http://www.residex.com.au/newsletter/source2008_10aMC.html?content=wrap&from=news1008a
Rudd puts floor under housing market!
Market Wrap with John Edwards - October 2008
In recent weeks the Federal Government has made strong and decisive moves which will have served to put a floor under the Australian housing markets.
The Reserve Bank's recent moves in decreasing interest rates had an immediate impact and our property markets and over the last three months have been correcting more slowly. In fact from the graph we present you can see the turn away from the downward trend.
The data indicates that these collective actions are having a positive impact. Across Australia, the May and June months presented as the low point in our markets.
It would be normal if at this point we saw the housing market move forward with positive growth as investors moved to the safe haven being housing. The encouragement we are all being given is strong, given the very significant deterioration in the stock market values and its clear risks given the continuing high volatility. It seems to me that we are not yet at the bottom of this downward spiral.
I've already seen an increased energy in the property market following the Government's decision to increase the first homebuyer's grant to $14,000 for existing homes and $21,000 for first home buyers purchasing a newly constructed home.
The Federal Government actions clearly indicate they are not prepared to see our housing values deteriorate any further. They understand our housing markets have a significant multiplier effect and the consequences on our economic activity and they know if they fall significantly in value it will result in:
- higher defaults and reduced consumer confidence;
- fewer jobs and
- greater potential for our banks to get into trouble.
All of these things result in the thing they are working to avoid, a recession. If this was not so then there would be no stimulus to this segment of the economy in their announcements. The announcements made have all been delivered to those areas of the economy which provide the most flow on impacts and keep our economy moving.
All involved in housing can take heart from the actions which tell us government is not going to allow our housing markets to go the way of the UK and US markets.
It tells us that if we have available cash now is the time to find the bargains and make our investments, because there will be few times like the current in the future.
Finally, while many would see this period as a period of high risk for those investing in housing this is incorrect. Yes, it is for most assets but housing is not naturally liquid and hence if there are price adjustments to come then they will not occur over night and they will not be large and certainly not as large as we have already seen in the stock markets.
In fact investing in housing now presents a lower risk equation than it did during the period of high growth. The reasons are simple:
1. There are bargains out there and ways to find these. Even if house prices do fall your bargain is unlikely to; and
2. Rentals are rising and at the same time interest rates are decreasing so in the not too distant future your investment can be a net generator of cash and not a net user.
Given the above we need to identify areas where rentals are already relatively high, future growth is predicted to be good and find the bargain in that area.
Good luck and join me in the process of turning what others see as a difficult period into our opportunity to grow wealth. Remember that we have entered a low risk and high rental return period for housing and using our cash now will ensure that we have assets to support us and allow us to make even more money. If we take advantage of the bargains that are now available we will generate growth even as others see theirs dwindle away.
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