Market overview - 3rd quarter 2009

Written by Paul Kounnas | Tuesday, 13 October 2009

Although the first-home buyer grants have contributed to the residential property market’s strength this year, they were not the only reason behind the property market’s rise. The main drivers have been lower interest rates, a shortage of residential properties for our ever increasing population and a very resilient Australian economy.

The removal of the Government grants for first home buyers may slow the rate of price growth, however until supply increases and if the economic recovery continues, I believe property values will continue to rise in the short term.

We are now in spring, when traditionally more sellers ...

come on the market increasing the available number of properties for sale. This increase in supply has generally resulted in sellers having to compete with other sellers for buyers, resulting in weaker sale prices. For this reason I expect prices may temporarily level out over the next few months leading to Christmas.

Property prices in some areas have risen so strongly this year they have exceeded their 2007 highs. Because of the strong growth in prices, a number of first-home buyers andinvestors have been waiting for the government grants to end with the expectation that once this happens demand will drop and so will prices. If prices don’t fall, many of these buyers will be entering the market again, adding to the demand.

Increase in interest rates will certainly restrain buyers from over borrowing and over committing but the rising population will ensure demand remains strong. According to the Australian Bureau of Statistics, Australia added almost half a million people in the year to March 2009. Australia’s population growth is predicted to be one of the fastest growing of the industrialised nations in the world.

As we are not building houses fast enough to house the influx of new arrivals the demand for housing should remain strong and underpin house prices.

A ‘roadworthy certificate’ for houses

Written by Paul Kounnas | Tuesday, 06 October 2009

It should be a legal requirement for all vendors when selling their home to provide prospective buyers a building and pest report. This report can form part of, and be included with the Vendors Statement which vendors currently have to provide to prospective buyers.

This is good consumer protection law because it would save thousands of buyers from collectively wasting millions of dollars each year on building and pest inspection reports.

Unfortunately the price guide provided to buyers by many agents is often below the property’s true value, or below the price the vendor would accept, so many buyers ...

are misled into thinking the property is in their price range. Buyers then spend hundreds of dollars on building and pest reports on properties they can never afford to buy. A building inspection generally costs, between $300 to $500, while a pest inspection may cost $300 to $400.

This is a needless and senseless waste of money considering that building reports are arranged on the same property by several interested buyers, when only one of them can buy it.

This can be avoided by vendors, making available a building and pest report on their property for prospective buyers to inspect before buying. The vendors can, if they want, adjust the sale price to include the cost of this report. The report would have to be conducted by authorised and licensed building and pest inspectors, similar to when you acquire a roadworthy prior to selling your car. This will be like a “house roadworthy certificate”, a condition report on the house.

There is nothing new about this proposal as it is already in existence in the ACT. Homeowners in the ACT have to include a building and pest inspection report with contracts of sale, disclosing all defects and any evidence of termites. We should make this an Australia-wide practice.

Beware interest rates

Written by Paul Kounnas | Tuesday, 29 September 2009

Just a few months ago, nearly every economist was predicting that interest rates wouldn’t start going up until the second half of 2010. Now, many are expecting rates to start climbing as early as Christmas this year.

The Reserve Bank has started signalling a clear bias to raising rates sooner rather that later as evidence builds of a strengthening economy. Money markets have put their money on two rate increases by December.

RBA Governor Glenn Stevens has made it clear in two public speeches in the last month that he is not prepared to allow interest rates to remain at stimulatory lows ...

of 3% when the economy seems to have escaped from what was thought to be a disastrous recession.

Rising house prices and improving business confidence show the Australian economy has more resilience than others around the world.

Debate on timing and amounts will continue and the ebb and flow will change each month, but what does this tell us about what is on the horizon for real estate?

Clearly, rates will be rising soon; much sooner than expected by the experts just months ago. As we suggested a few months ago, if you plan to buy now, budget for a minimum 2 percent increase in rates within two years. If you can afford the repayments, buy the home you love.

It is likely that the increasing rates will slow down price increases; indeed the principal purpose is to minimise inflationary pressures. It is unlikely that prices will fall in the short term. Historically inflation is good for property.

Just don’t over commit.

Home prices to rise - ANZ Bank

Written by Paul Kounnas | Tuesday, 01 September 2009

Home prices will continue to rise this year according to a recently released report. ANZ Bank said the possibility of rising unemployment poses only a limited threat to the value of house prices.

“Policy stimulus and tight fundamentals, due to record high population growth and weak building levels, continue to exacerbate the shortage of housing – this has supported the market until now and will continue to do so” ANZ said.

According to ANZ “Prices momentum has clearly improved on the back of significant rate cuts and government assistance to first home buyers”. The shortfall of homes in Australia ...

was also cited as another key support for house prices.

A separate report by BIS Shrapnel also forecasts that home values would rise by as much as 20% over the next three years.

This forecast however is not supported by economic forecaster Harry Dent who says a bigger crash is ahead for the global economy within the next two years. Mr Dent who predicted the current economic global crisis says our house prices are “among the most over valued in the world” and will fall by as much as 40%.

Many respected property experts do not share the same view as Mr Dent. They are not forecasting a massacre of property values, but rather a rise in prices.

Although the global crisis has contaminated housing and finance worldwide, there is no such crisis in Australia.

It is a concern however to see the overall economy not growing, yet house prices, particularly in the lower end of the market, booming. How the economy will play out the effect of the financial crisis with the so called “experimental” policy responses we’ve had, remains to be seen.

So far this year, melbourne prices have soared the fastest in the nation.