Tanking AUD effects on housing market

[PaulF]

Hey guys,
As many of you know the AUD has been going downwards for a while now.
What are your thoughts on the tanking AUD in regards to the housing market?

I can think of the below(can be right or wrong!):
- a discount for foreigners or USD holders for example, meaning more competition for the locals hence
- RBA might find itself having to put interest rates up to stop AUD from tanking too low hence slowing down the market.
- Private Banks might put interest rates up due to other countries pushing rates up(due to the fact they lend money from international banks...) and hence slowing the market.

Cheers

 

[Redom]

Hey guys,
As many of you know the AUD has been going downwards for a while now.
What are your thoughts on the tanking AUD in regards to the housing market?

I can think of the below(can be right or wrong!):
- a discount for foreigners or USD holders for example, meaning more competition for the locals hence
- RBA might find itself having to put interest rates up to stop AUD from tanking too low hence slowing down the market.
- Private Banks might put interest rates up due to other countries pushing rates up(due to the fact they lend money from international banks...) and hence slowing the market.

Cheers

Good qn Paul.

In regards to the RBA point, a lower dollar assists in promoting growth by: our external sector (imports fall, exports rise) and transitioning resources to other sectors of the economy. E.g. a lower dollar should shift resources back away from mining (capital intensive) and into manufacturing (labour intensive).

There is some debate about the external sector effect though - it is not sooooo clear cut in the short run. Does a lower dollar boost our external sector right away, or does it have a medium term effect?

Some say there is a short term 'drag' on growth associated with a lower dollar. This reflects 'stickiness' in the external sector. For example, Australian businesses may keep purchasing supplies internationally instead of shifting to locally produced supplies (which may now be cheaper given the exchange rate has depreciated significantly). Also, it may take some overseas businesses a while to shift their purchases to Australia. This stickiness can mean that there could in fact be a drag on growth - with our exports remaining flat and our import values increasing (falling price).

In terms of the effect on housing...i'm not so sure. Foreign demand should increase though.

Cheers,
Redom

 

[bumskins]

Hey guys,
As many of you know the AUD has been going downwards for a while now.
What are your thoughts on the tanking AUD in regards to the housing market?

I can think of the below(can be right or wrong!):
- a discount for foreigners or USD holders for example, meaning more competition for the locals hence
- RBA might find itself having to put interest rates up to stop AUD from tanking too low hence slowing down the market.
- Private Banks might put interest rates up due to other countries pushing rates up(due to the fact they lend money from international banks...) and hence slowing the market.

Cheers

1. People tend not to buy in a falling market, if they believe they can buy the product cheaper tomorrow which is the same effect a falling dollar will have for foreigners. The dollar has a long way to fall.

2. Foreign currency could provide a massive swing against those currently invested, they may wish to get out early, else they may have to commit to an unknown (sometimes long) time frame for getting their money back out.

3. I think initially it will make more sense for investors to consider what is happening in other foreign markets. The difference between local and foreign investors, is foreign investors are already much more mobile with their money and open to investing in other markets.

4. I think we will return to a time where being an expat is very attractive again. People earning USD are seeing massive pay rises currently relative to AUD and it has a lot further to go.

 

[Mr T]

Hey guys,
As many of you know the AUD has been going downwards for a while now.
What are your thoughts on the tanking AUD in regards to the housing market?

I can think of the below(can be right or wrong!):
- a discount for foreigners or USD holders for example, meaning more competition for the locals hence
- RBA might find itself having to put interest rates up to stop AUD from tanking too low hence slowing down the market.
- Private Banks might put interest rates up due to other countries pushing rates up(due to the fact they lend money from international banks...) and hence slowing the market.

Cheers

Remember that if the AUD dollar drops then its 'Capital loss' for foreigners as well. And do note that US interest rate will rise further.

 

[MarkB]

RBA might find itself having to put interest rates up to stop AUD from tanking too low hence slowing down the market

The exchange rate really only concerns the RBA if

(a) it poses problems for them in terms of maintaining their target CPI band (which, even then, is an average over the medium term).

or

(b) it jumps around so much in such a short period of time that they feel compelled to enter the forex market and try to smooth it out.

 

[joeExpat]

AUD hasn?t gone down that much, still stronger than a year ago

 

[Blacky]

4. I think we will return to a time where being an expat is very attractive again. People earning USD are seeing massive pay rises currently relative to AUD and it has a lot further to go.

I sure hope so. I moved out when the AUD was .60c - and have survived through the last few years at parity++. Im looking forward to the cycle.

