IMF says:Australian Housing a SURVIVOR on the World Stage

http://www.smh.com.au/news/world/au...the-world-stage/2009/02/01/1233423045506.html
Australian Housing a SURVIVOR on the World Stage

AUSTRALIA may be heading into recession but its housing market will fare much better than other countries, the International Monetary Fund says.
Unlike property markets in the US and Europe, which have experienced 40 per cent drops in prices as the housing bubble is pr1cked, Australia is not suffering from the same magnitude of inflated house prices:confused:, or the same sort of collapse once the bubble burst:), says the IMF's Asia and Pacific Department's division chief, Ray Brooks.
In a weekend interview with the Herald in Washington, he said the IMF was now forecasting -0.2 per cent grown for Australia in 2009, down from its November prediction that the nation would ride out the global downturn with 2.2 per cent growth in 2009.
But Mr Brooks said: "I don't think the housing market is nearly as big a concern as in other countries. We did some analysis on the housing market. We tried to look at the fundamental drivers of the house price, and one of them is strong immigration flows, and the other is the interest rate."
Unlike the US, where most mortgages are fixed, three-quarters of Australian mortgages are variable, which means home owners are benefiting as interest rates fall.
"The Australian financial system is [also] not nearly as exposed to the subprime market as some countries," Mr Brooks said.
Because payments were falling with falling interest rates, Mr Brooks said he did not expect to see a sharp jump in foreclosures in Australia — one of the root causes of the problems in the US.
The IMF has endorsed Australia going into deficit to fund further stimulus after its weekend warning that the nation is likely to go into recession in 2009.
"Australia has been hit by the sharp decline in demand worldwide and the sharp fall in commodity prices," Mr Brooks said. But the IMF predicts 1¾ per cent growth in 2010. "The downturn is not as severe as in many other countries."
On hearing that journalists had been briefed on the figures, the Prime Minister, Kevin Rudd, held a news conference on Saturday to pre-empt the reports. He has had the figures for a week, but only released them when told they were about to become public.
Despite the ferocious global downturn, the IMF believes the Rudd Government has already taken the correct steps in dealing with the downturn and that Australia is in a better position than other developed nations in Europe and North America.
"I would emphasise that what has been done so far by the authorities was a very timely policy response," Mr Brooks said. "It has helped cushion the blow. This is an extraordinarily sharp contraction in global demand that caught forecasters by surprise."
In terms of a second stimulus package, he said: "We emphasise spending - in particular, infrastructure spending. Temporary measures on the tax cut side, that should be targeted towards those who are likely to spend it, such as low-income earners."

Interesting story, can't say I totally agree with the
Australia is not suffering from the same magnitude of inflated house prices
line, I suppose what he is saying is that our places are arguably too high, but not as high as other countries, especially when worked out by the M2.

Dave
 
Dave,

For me its a case of "No news there"... I've been arguing for a while its different over here and its only been the perma-bears who've hung tenaciously to their forlorn hope of rapid house price falls that have been arguing its all the same the world over. It really is a different property market based on completely different fundamentals to the US, UK, Spain etc so cannot be tarred with the same brush.

Thanks for the link though. Good to see the IMF is now on the side of the "not going to crash" crowd. That's one less source the perma-bears can quote now. We'll whittle them down one analyst / international body at a time... ;)

Cheers,
Michael
 
The problem with the IMF is they keep changing their story, not so long ago they said Australian property is over priced, before that they said there was no fundamental risks facing US investment banks. More recently they said that Australia would avoid recession.

The worst bit is they are saying the cause of the US problems is the subprime market. That was a symptom, not a cause. The cause was excessive amounts of cheap credit, which we all indulged in. Our household debt rose faster than the US and the UK, and our house prices are higher in relation to incomes than the US and UK.

Strange that they bring up the fixed rates argument, US interest rates have been far lower than ours over the past few years. Bigger problems for them and the UK is credit rationing. Residential borrowers haven't had much of this here, but business has started getting a bit.

I'm not convinced we will see 40% falls here, but they should at least use credible arguments in asserting this.
 
I have seen this article and have read many articles that confirm that a 40% deflation of housing market is poppy ****!

Sure some areas have dropped 40% but this has been largely in properties over $1m which represents less than 5% of the OZ market.

