"First-home owners need not be impatient". Michael McNamara

[mam544]

Michael McNamara, general manager at Australian Property Monitors (a wholly owned subsidiary of Fairfax), says that with the property market likely to suffer softness in quite a few areas in Melbourne over the next few years - particularly in the south-east and the north - "first-home owners need not be impatient".

"There will be opportunities," Mr McNamara says. "There is more and more unsold inventory, more stock on the market and there seems to be fewer buyers. So, more than likely, first-home buyers are going to be in the position over the next few years where they are spoilt for choice."

He says this means first-home buyers should, over the next few years, be in a stronger negotiating position when buying and have the luxury of time to pick and choose properties. "Which is quite different than the environment they've experienced say, over the past year, where property prices increased by over 25%," he says. "So if first-home buyers really do their homework, they will find that in the market there is a fair swag of distress sales that will allow them to pick up a bargain that ticks all the boxes."

Sydney Morning Herald 17/5/2008

Ah! No need to hurry you Melbourne buyers, you will all be 'spoilt for choice' over the next few years. No wonder the general public is confused with advice like this.

 

[yieldmatters]

Ah! No need to hurry you Melbourne buyers, you will all be 'spoilt for choice' over the next few years. No wonder the general public is confused with advice like this.

I think it's good advice. If people believe that prices only ever go up then no price is too high and they can never buy too early. This then leads them to pay too much too early and then prices do go up and so on (self fulfilling prophecy).

It's about time they just relaxed and bought when it was good value. Then the market might work properly.

If you take away the "fear of being locked out forever" and the "greed of a speculator looking for a quick buck" what do you have left to support prices? You have fundamental value. I'd say fundamental value is somewhat less than what we are at now but not enormously less. As I've said before I think it is 2003 prices after CPI is added on.

 

[steveadl]

Yes, now they all just have to get together and organise when each of them will decided to pull the trigger and buy a house. Because unless they all do it in an orderly staggered fashion, I wonder what will happen......?

As we know, many people are holding back during the current doom and gloom, which has resulted in more supply on the market. Wonder what will happen to prices when we "turn the corner" (according to the press anyway ), and all the buyers that have been holding off decide to jump in and buy at the same time?

 

[ianvestor]

Then the market might work properly.

Hehe, the market always works properly.

 

[alexlee]

Sure, there are more opportunities when the market tanks. The problem is, when the market tanks it's likely the wider economy is horrible too. Will the average first home buyer really buy when the media is filled with stories of doom, banks are tightening credit and there are people getting 'downsized' left and right? Will trader uppers (who, by the way, benefit more when markets are falling) think about buying a bigger house when they can't sell their old one at the price they want (conveniently ignoring that they can also talk down the price of a new place)?

McNamara's points make sense, IF you expect the first home buyer to be rational. They're not, though. Heck, I'm not always rational, and I know more about cycles and markets than your average home buyer.

In retrospect, the mid 90s were great times to buy. That window lasted for YEARS. So why didn't people just pile in and close that buying window? Because memories of double digit rates and double digit unemployment were still fresh in people's minds.

It's been proven psychologically that most people will prefer to buy when the market is rising, because the pain of losing a certain amount is greater than the pleasure of gaining that same amount. In short, people would prefer to 'sit out' of a falling market (thus prolonging it) because they don't want to buy into a market that might fall further. Even though realistically there is no way to time a market that precisely. They'll wait until there is a clear trend that the market is rising, usually when the media starts to report that the property market is booming. In the context of the last boom, that means people sat out the 90s, and didn't really pile in until after 2000 in Sydney, and even later for Brisbane and Melbourne.

Again: it makes sense only if you assume people are totally rational. They're not.

First home buyers can go ahead and wait. I'm going to keep buying.
Alex

 

[Kennethkohsg]

As we know, many people are holding back during the current doom and gloom, which has resulted in more supply on the market.

Wonder what will happen to prices when we "turn the corner" (according to the press anyway ), and all the buyers that have been holding off decide to jump in and buy at the same time?

