80K, and then the Somersofters can tell me how well the property market is doing fundamentally ;-)).

The argument behind a lot of the Somersofters is that housing will remain on an upward trend because of supply and demand. That is, not enough housing supply to meet demand. Now forgive my "basic" knowledge of Economics 101 tcocaro (I've just worked in banks and finance my whole career), but generally, this means naturally higher prices. (Like Coal and Iron Ore price rises to meet China's demand, etc). It's a basic economic fact that holds true for any asset (except property apparently). You would think that the government propping up the Coal price would be absurd, would you not, given the demand.

Now, by this argument, the property prices should therefore be naturally going up (without ANY artificial stimulus or continually increasing grants), because by basic economics prices increase when supply does not meet demand.
The fact that the grants are there, and ever increase, clearly blows the supply/demand argument away. They would not be needed if the basic economy fundamentals held true. It just proves that property currently is on shaky ground.

QED.

 

[tcocaro]

I dont think FHOG is really needed to be honest. I think everyone is jumping the gun a little.

One thing forsure if any grant is introduced it should be put towards existing property thats simply wasted money i.e. little bang for buck.

The gains after the GFC have been eroded (in real terms) but that was to be expected given the intervention wasnt to boost property but rather stop fear taking hold and allowing larger falls to occur.

I think the government should aim for a steady property market there is no need to super charge it given we are not seeing prices collapse by a long shot which gives someone like me a lot confidence.

In short I think activity will pickup in the new, price rises will be muted for the next 12 months particularly given the economy as a whole seems to have slowed giving RBA reason to sit on its hands for a while.

This being said I think the calm and rational investors should really be looking to buy now and take advantage of sellers fear and indecision.

I think they should raise the FHOG back to 14k for all homes like they had in place before although have it for new & older homes, it would boost the housing market at a time it could do with a boost.

 

[tom32]

The argument behind a lot of the Somersofters is that housing will remain on an upward trend because of supply and demand. That is, not enough housing supply to meet demand. Now forgive my "basic" knowledge of Economics 101 tcocaro (I've just worked in banks my whole career), but generally, this means naturally higher prices. (Like Coal and Iron Ore price rises to meet China's demand, etc). It a basic economic that fact holds true for any asset. You would think that the government propping up the Coal price would be absurd, would you not, given the demand.

Working in a bank does not necessarily translate into any economic cred. Of course if you work in economic modelling or some such it might?

On iron ore and coal the government is introducing an RSPT to contain the rapid investment in capacity building around minerals in this country. This is the very reason they are doing it.

Anyway I actually think it is for new homes only reading between the lines, which would mean that rather than support house prices it will support development / prices for new but have little impact on existing prices. Perhaps long term a negative effect.

 

[tcocaro]

This further clarification you provided only reinforces the fact you dont understand cycles and the risk attributed to even a small dip if left uncheck turning into a larger fall which quickly escalates into a crash.

Your understanding of D&S is a perfect world situation. Markets are not efficient if they were we wouldnt need government intervention at all. However given they are inefficient even the mining industry in years to come will need assistance because markets dont go up in a straight line they are go through cycles irrespective of the strength or weakness of that individual industry\market.

The reasons for assistance could be external e.g. the GFC which was not a problem born from within our shores but OS and contagion meant that it eventually hit us. In this scenario do you also recommend inaction? Do you think the government should have NOT spent money on infrastructure projects etc during the GFC? Did you see something fundamentally wrong with the Australian economy just before the GFC??? No, the economy was fine but an external influenced meant goverment intervention was required. So yes the government proped up the economy but not because it was a bubble or fundamentally flawed.

Did you work as a teller?

basic economic principals, haha. When you prop up something, it generally points to the fact that it's not doing to well without the assistance.
The fact that it even needs to be propped up is absurd (see below). This combined with the federal grants, what's that now, maybe $35-40K. Maybe in 2yrs the grants will be up to $80K, and then the Somersofters can tell me how well the property market is doing fundamentally ;-)).

The argument behind a lot of the Somersofters is that housing will remain on an upward trend because of supply and demand. That is, not enough housing supply to meet demand. Now forgive my "basic" knowledge of Economics 101 tcocaro (I've just worked in banks and finance my whole career), but generally, this means naturally higher prices. (Like Coal and Iron Ore price rises to meet China's demand, etc). It's a basic economic fact holds true for any asset. You would think that the government propping up the Coal price would be absurd, would you not, given the demand.

Now, by this argument, the property prices should therefore be naturally going up (without ANY artificial stimulus or continually increasing grants), because by basic economics prices increase when supply does not meet demand.
The fact that the grants are there, and ever increase, clearly blows the supply/demand argument away. They would not be needed if the basic economy fundamentals held true. It just proves that property currently is on shaky ground.

QED.