The reason why capital city medians are dropping is because there has been about a 5-10% correction over the last 6 months. But this has only contributed a small amount. On looking at the underlying fact....it is because house under $300k are the ones that are selling rapidly. The number of FHB in the market has gone up from 18% to about 24% of the market driven by Rudds FHOG.

From the articles I am reading, there is now even suggestions that market at 300k and under will move 5-10% this year. The banks are pushing staff to sell home loans up to the 500k mark as they are seen low risk, the rates on offer are reflecting this. Commercial property loans are still stubbornly high at 9-10%...the banks view this as their biggest risk area. So the lack of finance is also going to depress the prices on these. See link...

http://business.smh.com.au/business...his-dip-is-distinct-20090201-7uv5.html?page=2
 
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... Strange that they bring up the fixed rates argument, US interest rates have been far lower than ours over the past few years...

I don’t think you understand the fixed rate argument.

What the IMF are saying is that interest rate reductions (not the rate itself) will have a much greater and more immediate positive effect here compared to countries where consumers predominantly take out fixed loans. It’s not relevant to the argument that the USA’s rates “have been far lower than ours over the past few years”.
 
I don’t think you understand the fixed rate argument.

What the IMF are saying is that interest rate reductions (not the rate itself) will have a much greater and more immediate positive effect here compared to countries where consumers predominantly take out fixed loans. It’s not relevant to the argument that the USA’s rates “have been far lower than ours over the past few years”.
But how does a changing lending rate for someone who has already purchased affect the price someone (who is yet to buy) will pay? Surely it only affects their spending on items other than property, ie. money left over after paying the mortgage? There are other ways to acquire credit for this purpose.
 
Lower rates = less pressure to sell due to lack of cashflow. I am sure many on this forum who may have felt pressure to sell even months ago are now breathing easy - or even grinning - as they ride the variable interest rates down. Less forced sales = less downward pressure on prices.

The Fed lowering rates can't help people if they are in fixed loans. In Australia fewer are on fixed so the RBA lowering rates has more of a positive efect.
 
FHB,

We may not have had the particular crash that YOU wanted to have in 2008 but we are experiencing a LCFC (Local Cost-of-housing Finance Crash).

This, of course, has delivered the affordability that many FHB’s were wishing for. It’s also improved affordability for existing home owners who want a bigger property in a better location.

So, to answer your question specifically, the effect is two fold:

(1) Buyers can service bigger loans – increasing the pool of potential purchasers for any given property.
(2) “less pressure to sell due to lack of cashflow” as the wonderful GoAnna submitted above. “Why not wait for the market to make a better offer?”

If the majority of homeowners were locked into fixed rates, as is reported to be the case in the USA, then the effect of these two factors would be far less prevalent. Wouldn’t you agree?

Congratulations on your recent purchase.

Regards - Ben
 
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Strange that they bring up the fixed rates argument, US interest rates have been far lower than ours over the past few years.

how does a changing lending rate for someone who has already purchased affect the price someone (who is yet to buy) will pay?

FHB, stop quoting HG. Surely you must already know the answer to this. It has been explained to you and the gloomers so many times. Yet HG and the doom squad declare this on your forum almost every day - i.e. 'rates fell in the USA and look what happened there, we're all doomed!' :rolleyes:

1) Most people in the USA are on fixed rates
2) The US cash rate was low to begin with - there was little scope for reduction
3) Most Australians are on variable rates which had (and still have) massive scope for reduction
4) Lower variable rates have an immediate beneficial effect to distressed borrowers, so they don't need to panic sell
5) Lower variable rates encourage buyers to pay more for property

So now that this has been explained to you again by myself the posters above, do you think you could forward the explanation on to the other member of the End is Nigh Club. :D

Cheers,

Shadow.
 
FHB,

We may not have had the particular crash that YOU wanted to have in 2008 but we are experiencing a LCFC (Local Cost-of-housing Finance Crash).

This, of course, has delivered the affordability that many FHB’s were wishing for. It’s also improved affordability for existing home owners who want a bigger property in a better location.

So, to answer your question specifically, the effect is two fold:

(1) Buyers can service bigger loans – increasing the pool of potential purchasers for any given property.
(2) “less pressure to sell due to lack of cashflow” as the wonderful GoAnna submitted above. “Why not wait for the market to make a better offer?”

