December 2011 Newsletter
IN THIS ISSUE
Australian property movement
Regional areas could boom in 2012: McGrath
HTW Report - The year in property
Residex Report
Growth returning to Sydney rental market
Cost of living weighing heavy on households
Rate cut a double edged sword
RBA delivers Christmas stimulus cut
Rate cut stalemate continues
What’s causing fixed rates to free-fall
INSIDE KNOWLEDGE - A NOTE FROM RICHARD
The holiday season is here and with the recent drop in interest rates, it’s an ideal time to consider your financial situation.
Next year will bring more uncertainty as we await the fall out from the European financial crisis. The lesson here is that if you do nothing about your financial situation then it will not only impact you personally but all those around you too.
Discuss it with your family or trusted adviser and make an informed decision about the direction you want to take next year.
Contact us for advice on restructuring your finances.
Our office will be closed from Saturday the 17th December through to January the 7th 2012. We will be monitoring emails and our phones during this period for urgent matters only.
Have a relaxing Christmas and holiday away from work. Remember, we are very lucky in Australia to have our strong economy and fantastic life style.
Life is short so enjoy every day to the max.
Richard.
WHAT'S HAPPENING IN THE PROPERTY MARKET?
Source: RP Data
The latest RP Data-Rismark Home Value Index shows capital city home values had their best result in seven months – down just 0.2 per cent.
Meanwhile, regional house values actually managed to increase, growing 0.1 per cent.
The Index shows September’s monthly decline was actually the smallest since February and was crucial in reversing a trend of accelerating capital losses since end March 2011.
On an even more positive note, strong rent growth, which according to the Australian Bureau of Statistics expanded by 1.2 per cent in the September quarter and by 4.6 per cent over the year, has meant gross total returns for home owners have actually been positive.
Rismark’s executive director Christopher Joye says interest rate fears have kept potential home buyers on the sidelines for most of 2011.
However, if rates move downward in 2012, that would kick off a recovery in housing activity, Mr Joye says.
The Index also shows that the two worst performing capital cities in September were Canberra and Sydney, suffering falls of 0.5 per cent and 0.6 per cent respectively.
This represents a reversal of sorts, given Sydney and Canberra have had the shallowest peak-to-trough falls of all the cities.
“Over the first nine months of 2011, capital city home values are down 3.6 per cent with the largest falls registered in Brisbane (5.6 per cent s.a.) and Melbourne (5.2 per cent s.a.). The most resilient markets continue to be Canberra, Darwin and Sydney where values have fallen by a very modest 0.5 per cent, 1.5 per cent and 1.7 per cent, respectively,” Mr Joye says.
“Between January 2007 and January 2011, Melbourne house values were up 49 per cent; in 2011 they were down by about five per cent. This is possibly because they overshot fundamentals in the prior period.”
“Housing market conditions are starting to show some green shoots now, at least at a macro level.”
“Auction clearance rates have remained relatively stable around the 50 per cent mark across... Melbourne and Sydney,” adds RP Data’s research director, Tim Lawless.
“The average selling time for private treaty sales remains below two months across the combined capital city markets, and vendors are providing a slightly lower level of discounting.”
Source: Australian Broker News
While a variety of studies have shown an increasing attraction toward urban density, there is another class of buyer that seems to be tiring of the crush and bustle of city life.
Real estate guru John McGrath believes regional areas could be a major growth market of 2012.
“We’re seeing increased buyer activity and general positivity in a number of regional markets as people begin picking the bottom and taking advantage of great buying," McGrath said.
"Renewed buyer confidence and vendors becoming more realistic after many months on the market is resulting in more sales. We’re also seeing more Sydney investors and young sea/treechangers looking to buy in areas offering jobs and lifestyle,” he said.
Regional areas are also reaping the rewards of stratospheric prices in capital city markets. As homes become less affordable in major metropolitan areas, the cheaper properties in outlying regional centres becomes more attractive for young buyers looking to get a foot on the property ladder.