AUD hasn?t gone down that much, still stronger than a year ago

Against which currency?
I agree that it hasn't weakened much against most currencies - however, against the USD it is 20% down, and the majority of pricing is denominated in USD.

While a lower dollar will be more attractive to foreign buyers, at present I would imagine most foreign owners would be looking to move money out of AUD, which would be putting downward pressures on Australian 'assets' - or at least it should be.

Blacky

 

[joeExpat]

Against which currency?
I agree that it hasn't weakened much against most currencies - however, against the USD it is 20% down, and the majority of pricing is denominated in USD.

EUR and CHF, the currencies I?m most interested in. It?s gone up against JPY.
The USD is up now but it is slowly losing it?s clout, not as important as it once was.

 

[Kenster]

As AUD sinks further, Australian property prices will continue its march to the north because the lower AUD exchange rate will make Australian properties cheaper to foreign funds.

The situation is exacerbated by RBA need to stimulate the weak Australian economy by either lowering interest rates and/or printing money. To date, RBA has repeatedly demonstrated that their option of choice is to lower interest rate and not money printing, as money printing would result in fiscal deficit, a taboo in Australian politics.

RBA is well aware of the danger of further pumping up the property bubble when interest rate coming down. They try to limit fuelling the property bubble through many methods, including jawboning and tightening lending standard.

They can try but I don't know if the banks are happy to follow the line, as it would restrict their ability to lend and make profit.

 

[PaulF]

Very insightful comments everyone, thanks for that.

Indeed, the lower AUD might be a good incentive for foreign buyers but at the same time Capital loss can be a deterrer as mentioned a few times above.

let's consider the scenario where the AUD goes down to 0.73 - 0.75 since most economists/banks are predicting the above...

What do you guys see happening in the above scenario ?

My take on it below:
If the above actually happens, i would think that would spook foreign investors and considering there was reports that they are buying up to 40% of newly constructed homes(Sydney,Melbourne), it should cause a good shake up in the overall market in case these investors get cold feet(start of loading properties) and probably that would spiral down to the overall housing market causing it to stall due to plenty of supply.

 

[bumskins]

It depends on their motivations for buying here. If its to get the money out of their home country, then its likely to continue.

If its looking purely at returns, I think they might find better deals elsewhere. The yields aren't great and negative gearing offers no benefits to foreigners if they have no other income to offset. So with the chance of the dollar falling, that is going to more than offset any capital gains potential.

I'd say foreigners are best staying out of the local market, and locals are best taking some foreign exposure until the dollar bottoms.

Currency fluctuation can have a massive massive effect on returns. Look at the returns for foreigners who have held in Sydney over the last year, the markets has been going bonkers, but if you look at it in dollar adjusted terms they have probably broken even at best and likely lost some money. Now think about if they are holding outside of Sydney.

I'd expect to see your usual trickle of money flowing in, in the meantime. Once the dollar finds a base then expect to find some activity.

 

[MTR]

AUD hasn?t gone down that much, still stronger than a year ago

Its at 82 today this time last year I think it was 90 something...... year before that it was 1.00+.

It is trending downwards and predicted to go as low as 72 next year, that is huge 30% from recent highs

The economy is softening, slowing GDP and softer commodities and a transition away from mining.

We are in for a bumpy ride as far as property goes IMO.

 

[sumterrence]

Very insightful comments everyone, thanks for that.

Indeed, the lower AUD might be a good incentive for foreign buyers but at the same time Capital loss can be a deterrer as mentioned a few times above.

let's consider the scenario where the AUD goes down to 0.73 - 0.75 since most economists/banks are predicting the above...

What do you guys see happening in the above scenario ?

My take on it below:
If the above actually happens, i would think that would spook foreign investors and considering there was reports that they are buying up to 40% of newly constructed homes(Sydney,Melbourne), it should cause a good shake up in the overall market in case these investors get cold feet(start of loading properties) and probably that would spiral down to the overall housing market causing it to stall due to plenty of supply.

The over supply in fact already happened in Melbourne with slightly over 64,000/4.4% empty properties, the research was conducted by Prosper Australia by extracting a report to show zero water usage in these properties.....

These states were copied from my news feed in linkedin so how accurate I have no idea lol but it make sense to me.

 

[Kenster]

Many people who claim Australian properties are overpriced often ignore the reason why foreigners want to come to Australia in the first place.

Being a big, remote and isolated island with plenty of resources, renowned education system, stable government and stable financial system, unaffected by armed conflicts, regional wars, poverty, pollution, epidemic, racial tension and civil wars, gun and bully culture, Australia is a rare place on earth where many, many people want to call home, knowing their rights will be recognised and protected by a fair, reasonable legal system, very much corruption free.