If the majority of homeowners were locked into fixed rates, as is reported to be the case in the USA, then the effect of these two factors would be far less prevalent. Wouldn’t you agree?

Congratulations on your recent purchase.

Regards - Ben

I don't *want* a crash, I'm expecting stagnant prices in Brisbane for a long period, perhaps up to 40% falls if this gets really messy.

I don't agree on the US situation, having a fixed, long term, low interest rate is better than what we've had in Australia for the past few years. It gives the borrower more certainty to extend their commitments. If a US borrower wants access to more money at a lower rate they can use a credit card or a 2nd mortgage. The most obvious proof of this is the period from 2002 to 2006. If fixed rates were such a limitation for US borrowers we wouldn't be where we are now.

Zero bound rates may be an issue.
 
FHB, stop quoting HG. Surely you must already know the answer to this. It has been explained to you and the gloomers so many times. Yet HG and the doom squad declare this on your forum almost every day - i.e. 'rates fell in the USA and look what happened there, we're all doomed!' :rolleyes:

1) Most people in the USA are on fixed rates
2) The US cash rate was low to begin with - there was little scope for reduction
3) Most Australians are on variable rates which had (and still have) massive scope for reduction
4) Lower variable rates have an immediate beneficial effect to distressed borrowers, so they don't need to panic sell
5) Lower variable rates encourage buyers to pay more for property

So now that this has been explained to you again by myself the posters above, do you think you could forward the explanation on to the other member of the End is Nigh Club. :D

Cheers,

Shadow.

I'm not quoting HG, this is a discussion I have a view on.

1) Yes, I haven't denied that.
2) This isn't the point of the discussion, the assertion was that fixed rates limit benefits of lower interest rates to buyers.
3) This isn't the point of the discussion, the assertion was that fixed rates limit benefits of lower interest rates to buyers.
4) Why would someone on a fixed rate need to panic sell? They could obviously afford the repayments when they bought. Those on variable rates are more likely to panic sell, that's the advantage of fixed rates.
5) Why would low variable rates encourage more people to buy than low fixed rates? They cost the same, fixed rates generally have future expected cuts built in to the rate.

As I said above, zero bound rates can cause more problems, and higher margins for US lending is having an impact too. But fixed rates aren't a reason for house prices to fall, look at 2002-2006 in the US.
 
I don't *want* a crash, I'm expecting stagnant prices in Brisbane for a long period, perhaps up to 40% falls if this gets really messy.

I’m intrigued. Can I ask what motivated you to buy recently – given those dire expectations?


I don't agree on the US situation, having a fixed, long term, low interest rate is better than what we've had in Australia for the past few years. It gives the borrower more certainty to extend their commitments. If a US borrower wants access to more money at a lower rate they can use a credit card or a 2nd mortgage. The most obvious proof of this is the period from 2002 to 2006. If fixed rates were such a limitation for US borrowers we wouldn't be where we are now.

Again, the point is the IMF are saying is that interest rate reductions will have a much greater and more immediate positive effect here compared to countries where consumers predominantly take out fixed loans.

I, for one, have much more disposable income compared to six months ago. This would be the case for many, many Australians but not the case for most American home owners.
 
I don't agree on the US situation, having a fixed, long term, low interest rate is better than what we've had in Australia for the past few years.
The issue isn't the confidence of US vs Australian buyers; it's the confidence of buyers within each market over time.

The changes in interest rates don't affect US buyers on fixed interest rates, you're right - that's exactly the point. But the interest rate drops in Australia do affect Australian buyers, because we have a much greater tendency towards variable loans.
 
The issue isn't the confidence of US vs Australian buyers; it's the confidence of buyers within each market over time.

The changes in interest rates don't affect US buyers on fixed interest rates, you're right - that's exactly the point. But the interest rate drops in Australia do affect Australian buyers, because we have a much greater tendency towards variable loans.

Buyers is the key word.

Existing homeowners on a fixed rate aren't buyers, so the fact that interest rates are falling, but they can't take advantage is NULL.

Buyers using fixed rate mortgages do get a benefit when the central bank cuts rates, because the fixed rate on offer falls. ie. A fixed rate of 8% for 30 years might attract 50 buyers to buy. A fixed rate of 6% for 30 years might attract 100 buyers to buy.