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Dear Steveadl,

1. They can wait all they want.

2. As the worst of the global Credit Crunch Crisis on the Australian Economy begins to wear off and local residential securitised collaterals market start to re-open again in the local Australian money markets and credit access started to be further loosened and their cost of funds borrowings start to stablise and come down in the near future, it is quite likely that the existing negative sentiments for the various housing markets start to change, I will expect the new house buying sentiments to re-commence subsequently in the near future.

http://business.smh.com.au/when-the-credit-squeeze-eases-20080516-2ez9.html

http://news.smh.com.au/business/australia-has-withstood-us-crisis-rba-20080516-2eyo.html


3. This is especially for those first-time home buyers who are realistically purchasing affordable houses to live in with their own families.

4. For your further comments and discussion, please.

5. Thank you


Cheers,
Kenneth KOH

 

[alexlee]

I still expect the US Recession to whack us via China. Therefore, I disagree with your 'near future' prediction.
Alex

 

[Kennethkohsg]

I still expect the US Recession to whack us via China. Therefore, I disagree with your 'near future' prediction.
Alex

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Dear Alex,

1. Whether the US Recession will adversely and significantly affect the Australian Economy eventually or not, is left very much to be seen, at this point in time.

2. I am personally glad that the Australian Economy was sufficiently "resilient" and strong enough to properly withstand the last Global Credit Crunch Crisis, (as last triggered off by the US housing slump and its ARMs/ NINJA loans related issues in June 2007), and has largely escaped relatively "unscathed" at this point in time, saved for the temporary closing of the non-conforming lending markets and the resultant higher borrowing costs for the lenders which are presently being passed onto the consumers in Australia.

3. In the words of Dr Guy Debelle, Assistant Governor, RBA," Australia has withstood US crisis"

http://news.smh.com.au/business/australia-has-withstood-us-crisis-rba-20080516-2eyo.html


4. Apparently, both Glenn Stevens and his RBA, like Access Economics, officially believe that " if China is OK, then Australia is OK", at this point in time.

5. In its latest Business Outlook report, Access Economics reportedly says "2008 looks fine for China - and hence for Australia too." "The theory is that as long as China continues to buy our coal and iron ore (at increasingly higher prices), we will sail through the rest of 2008. "

6. Despite the negative signals from the US, UK and some parts of Asia, Access Economics is not overly concerned about Australia in 2008.

http://www.hotspotting.com.au/index....&productId=226


7. For your further comments and discussion, please.

8. Thank you.


Cheers,
Kenneth KOH

 

[alexlee]

Because they think China won't be affected by the US credit crunch and recession. I disagree with them. I believe the Chinese middle class cannot replace the contraction in consumer spending from the US, Eurozone AND Japan.
Alex

 

[Kennethkohsg]

Because they think China won't be affected by the US credit crunch and recession. I disagree with them.

I believe the Chinese middle class cannot replace the contraction in consumer spending from the US, Eurozone AND Japan.
Alex

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Dear Alex,

1. While I do not entirely disagree with you nor rule out your suggestion/possibility at this point in time, however, I still personally believe that Australia is somehow a "lucky" and a much "blessed" country, as compared to its counterparts in the US, UK, Canada, NZ as well as other English-Speaking OECD countries, and thankfully also for its own inherent "resiliency" of the Australian Economy.

2. Somehow, for certain (unknown) reasons, Australia was able to escape relatively unscathed from the recent global Credit Crunch Crisis, just as it has previously done, from the various global and regional financial crises, in the past.

3. This is existing actual real economic reality in Australia, factually speaking.

4. Personally, I believe that this actual real economic reality counts the most, as far as our own personal property investing activities are concerned, fundamentally speaking.

5. This is irrespective of our own thinking/beliefs or/and the existing negative short term market sentiments and D+G atmosphere prevailing within Australia, at this point in time.


6. While I remain open-minded midst the present largely pessemistic and negative market sentiments prevailing within Australia at this point in time, and will closely monitor the Australian Economy to see how it will next respond to the emerging US Recession and likely to be adversely affected by it eventually in due course, yet, I am somewhat still inwardly confident and optimistic, at this point in time, that somehow given its "uniqueness" and existing good track record, it is more likely that Australia is able to similarly escape the crisis relatively unscathed again, where many other nations could be/are being adversely affected by the US Recession, similar to what we have presently observed regarding the probable ill-effects arising from the recent global Credit Crunch Crisis.

