October Residex Report - 'Rudd puts floor under housing market!'

[Shadow]

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.

 

[Rockstar]

Thanks Shadow,

It's everything that a lot of us want to hear. I think he is right in his assessment. But I don't know he is right - not yet. One thing is for sure, I am not offloading any of my CF- property unless I need the cash to fund a more lucrative development opportunity.

Sit back and watch the string pullers overcompensate with IR cuts and thus trigger the next boom.

regards to you,

 

[boz]

I agree with the Assumption that Rudd is keen to put a floor under housing.
I am sure he will put even extra effort (money) to achieve that, probably businessess and consumer and savers will pay the price.
Of course is not for sure that the GOV ill succed but they can at least soften any downturn.
I don't agree with the Residex conclusion (and usually it is better to read forecast from party not dierctly involved)

 

[urchin]

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.

i would be very interested in seeing the graphs he is referring to as all the graphs I have seen have said pretty much the opposite. the downturn in canberra in recent months has been... dramatic. three months ago we were more or less holding steady, in august a huge dive.

i am guessing it is a sydney centric publication, but if anyone has links to the specific data the writer is referencing please post them here. it would be interesting to compare how different regions are reacting to the economic shift.

but i wonder at the notion that the recent lowering of interest rates (i forget the precise date, but it was fairly recent, no?) having an immediate impact on the housing market. everything i have read to date has indicated that it usually takes a few months for an interest rate cut to work its way through the system and have a real effect on the markets.

not imputing any terrible motives to the author of the article, but is it really based on facts or wishful thinking? would be nice to see more specific figures and references in order to understand how the writer came to his conclusions.

i also think it is a bit naive to believe that the federal government can really stop a slide in prices if that is what is in the cards. look at everything the US has done--what all the major economies have done--what has it accomplished?

if it is a bubble, it should be allowed to die gracefully so that the recovery can begin. if it is not a bubble no serious govt intervention should be necessary.

 

[plusnq]

Hi Urchin

Perhaps you should google John Edwards and Residex before reaching any conclusions. His data is also used by Treasury and the RBA.

Cheers

Shane

 

[Shadow]

i would be very interested in seeing the graphs he is referring to

Follow the link in my post...

 

[urchin]

Thanks for that... stupid me for not reading more carefully before writing.

now that i have read it a bit more carefully i am even more sceptical.

his reasoning seems to based on three things:

1. a 5 mm levelling out movement at the tail end of a very unpleasant looking graph.
2. the increased participation of FHB as a result of increased grants
3. related to the above, faith in the government's ability to prevent a full blown crash like that of the US and UK.

on the basis of these three arguments he says it is time to buy.

i like kevin rudd and i think he is a reasonably smart guy and Aus. does have the advantage of seeing how the situation has played out in other countries. but if it is a bubble the govt wont be able to stop it any more than the US or UK.

he might be right, the govt may succeed, but it does not seem prudent to base your investment strategy on the government bailing out a potentially sinking ship. i would rather wait until I'm certain its seaworthy before i get on board. if it costs me a little more as a result of this caution, that's fine by me. i'd sooner pay a small premium for passage on a non-sinking ship than get a 50% discount for passage on a ship that might not make it out of the harbour. thats not investing, that's gambling. i like $5 blackjack as much as the next guy (perhaps more), but when i go into a casino i only bring $100 with me and i leave when it has either doubled or vanished. i like to keep my gambling very small scale.

as far as the FHB grant increase goes, i think it is far too early in the game to make any predictions about that one way or another. it does seem a bit optimistic to assume that an extra 7/14k in the hands of a small segment of the market will make an enormous difference. a difference, perhaps, but how substantial and how long-lasting remains to be seen.

 

[marg4000]

I agree with Urchin that the FHOG increase won't make much difference. It will be counter-balanced by the reduction in 100% financing and higher lending standards which will rule out people who would have been approved previously.

There was an ad in this morning's paper for car loans but a 20% deposit was required - haven't seen anything like that for years - previously it was all "nothing down".
Marg

 

[myla]

Thanx Shadow

John Edwards is well known to talk out his ***.Is this the best you have monkey boy

hello,

here we go, we have another one

fantastic time for the money renters out there
thanks
myla

 

[Rockstar]

but if it is a bubble the govt wont be able to stop it any more than the US or UK.

he might be right, the govt may succeed, but it does not seem prudent to base your investment strategy on the government bailing out a potentially sinking ship. i would rather wait until I'm certain its seaworthy before i get on board.

Urchin,

I know what it's like to be attached to rocks. I make the freakin things. Let go mate. You never know where the big ocean current will take you.

Seriously, don't you think that this bubble can be reinforced with this dogged determination that the Govt. is currently showing?

Surely they will do whatever they can to prop up the housing and construction industry. I know it will create a bigger bubble though they just won't let it burst yet. There is too much at stake now that many have seen their shares and super take a plunge. (including politicians and their wealthy and influential mates in all areas of business) A housing crash on top of this would be a catastrophe in their minds. When they succeed in reinforcing the bubble lining so it can expand further, there will be capital gains and good returns for us evil property specufestors once more.