 

[oracle]

basic economic principals, haha. When you prop up something, it generally points to the fact that it's not doing to well without the assistance.
The fact that it even needs to be propped up is absurd (see below). This combined with the federal grants, what's that now, maybe $35-40K. Maybe in 2yrs the grants will be up to $80K, and then the Somersofters can tell me how well the property market is doing fundamentally ;-)).

This is my understanding on why the Government have the FHOG.

Firstly, it gives a lump sum that can be used as a deposit to purchase a house even if FHO have no savings. This automatically puts FHO into automatic savings path via paying P&I loans. This will pay off for the Government when FHO has a fully paid PPOR with lots of equity + their superannuations thereby not having to rely so much on Government money during retirement. They can downsize and still have decent amount of money left over to enjoy retirement.

Secondly, it helps the economy when people buy houses starting with banks, builders, consumers electronics, furniture etc etc. by creating jobs. So good for employment which inturn generates more tax revenue for the government.

Thirdly, the prosperity of a country depends on how prosperous the citizens of the country are. If majority of people own their homes outright because they got on to the property ladder with some help from the Government it should be considered a good thing, right?

As I said this is just my opinion only. The real reason could be completely different as you said.

Cheers,
Oracle.

 

[bluestorm]

On iron ore and coal the government is introducing an RSPT to contain the rapid investment in capacity building around minerals in this country. This is the very reason they are doing it.

We'll you just further proved by point tom ;-). Where normal supply/demand economics holds true, and where you see price rises, you try and control those rises or obtain the benefits of the rises (ie, via a tax).
Where normal supply/demand economics DOES NOT holds true, you need to head the other way, and prop up the market, as the market is not self maintaining in price rises (as would be the case under normal supply/demand economics). It clearly shows how property is moving further away from the "supply/demand" argument.

Oh, 2011/2012, is slowly falling into place ;-).

 

[HomePage]

I don't mind FHOGs going to new homes only, as at least it helps solve the supposed supply shortage issue.

 

[Propertunity]

......because 1) if they are again propping up the market, it means they are worried it's gonna fall

That's a BIG assumption. Perhaps it just means that Colin Barnett wants to get re-elected?

2) like in Australian, (and the US which had it's own Home owner grant), once the grant is reduced again (which it eventually is), the trend reverts back to a downturn (as it's starting to in Austarlia as well.

The FHOG + FHOB only amounted to $14K. The median house price is what now? in Sydney about $600K (OMG it was $300K about 10 years ago....but that's another story, let's not go there just yet ). And you are mounting a case that the Aust-wide trend is reverting to downwards because FHB who represent less than 20% of the overall market have had a $7K cash give-away withdrawn?

 

[bluestorm]

The median house price is what now? in Sydney about $600K (OMG it was $300K about 10 years ago

So, 80% of that gain for 2000-2003, as we've always said. Looking forward to it being $1.2mil in 2018 then Propertunity.

Ah look Propertunity and guys, we could go at this for every. I have better things to do.

You invest the way you want, I'll deleverage for 2011/2012, and then buy again when more then a few get wiped out (and I won't be feeling sorry for those people).

Cheers

 

[HomePage]

So, 80% of that gain for 2000-2003, as we've always said. Looking forward to it being $1.2mil in 2018 then Propertunity.

Ah look Propertunity and guys, we could go at this for every. I have better things to do.

You invest the way you want, I'll deleverage for 2011/2012, and then buy again when more then a few get wiped out (and I won't be feeling sorry for those people).

Cheers

Sydney was over $500K median in 2002/2003, so if the 'property doubles every 7 years' mantra is to be believed, Sydney should now be hitting over $1M median. I reckon that even with 3 year's grace, Sydney will be struggling to be double what it was a decade ago by 2012/2013. It's got to get past this next year of 'soft landing' first.

 

[csc2]

No way should the govt start this again with the bonus, let the market decide when the bottom is, let it drift back slowly...last thing aust wants is another quick 10-15% spike cause i am quite sure when it closes again theres gunna be some real hurt and people may well start to panick way more...prices in my opinion will retrace way quicker..

i think when the building game starts to stagnate or when its at the bottom of the cycle hit the bonus again for 12 mths and kick start the market possibly..

wasnt keen on the first extra bonus, all it done was prolong the inevitable which is happening now

 

[Propertunity]

Just to clarify, in this post I am talking about the Sydney LGA not Sydney as a whole all mashed in together.

In 2003 the median in Syd LGA was $615K
In 2010 it is $860K
However, in 2000 (i.e. 10 yrs ago) the median was $438K.

Sooooooooo, in the Sydney LGA we have a doubling from $438K in 2000 to $860K in 2010 (OK it missed by $16K or 1.9%).

 

[hobo-jo]

And you are mounting a case that the Aust-wide trend is reverting to downwards because FHB who represent less than 20% of the overall market have had a $7K cash give-away withdrawn?

Easy to write it off as "just $7k", but reality is that at a 95% lend the $7k reduction is potentially a $140k reduction in purchasing lower due to the magic of leverage.