7. For your further update and discussion, please.

8. Thank you.


Cheers,
Kenneth KOH

 

[alexlee]

1. While I do not entirely disagree with you nor rule out your suggestion/possibility at this point in time, however, I still personally believe that Australia is somehow a "lucky" and a much "blessed" country, as compared to its counterparts in the US, UK, Canada, NZ as well as other English-Speaking OECD countries, and thankfully also for its own inherent "resiliency" of the Australian Economy.

Believe that 'we are different' at your peril. The US and UK are much, much bigger than we are. Canada is probably the most similar to us. Read some overseas newspapers, especially those from the UK and Canada. EVERY country thinks it's somehow 'different'. Can they all be different? I doubt it.

2. Somehow, for certain (unknown) reasons, Australia was able to escape relatively unscathed from the recent global Credit Crunch Crisis, just as it has previously done, from the various global and regional financial crises, in the past.

Assuming the credit crunch is over. I don't believe it is. I believe it's now spilling over to the 'real' economy. I don't believe in some hypothetical mojo that we have. You're talking about how we didn't suffer much during the Asian crisis and dot-com bubbles? Neither did the US, and we weren't as dependent on China at the time. This time, though......

3. This is existing actual real economic reality in Australia.

Realities change with each passing second. That's like saying the actual reality the early 90s was sky high interest rates and horrible property markets. That was the economic reality. That changed, to our benefit.

4. Personally, I believe that actual economic reality counts the most, as far as our own personal property investing activities are concerned, fundamentally speaking.

I think the reality over the LONG TERM counts for more, since property is not something you want to do short term. Project the current situation into the future at your peril. Imagine if you'd assumed the situation in the early 90s to continue.

5. This is irrespective of our own or/and existing negative short term market sentiments prevailing within Australia, at this point in time.

If enough people share a pessimistic view (and I can bet you the average person on 58k watching their grocery and petrol bill jump isn't feeling all that optimistic), reality soon follows sentiment.

6. While I remain open-minded midst the present largely pessemistic and negative market sentiments prevailing within Australia at this point in time, and will closely monitor the Australian Economy to see how it will next respond to the emerging US Recession and likely to be adversely affected by it eventually in due course, yet, I am somewhat still inwardly confident and optimistic, at this point in time, that somehow given its "uniqueness" and existing good track record, it is more likely that Australia is able to similarly escape the crisis relatively unscathed again, where many other nations could be/are being adversely affected by the US Recession, similar to what we have presently observed regarding the probable ill-effects arising from the recent global Credit Crunch Crisis.

In world terms, we are a country with a tiny economy and miniscule population. We couldn't 'respond' to the China boom any more than we can 'respond' to a US downturn. The waves will bury us just as it pushed us up.

Long term, I'm not worried. I believe if you buy now and hold it for the long term, you'll be fine. In the short term, I think it's imprudent to think it's all just going to blow over and we'll have another boom just around the corner. On the other hand, if I'm wrong and we DO have another boom just around the corner, what I have will appreciate, so I have a foot in each camp. I'm certainly not pessimistic enough (nor confident enough in my predictions) to actually sell.

Look, I'm not selling. I'm looking to buy. But I believe in preparing for the worst because that means I'm less likely to overextend in a downturn. If I'm wrong, I just make a little less.
Alex

 

[marg4000]

I saw a graph on the number of sub prime loans in the US that are set to have dramatic interest increases, which so far has led to the huge number of owners relinquishing homes.

2008 and 2009 had the highest figures, with a tailing off in 2010.

I very much fear that we are only seeing the beginning of this crisis in the US. How it affects the rest of the world remains to be seen.
Marg

 

[Kennethkohsg]

Long term, I'm not worried. I believe if you buy now and hold it for the long term, you'll be fine.

