Reserve Bank - Its Your Call - For a Soft or Hard Landing - August 08 Residex

This is quite interesting. I have to get my hands on the latest report.
:cool:


Residex Newsletter - August 2008

My last monthly news letter pointed to the potential for a 1 in a 100 year event. That call prompted many to call the market as they, I suspect had been thinking but were not game to speak publicly about. What followed was a series of commentators pointing to a market which was in trouble and a general call for a reduction in RBA cash rates. The various economic indicators that also followed reflected what we were already seeing in our housing numbers.

There is now a general consensus that the RBA will or should reduce the cash rate by 0.25% at its next meeting in September. However, our major Banks are giving every indication that they want to get their margins back up to the levels they previously enjoyed before market competition forced them down when organisations like Aussie Home loans entered the market. How fortunate our majors are that the credit crisis is giving back our big banks the market they once had before it was whittled down by competition. This means that the actual reduction in cash rates the RBA makes is unlikely to fully flow into our economy and the consumers pocket.


I think all of this means that the RBA is going to have to make a reduction of more than 0.25% sooner rather than later to have the effect that is needed. Our markets are still precariously balanced and provided the RBA makes the right move then they can still engineer a soft landing but it is going to be difficult. It is not just about interest rates. It is about the volume of credit available to allow the population to bid for housing. A reduction in the number able to bid for a property means less competition for the housing resource and hence lower levels of capital growth. This is without having any regard to affordability levels which are now relatively low given the rising costs facing the ordinary family. The falling oil price has been helpful; however it is still high relative to what it was six months ago.


Clearly, all of this means that for those of us who are cashed up, opportunity abounds as the bargains are out their and among them there is some exceptional value.

Generally, the July numbers present a slightly calmer position. The market seems to have greeted the news of lower oil prices and a pending interest rate reduction positively and some of the stronger markets while still showing low growth numbers are at least in positive territory.

Probably the most obvious aspect in the numbers is the better result evident in the unit market which is where the "baby boomer" investors will be found. This group are generally cashed up and able to take advantage of the current market situation. This market is outperforming the traditionally better growth housing market. The existing stock in this market on an Australia wide basis is in total return terms outperforming the house and land market.

The worst performing market is Perth where the median value has now slipped below $500,000. It entered the $500,000 plus median value stakes exactly 12 months ago and achieved a maximum median value of $519,540 in April 2008. It is hard to pick the probable outcome in this market as it did move up very quickly. One could have expected it to follow the adjustment process seen in Brisbane but perhaps Brisbane was lucky in that its adjustment was not in a climate of a credit crisis and a rapidly adjusting stock market. Will it correct by the level suggested by some analysts at 10% plus? Our best guess based on the numbers is no. However, this will depend on the level of speculative investment remaining in this market. Reductions in interest rates over the next few months are likely to save it and hence overall we do not see such a fall or any significant percentage as the most likely scenario.

Sydney still suffers and is providing the investor with the most opportunity to find the bargains. Ultimately, demand is going to drive this market as government policy is not going to deliver the needed stock. Having said that we must continue to remember that a return on the asset is made up of rental and capital growth, and it is our belief that Generation Y and X are now moving more to a rental mindset than ownership desire. Government policy on compulsory superannuation in itself drives this as the need to saving for retirement via home ownership today is not as it once was. With this in mind investment in well located, low priced units in areas close to amenities and transport are the most likely to provide the highest total returns. May I suggest you take advantage of FindMeaHome.com.au in identifying these well-priced bargains. I have found it very useful. Some research we have done using this tool indicates that there are at any one time at least 500 properties which are very clearly underpriced. Over the next few weeks it is my intention to explore this with you and demonstrate how you use the site to find these gems.

We have just completed our June 2008 Residex Reports for each capital city and state. These reports are very detailed and present a fully listing of all suburbs and their performance and rent. This makes these reports a unique research tool.

The reports show clearly that the high growth in population we are experiencing is affecting the rental market, and where this is occurring. We are rapidly approaching positive gearing opportunities, particularly with unit investments in our major capital cities. With prices on hold and a glut of properties on the market, this is an excellent time for first or second home buyers to enter the housing market as investors, using the information in our Residex Reports as a guide. Of course, there's far more in the Residex Report and every home owner will be interested to see how their state, region, and suburb is performing and what the future outlook is likely to be.

The reports coupled with the FindMeaHome.com.au tool make a very powerful combination. Many have discovered the power already and I hope you will be one of them
 
Good article generally.

Maybe a bit non-conclusive, other than look for bargains and capitalise on cashflow.

I've been doing that for years.

Call me cynical; but the author wouldn't have an interest in findmeahome.com.au would he/she?
 
Westpac's chief economist is predicting a rate cut of .5% along with a number of other economists. While this is very rare and and there has only been one .5% change in the last 16 changes they believe it is possible, one of the reasons being is the main objective of the RBA cutting rates is to get a reduction in mortgage rates being offered, some economists speculate that a .25% simply won't be passed on by the banks and a cut of .5% would make it alot harder for them to not pass on. I don't think we'll see a .5% cut but almost positive of a .25%cut.
 
Reports of the impending demise of the Australian economy are grossly exaggerated.

We *might* get a 0.25 cut. We wont get 0.5.
 
Reports of the impending demise of the Australian economy are grossly exaggerated.

We *might* get a 0.25 cut. We wont get 0.5.

Yeah, I think it will be 0.25 cut in September. Banks have been softened in the public debate to pass on the full cut so that RBA can see how the market is impacted and need for additional cuts without the distortion of any holding back by the banks. RBA has seen the sentiment indicators but not the real tangibles yet, like unemployment.
 
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