When they buy into Australia, they don't just buy a home. They buy a safe place to live, where their kids can go to good schools, growing up in a nice neighbourhood, having access to western way of thinking and living, universal health care system and pension for the old, clean water anyone can drink straight out of the tap.

A typical suburban Melbourne or Sydney house at 600 to 800 sqm is many times bigger than a shoe box in a big asian city, yet costing about the same or not much more.

Price all that into the price, and you will see why people want to come here to live.

And pay for that priviledge.

 

[PaulF]

Many people who claim Australian properties are overpriced often ignore the reason why foreigners want to come to Australia in the first place.

Being a big, remote and isolated island with plenty of resources, renowned education system, stable government and stable financial system, unaffected by armed conflicts, regional wars, poverty, pollution, epidemic, racial tension and civil wars, gun and bully culture, Australia is a rare place on earth where many, many people want to call home, knowing their rights will be recognised and protected by a fair, reasonable legal system, very much corruption free.

When they buy into Australia, they don't just buy a home. They buy a safe place to live, where their kids can go to good schools, growing up in a nice neighbourhood, having access to western way of thinking and living, universal health care system and pension for the old, clean water anyone can drink straight out of the tap.

A typical suburban Melbourne or Sydney house at 600 to 800 sqm is many times bigger than a shoe box in a big asian city, yet costing about the same or not much more.

Price all that into the price, and you will see why people want to come here to live.

And pay for that priviledge.

Totally agree with the above but the issue is that it's becoming unaffordable for the locals.
Latest numbers on first home buyers in Sydney where less than 1%.

 

[sumterrence]

Many people who claim Australian properties are overpriced often ignore the reason why foreigners want to come to Australia in the first place.

Being a big, remote and isolated island with plenty of resources, renowned education system, stable government and stable financial system, unaffected by armed conflicts, regional wars, poverty, pollution, epidemic, racial tension and civil wars, gun and bully culture, Australia is a rare place on earth where many, many people want to call home, knowing their rights will be recognised and protected by a fair, reasonable legal system, very much corruption free.

When they buy into Australia, they don't just buy a home. They buy a safe place to live, where their kids can go to good schools, growing up in a nice neighbourhood, having access to western way of thinking and living, universal health care system and pension for the old, clean water anyone can drink straight out of the tap.

A typical suburban Melbourne or Sydney house at 600 to 800 sqm is many times bigger than a shoe box in a big asian city, yet costing about the same or not much more.

Price all that into the price, and you will see why people want to come here to live.

And pay for that priviledge.

No offense but I think your thoughts are amongst the minorities of these foreign buyers, I might be stereotype but what I can gather from listening and speaking to all these overseas buyers, they are just simply gambling their money and expecting their money will roll just as hot as in Asia............

 

[Kenster]

No offense but I think your thoughts are amongst the minorities of these foreign buyers, I might be stereotype but what I can gather from listening and speaking to all these overseas buyers, they are just simply gambling their money and expecting their money will roll just as hot as in Asia............

Are you thinking about the speculators who buy, rent and pray they can on-sell for a profit?

 

[Kenster]

Totally agree with the above but the issue is that it's becoming unaffordable for the locals.
Latest numbers on first home buyers in Sydney where less than 1%.

We can sympathise with people feeling about high prices and I guess they can learn how to make the situation works for them. Buying a first home is always hard, never been cheap, never been easy, through the generations.

The reality of Australia being an iconic place to live is something we have to live with and can't really change. It is all in people's perception.

 

[sumterrence]

Are you thinking about the speculators who buy, rent and pray they can on-sell for a profit?

So from what I can gathered, Asian buyers regardless of foreign or local, as long as they are Asian, they will speculate on OTPs for the following reason:

1. There are a lot of Overseas buyers buying OTPs (we all know why)
2. The dodgy agents have been brainwashing these loaded but not so money savvy Asians that they can speculate on OTP contracts by locking in the contract today and pay 10% deposit, wait for 3 months later the property will rise by $100k and sell the contract to another local Chinese who believed they have missed out at the first 24hour sold out launches......

I've heard from people that bought it and also heard from agents that told me that's their tactic, sometimes they just use their own money to buy it off the developer first than re-sell it to another na?ve Chinese local.....

It just blew me away how many both overseas and local people that actually believe in this BS.....oh well without them the world would probably spin slower...

 

[Kenster]

Sumterrence,

It appears you have a strong assumption that asian people who come here to buy are full of money, speculative and naive?