“A proportion of young Sydney couples are continuing their sea/treechange to more affordable major regional markets that offer jobs - or easy commuter access to Sydney - and lifestyle.
"Markets popular with these buyers include Port Macquarie, Wollongong, Newcastle, Warners Bay and the Blue Mountains,” McGrath said.
But not all regional buyers are looking to relocate. McGrath said most regional demand is filtering in from the capitals.
“Out of area buyers are driving demand in lifestyle markets such as Byron Bay, Ballina, Bowral, Wollongong and the Blue Mountains. Our Blue Mountains and Bowral offices estimate 75%-85% of buyers respectively are from Sydney looking for investment, holiday homes and retirement properties,” he said.
Source: Australian Broker News
And now, the end is near. We are lowering the curtain on what has been a compelling 12 months. Laughter, tears… and more tears. The past year has dealt more than a few raw hands with just a couple of royal flushes.
As we all begin to sidle up to the Xmas buffet and watch the relatives re-gift ties and hankies, now is the time to have a long hard look at our year in property.
There were plenty of events that collided to make this a year best forgotten by most observers. Natural disasters played their part both personally and financially, but as the world’s foremost economy flirts with insolvency, more than a few of us look skyward and utter out loud “Oh come on! What did we do to deserve this as well?!”
Source: Australian Broker News
Given the increasing importance of our regional markets due to resource developments and government initiatives that are keen to see regional developments, I have now decided to publish our regional statistics in the alternate newsletter. This way, we can include more regional data such as rentals, growth numbers and sales activity, and keep our investor clients up-to-date with what exactly is happening in these smaller markets.
Source: Australian Broker News
Sydney rents have jumped over the last year as growth returns to the city's rental market.
Research firm PRDnationwide has found overall rents across Greater Metropolitan Sydney rose 6.4% in the 12 months to September. Sydney's Eastern Suburbs and Inner West saw sharp increases, with rents in the Randwick LGA jumping 14.3% for three bedroom house.
PRDnationwide researcher Oded Reuveni Etzioni said while the figures were promising, rental growth remained below the five-year average. However, Etzioni also indicated that rental rises around NSW were pushing some renters out of the market.
"In an environment of softer house prices, an increase in rent is welcomed by landlords and normally indicates a strong economy and large changes in population. However, around NSW and indeed Australia local residents who are not part of the mining industry are often being priced out of the market by companies that pay above market rents. This in turn leads to negative social consequences and increases the pressure on government housing," Etzioni said.
WHAT'S HAPPENING IN THE ECONOMY?
Source: Australian Broker News
Cost of living pressures remain at the top of the list of worries for consumers heading into the New Year.
Mortgage Choice's annual Consumer Sentiment Survey has found that utility bills, clothing and other rising living costs have proven the biggest concern for households. Acting head of corporate affairs Belinda Williamson said the results show families continue to have a tough time.
"Clearly, utility bills and other living costs are biting into Australians’ budgets, with more than half - 55% - of the respondents admitting to dipping into their savings to help make ends meet, and 7% saving more to combat the price hikes," Williamson said.
While Australian households were concerned about their ability to pay bills and nearly half were unsatisfied with their level of personal savings, they displayed optimism about the economy at large. Fifty-six per cent said they were either fairly or very confident about the economy in 2012.
"Year on year confidence in the Australian economy has dipped; however, it is good to see the majority of Australians still see a positive economic outlook for 2012. In fact, of those who plan to make changes to their financial situation next year, 20% of non-mortgage [holders] plan to take out a mortgage and 9% of mortgage holders plan to take out an extra one. Gen Y was the most positive about the economy and buying property," Williamson said.
When buying property, 64% of respondents said they would turn to a mortgage broker for help. The top reasons given for using brokers were their expertise in home loan products and the time saved researching lenders and gathering paperwork.
Source: Australian Broker News
The recent RBA cut may not be cause for celebration.