So as far as setting prices, BUYERS do get a benefit from falling interest rates. Homeowners don't, but their influence on demand for houses is limited.
 
Buyers is the key word.

Existing homeowners on a fixed rate aren't buyers, so the fact that interest rates are falling, but they can't take advantage is NULL.

Buyers using fixed rate mortgages do get a benefit when the central bank cuts rates, because the fixed rate on offer falls. ie. A fixed rate of 8% for 30 years might attract 50 buyers to buy. A fixed rate of 6% for 30 years might attract 100 buyers to buy.

So as far as setting prices, BUYERS do get a benefit from falling interest rates. Homeowners don't, but their influence on demand for houses is limited.

All depends on what % of homeowners you think are currently on fixed rates?

I'm a homeowner, I am taking advantage of falling rates.

Dave
 
I’m intrigued. Can I ask what motivated you to buy recently – given those dire expectations?
Stagnant prices aren't dire, I'll be happy if my house is worth what I paid for it in 30 years. I got a 15% discount off peak prices, it may fall another 25%, not sure. But I don't see it as an investment, its a home to live in, I will only realise a loss if I have to sell it, and with a $50k loan, I don't think I will have to.

I was getting ahead while interest rates were high and we were saving two incomes, but the wife is pregnant, so we are back to one income, I'd have to rent something bigger from a landlord who will probably want to sell if prices tank, and my return on cash is heading south. I'm happy to pay a bit extra for convenience and security now, particularly since I have the money to spend.
Again, the point is the IMF are saying is that interest rate reductions will have a much greater and more immediate positive effect here compared to countries where consumers predominantly take out fixed loans.

I, for one, have much more disposable income compared to six months ago. This would be the case for many, many Australians but not the case for most American home owners.

Yes, it may create more money to spend in the economy, but it doesn't increase the money people taking out new loans pay for houses. When interest rates drop, both fixed and variable rates on new loans are offered at lower rates, assuming bank margins aren't increased as we are seeing in the US.

The article was talking about the effect of fixed rates on house prices, not the ability to stimulate the economy.
 
All depends on what % of homeowners you think are currently on fixed rates?

I'm a homeowner, I am taking advantage of falling rates.

Dave

Yep, but the article is suggesting that there are more people on fixed rate loans in the US, and as such they don't pay more for houses when interest rates are cut.

This is clearly wrong, otherwise they wouldn't have had a house price boom from 2002-06.
 
So as far as setting prices, BUYERS do get a benefit from falling interest rates. Homeowners don't, but their influence on demand for houses is limited.
Two factors cause the impact of interest rate cuts on market sentiment to be less in the USA than in Australia:

1) Most homeowners don't feel the benefit so don't feel great about it - in fact, they may be annoyed that they're paying "over the odds". So it's not like "almost everybody" is feeling great about the extra cash that's around, as is the case in Australia.

2) When mortgage rates are fixed for up to 30 years, rates change much less dramatically. So when today's rate drops 3%, fixed mortgages may only drop 1% (for example).
 
4) Why would someone on a fixed rate need to panic sell? They could obviously afford the repayments when they bought.

Because they fixed too high thinking rates would keep going up, and they figured they could just refinance with their increased equity if they couldn't afford it. Now perhaps they don't have the expected increased equity, or the wife falls pregnant and has to stop work, or they both have their overtime cut, or one of them gets fired, or they panic after reading too much GPHC D&G etc...

Those on variable rates are more likely to panic sell, that's the advantage of fixed rates.

Not when variable rates are moving down. Which they are.

5) Why would low variable rates encourage more people to buy than low fixed rates?

Because there are more people on variable rates. It is certainly encouraging me to buy. My interest repayments have almost halved in a few months. I have all this extra spare money now. I am encouraged to buy a new IP with it!

As I said above, zero bound rates can cause more problems, and higher margins for US lending is having an impact too. But fixed rates aren't a reason for house prices to fall, look at 2002-2006 in the US.

That's not the point of the discussion. The point is that because most people in Australia are on variable rates, and because the banks are passing on most of the official rate cuts, most Australians see an immediate benefit from rate cuts. Which is not the case in the UK or USA for example, where most borrowers fix, and where the banks are not passing on as much of the official rate cuts. Because the banks over there are screwed basically, unlike Australia's strong and profitable monopolistic banking sector.
 
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