The only thing that I see restricting this new period of growth in values is the restriction of credit...........hmmmm maybe stay on that rock just a little longer.

 

[urchin]

Urchin,

I know what it's like to be attached to rocks. I make the freakin things. Let go mate. You never know where the big ocean current will take you.

Seriously, don't you think that this bubble can be reinforced with this dogged determination that the Govt. is currently showing?

Surely they will do whatever they can to prop up the housing and construction industry. I know it will create a bigger bubble though they just won't let it burst yet. There is too much at stake now that many have seen their shares and super take a plunge. (including politicians and their wealthy and influential mates in all areas of business) A housing crash on top of this would be a catastrophe in their minds. When they succeed in reinforcing the bubble lining so it can expand further, there will be capital gains and good returns for us evil property specufestors once more.

The only thing that I see restricting this new period of growth in values is the restriction of credit...........hmmmm maybe stay on that rock just a little longer.

I think the only way they can prevent a crash is to prohibit the buying or selling of residences.

we have seen how much govt intervention has counted for in the US and the UK.

bubbles are predicated on an irrational faith that prices will continue to go up no matter what--otherwise there is no justification for paying current prices. the expectation of CG is a key component of current price levels. when that expectations loses credibility, prices must go down. We have been seeing an increase in houses on the market (at least in canberra) and a dramatic decrease in the volume of sales. it doesn't bode well.

they might--if they are very, very good (considerably better than they have been to date)--be able to cushion the shock. I suspect that this is the real intent of the increased FHOG. not to turn the market around but to slow the crash in order to avoid mass panic.

 

[Rockstar]

I think the only way they can prevent a crash is to prohibit the buying or selling of residences.

Fair enough Urch. You hang onto that safe rock of yours.

We will agree to disagree mate and look back in a few months to see the outcomes of our reasoning.

Enjoy the ocean.

 

[nonrecourse]

Negatively geared property will be the rock that sinks

Urchin,

I know what it's like to be attached to rocks. I make the freakin things. Let go mate. You never know where the big ocean current will take you.

Seriously, don't you think that this bubble can be reinforced with this dogged determination that the Govt. is currently showing?

Surely they will do whatever they can to prop up the housing and construction industry. I know it will create a bigger bubble though they just won't let it burst yet. There is too much at stake now that many have seen their shares and super take a plunge. (including politicians and their wealthy and influential mates in all areas of business) A housing crash on top of this would be a catastrophe in their minds. When they succeed in reinforcing the bubble lining so it can expand further, there will be capital gains and good returns for us evil property specufestors once more.

The only thing that I see restricting this new period of growth in values is the restriction of credit...........hmmmm maybe stay on that rock just a little longer.

Hi Rockie;
The world financial malaise is going to wipe out a significant percentage of recent negatively geared property investors in the next 24 months. Having a positive attitude is fine as long as you recognise what's coming and have enough reserve to hold on.

Urchin is correct in being very sceptical and for those who have just entered the property market in the last three years it is a very dangerous time. If you have held your properties for a decade or more and have an equity buffer of 50% or more fine you can be a bit more blase'.

The government has just splashed 10.5 billion to try and cushion the fiscal tidal wave that is casting its long shadow over us now.

 

[Rockstar]

Hi Rockie;
The world financial malaise is going to wipe out a significant percentage of recent negatively geared property investors in the next 24 months. Having a positive attitude is fine as long as you recognise what's coming and have enough reserve to hold on.

Urchin is correct in being very sceptical and for those who have just entered the property market in the last three years it is a very dangerous time. If you have held your properties for a decade or more and have an equity buffer of 50% or more fine you can be a bit more blase'.

The government has just splashed 10.5 billion to try and cushion the fiscal tidal wave that is casting its long shadow over us now.

Thanks NR,

I'm in a bit of a playful mood tonight so I should warn people not to take me too seriously.

Yes people do have to be careful and do their own DD. And true that buffers are important at all times.

I still think that your prediction is too dire and will stand by mine and we will look back in a few months to assess the events that have unfolded.

Do you see any opportunities for property investors at present?

Cheers mate

 

[nonrecourse]

Thanks NR,

I'm in a bit of a playful mood tonight so I should warn people not to take me too seriously.

Yes people do have to be careful and do their own DD. And true that buffers are important at all times.

I still think that your prediction is too dire and will stand by mine and we will look back in a few months to assess the events that have unfolded.

Do you see any opportunities for property investors at present?

Cheers mate

There are lots of opportunities now in commercial property as the yields have started to climb. But the reality is unless your flush with cash and the property you want to purchase has a blue chip ASX company, with a long lease and a six month security deposit and..... it is cash flow positive from day one...

 

[myla]

hello,

"blue-chip ASX company" hahaha, which ones are those, putting your dollars in the hands of sharks is not a good idea there nonrecourse but goodluck man,

many will stick with plain old vanilla RE,

all the money renters are on the way
thanks
myla