That's the claim of property investment expert Ken Raiss of accounting firm Chan & Naylor. Raiss has labelled the cut to 4.25% a "double-edged sword", and that it could confirm some consumers' worst fears about the Australian economy.
"For some people this will confirm that the Australian economy is heading the same way as Europe and their knee jerk reaction could be to tighten their belts further than they already are. While this will increase cash savings, it will of course further detract funds from equity markets and sectors such as retail, which are already hurting," Raiss said.
This assessment may do little to dampen jubilation among mortgage holders. Non-bank lender Resi has said the RBA's two successive rate cuts will effectively knock more than four years off the average Australian mortgage. The company's CEO, Lisa Montgomery, said borrowers who keep their repayments steady will see even more significant benefits.
"If repayments on a $500,000 loan taken over 30 years were kept at the same level prior to the November rate cut, the borrower can potentially reduce the term of their loan by five years and nine months - which equates to almost 20% off the term of their loan. That figure alone is a real game-changer which can significantly improve the financial plans of many mortgage holders – and that’s why they should be looking at that strategy if they are able to," she said.
The Housing Industry Association was also quick to praise the rate cut. Chief economist Harley Dale said the cut was insurance against a Eurozone meltdown rather than a concession that one was inevitable.
"Hopefully the situation in Europe doesn’t deteriorate markedly from here. If it does the RBA has taken out some further, appropriate insurance which doesn’t dilute its ability to engage in more aggressive action in early 2012 should that unfortunate outcome prove unavoidable," he said.
Raiss also said there was a positive message in the RBA's move, particularly for property investors.
"An interest rate reduction will release additional cash flows towards low capital growth within investment properties. This will allow more savvy investors an opportunity to selectively target properties that are yielding good returns and higher end capital growth for when the property market inevitably improves," he said.
WHAT'S HAPPENING WITH LENDERS?
Source: Australian Broker News
The RBA delivered an early Christmas gift to mortgage holders with a 25bp cut at its recent meeting.
The decision to cut the official cash rate to 4.25% followed shrinking inflation, subdued credit growth and dwindling asset prices. The board also tipped the deepening Eurozone crisis as a catalyst, saying it had caused businesses and households to take on "precautionary behaviour."
"Overall, the board concluded, on the basis of all the available information, that the inflation outlook afforded scope for a modest reduction in the cash rate," RBA governor Glenn Stevens said in a statement.
Source: Australian Broker News
The standoff over interest rate cuts drags on as most lenders have appeared unwilling to budge in the wake of the recent RBA move.
Comparison site RateCity has claimed that only 6% of more than 110 lenders have made any move on rates since the Reserve Bank cut the official cash rate.
Pressure and stern words from Treasurer Wayne Swan have also failed to prompt action on the part of the banks, and notable holdouts include the big four, Bankwest, Citibank, ING Direct and St. George.
RateCity chief executive Damian Smith has urged borrowers to desert their lender if the rate cut stalemate continues.
"There is really no need to stick with your current lender if they aren't willing to budge on interest rates or they aren't one of the most competitive on the market," he said.
Source: Australian Broker News
The "rare phenomena" of inverse yield curves has been touted as the catalyst behind fixed rates tumbling further.
Citibank has announced it will make more cuts to its fixed rates, dropping its three-year rate to 5.94%. The bank's head of mortgages, Vibha Coburn, said inverse yield curves have continued to spur fixed-rate discounting, which has seen Citibank drop its three-year rate 71bps below its lowest new-to-bank variable rates.
"Current uncertainty in Europe has lead to more certainty in Australia for mortgagees. It's a rare occurrence, but one the people refinancing their home should understand," she said.
The bank has now dropped its three-year rates by 138bps since July. Coburn said it is unlikely variable rates will see such drastic cuts.
"Even if the RBA cuts rates in December and beyond, no one is expecting a cut of the magnitude we've seen in fixed rates," Coburn said.