In the short term, I think it's imprudent to think it's all just going to blow over and we'll have another boom just around the corner. On the other hand, if I'm wrong and we DO have another boom just around the corner, what I have will appreciate, so I have a foot in each camp. I'm certainly not pessimistic enough (nor confident enough in my predictions) to actually sell.

Look, I'm not selling. I'm looking to buy. But I believe in preparing for the worst because that means I'm less likely to overextend in a downturn. If I'm wrong, I just make a little less.
Alex

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Dear Alex,

1. Bottomline, we both agree that residential property is still a "buy" for the long term, at this point in time.

2. The various housing markets in Australia are quite "unique" in/of themselves as different suburbs move at their own pace in accordance to the existing market situations and respective stages in their own existing/new Property Cycle, on a real-time basis.

3. So to me, it is a question of doing our proper personal research and due diligence process before we invest.

4. Back to my original post whereby I will encourage first time homeowners to consider buying realistically, some "affordable" houses (where they can truly afford to buy), to live in with their families.

5. With the impending implementation of KR's National Affordability Rental Housing Scheme as well as WA First Starts Housing Equity Scheme limiting "affordable" housing to some A$375,000 or lower, I do not expect existing land prices or/and house construction costs to fall significantly, in the near future, given Australia's present continuing full employment status basis and its continuing resource boom and the fact that the Australian Economy is still operating at its full/"near full" capacity (84%? at this point in time).

6. While existing first-time home buyers may have more choices to choose from the various established houses in the resale markets to buy, I personally believe that it is still better to "buy and wait", rather than to "wait to buy" when one can afford it, at this point in time;- for many would-be first-time homebuyers have waited "unsuccessfully" long enough to save their 20% Deposit in the past, before the next wave of housing price increases, continue to make their present savings level still "inadequate" and falls/lag further away from their own housing ownership aspirations.

7. For your further comments and discussion, please.

8. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

I saw a graph on the number of sub prime loans in the US that are set to have dramatic interest increases, which so far has led to the huge number of owners relinquishing homes.

2008 and 2009 had the highest figures, with a tailing off in 2010.

I very much fear that we are only seeing the beginning of this crisis in the US. How it affects the rest of the world remains to be seen.
Marg

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Dear Marg4000,

1. Realistically and legally speaking, the US homeowners could simply walk out on their lenders with their non-recourse loans if they want to, should their house values falls into a prolonged period of negative house equity situation.

2. I further read and understand that US Congress is rushing out some new housing legislations to protect the existing home-owners from being thrown out into the streets through the legal re-scheduling of the loan interest repayment across America-wide etc.


3. Even as we talk about the US housing slump still trying to find its own bottom at this stage, and with the US Economy falling into a technical Recession recently, objectively speaking, their Dow Index has more or less recovered and nearing 13,000 points in May 2008 again, thereby re-signalling the American financial market's renewed confidence and optimisim in the American Economy, that its worst is "effectively" over, at this point in time.

4. This is despite the ongoing ill-effects of the recent global Credit Crunch Crisis and the faltering recessionary US Economy is only starting to impact the real Economy in America in a more noticeable manner, only very recently in April-May 2008 period.

5. Alan Greenspan, George Soros, Warren Buffet as independant market observers, together with Ben Bernanke, the American Federal Reserve Chairman and Mr Henry Paulson, the American Housing Secretary have all believed and officially said that the worst of the recent Credit Crunch Credit is already over at this point in time, after the recent "bailing out" of the Bear Sterns Investment Bank by the American Federal Reserve Bank and its subsequent take-over by JP Morgan-Chase Manhattan Banking Group.

6. In response to your own expressed "fears" and concerns as well as to AlexLee's previous 2 posts, somehow Australia seems to be a "lucky" and much "blessed" country, having "miraculously" able to consistently and successfully escape from the various global/regional financial crises, relatively unscathed, in the past, including the last Sep 11 Terrorist Bombing of WTC Towers in 2001.

7. For your further comments and discussion, please.

8. Thank you.


Cheers,
Kenneth KOH

 

[jingo]

Yes, now they all just have to get together and organise when each of them will decided to pull the trigger and buy a house. Because unless they all do it in an orderly staggered fashion, I wonder what will happen......?

Interesting point Steve. Many have decided to 'wait it out'. Look at what is happening to rentals! The FHB are all piling into rental properties and the yields are rising weekly! (In Melbourne anyway!).

Starting to notice a lot more publicity about rising rents - in the paper and on sensationalistic programs such as 'Today Tonight'. 'The evil/greedy Landlord' type stories are hot topics now.

Possibly what will happen is that rents will rise to a certain point, property values will flatten/fall and FHB's, realising that it doesn't cost much more to 'buy' a house of their own than rent, will pile back into the market. We all know what happens then....... I doubt they will enter the market in a 'staggered' fashion, most likely 'en mass', 'herd' mentality like they are currently doing to the rental market and did to the property market last year. (I was active in the Melbourne market last year and saw this happen in the extreme!).

Regards Jason.

 

[steveadl]

Interesting point Steve. Many have decided to 'wait it out'. Look at what is happening to rentals! The FHB are all piling into rental properties and the yields are rising weekly! (In Melbourne anyway!).

Spot on Jason. When the herd acts as one, prices will only go in one direction. As you pointed out - happening with rents as we speak (Adelaide too mate), and will happen with prices. Hence why I'm buying now.

 

[jingo]

Hi Kenneth,

I enjoy reading your informative and well researched posts.

Australia may be 'the lucky country' in many respects. However, the reality is that if the US goes into recession (and it is possible that the US is already in recession) they will stop importing goods from China. This will slow China's growth and the Chinese will requires less of our resources. In this scenario we will certainly move into tough economic times here.

Regarding September 11. We may have 'escaped' the WTC bombing, but Australians were targeted in Bali......

Regards Jason.

 

[Kennethkohsg]

Hi Kenneth,

Regarding September 11. We may have 'escaped' the WTC bombing, but Australians were targeted in Bali......

Regards Jason.

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Dear Jason,

1. Alex and I were talking about the economic impact on the various countries' economies from the past global/financial crisis when the Sep 11 WTC Bombing Incident was referred to.

2. As a side-point, do you wonder some time why the Muslim fundamentalist radicals did not go about bombing China and India, in the first place?

3. This is despite both China and India have their own respective fair share of internal bombing incidents from their own separatist groups or/and "disgruntled"peoples.

Cheers,
Kenneth KOH

 

[jingo]

&&&&&&&&&&&&&&&&&&&&&&&
Dear Jason,

1. Alex and I were talking about the economic impact on the various countries' economies from the past global/financial crisis when the Sep 11 WTC Bombing Incident was referred to.

Ok. That makes sense. Yes, we did escape the financial impact of that event, as well as the Asian crisis around the same time.

Do you think though that if the US slows down and stops buying from China, that we will be spared this time??

Regards Jason.

 

[Kennethkohsg]

Hi Kenneth,

I enjoy reading your informative and well researched posts.

Australia may be 'the lucky country' in many respects. However, the reality is that if the US goes into recession (and it is possible that the US is already in recession) they will stop importing goods from China. This will slow China's growth and the Chinese will requires less of our resources. In this scenario we will certainly move into tough economic times here.

Regards Jason.

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Dear Jason,

1. I agree with you and AlexLee that the risks are there, at this point in time.

2. However, with their own more comprehensive and in-depth analysis, both the RBA and the Access Economics seems to "think" otherwise at this point in time, officially speaking.

3. Is there some specific good reasons why these reportedly reputable 2 agencies should continue to think so, optimistically, as to indirectly write off the said risks, which you and AlexLee have been highlighted?

4. AlexLee suggested that RBA's present belief and (its own internal analysis) is wrong. I do not share his same personal convictions, as strongly as AlexLee has, at this point in time.

5. While remain "open-minded" about this issue and do personally share your + AlexLee's concerns, I do not think that both the RBA and Access Economics are "frivolous" nor "superificial" in their own research and subsequent analysis based on the available data before coming to their own independant conclusions for their respective agencies.

6. For your further comments and discussion, please.

7. Thank you


Cheers,
Kenneth KOH