Showing posts with label interest. Show all posts
Showing posts with label interest. Show all posts

Saturday, August 2, 2014

Interest Rates and Housing Bubble in Australia?

Interest rates for residential housing are at lifetime record lows.  Banks are awash in cheap cash that they want to lend.  Lending standards have deteriorated, and money is being loaned out willy nilly.  Good established properties in Brisbane are selling quickly at good prices.  Those wanting to invest are turning to off-the-plan apartment developments, where it is an easier process to sell and buy -- but at higher than market prices.  Is housing price growth solid and sustainable, or a bubble?

When buying, questions to consider:
  • What will happen when quantitative easing ends in the USA?
  • Will there be inflation?
  • What is the risk of the Australian government removing negative gearing, and what impact will this have on property prices?
  • What will happen if China property prices collapse?  What will happen if Chinese buyers stop buying in Australia?
  • In a year, will all off-the-plan buyers be able to settle?
  • Why are off-the-plan prices for apartments much higher than similar properties that the developers have sold, and the first owner is reselling?
An interesting article re the possible bubble is here.

Friday, August 1, 2014

Housing Price Supply and Demand

From the AFR on 30 July 2014, p. 28

"Recent house price appreciation has been driven by more than simply a strongly growing population.  Low interest rates have encouraged domestic investors to allocate assets into housing.  Foreign investors have also been buying.  A reduced rental return on housing would eventually discourage domestic investors but probably comes with a lag.

The apparent equalisation between an undersupply of housing versus strong demand for dwellings in major metropolitan areas comes as the official cash rate remains at a record low of 2.5%, and as the major banks lower their fixed rate home loans in an attempt to entire more people to borrow more."

This article applies more to the Sydney and Melbourne markets than Brisbane.  It is important to look at individual markets, and not take southern trends and blindly apply them to Brisbane.

Monday, March 17, 2014

Australian Interest Rates - Predication by Westpac

From Westpac:

Westpac has revised its profile for the RBA cash rate in 2014. Previously we expected that rates would be reduced by 25bps in both August and November. The forecast is now for flat rates throughout 2014. As before we do not forecast a rate hike until the third quarter of 2015 with a 25bp hike in both the September and December quarters. 

Growth in housing finance has been very strong, up 26.9% for the year to December and 22.3% for the year to January. Within that, loans to investors slowed from 40% (in December) to 28.6% in January. Owner occupiers slowed from 19.4% (December) to 18.6% (January). The “time to buy a dwelling” index from the Westpac Melbourne Institute Consumer Sentiment Survey is down by 16.8% from its September peak. There are tentative signs that housing lending might be slowing. As discussed, that slowdown, which has always been core to our forecasts, appears to be evolving. However, such a slowdown was a necessary but not sufficient condition for lower rates. 

Saturday, August 10, 2013

Rental Returns

I have conducted a review across about 20 apartment rental properties in Brisbane and S.E. Queensland, comparing the 12/13 FY with the previous financial year.  The analysis is done before depreciation and tax is taken into account.  Some of my conclusions, from this limited review:
  • rent increases in the past year have been minimal, and I suspect below inflation
  • vacancy periods between tenants have increased slightly
  • body corporate fees have increased dramatically, and well more than rents and inflation
  • council charges and water rates are slightly higher
  • long term rental properties do much better than vacation or short term rental properties
  • net returns, before interest, have decreased compared to the previous financial year (mostly due to body corporate increases being more than rent increases)
  • fees and charges from rental agents are high, especially when considering the work done and value received -- self managed properties do better than agent managed properties for this reason,  even if the rent received is slightly below market rent
  • if interest rates had not decreased, then the overall picture would not have been rosy.  
  • because of decreases in interest rates, the overall cash position (not taking into account depreciation and tax) improved in the 12/13 FY compared with the previous financial year.

Thursday, July 25, 2013

Outlook for Property on a Weaker Dollar

The AFR had a story on Wednesday titled "Outlook for property on a weaker dollar."

An abstract from ABIX is as follows:

"While it is pointless trying to accurately forecast the future changes in the Australian dollar's value after a decline of about a tenth during the six months to July 2013, it is worth considering the effects this has on real estate investors. Those with existing overseas assets are seeing a boost to the income streams, while those only now starting to allocate funds to the segment will have to pay more. Foreign investors looking to buy off-the-plan properties in Australia, the only option available to them, will find this easier to finance and demand should increase. However these investors account for only 3% of the market. Meanwhile local real estate buyers may feel the impact of inflation, but in general the fallout from the foreign exchange rate fluctuations will be moderate."

Some quotes from the article:

"A lower Australian dollar may increase the attraction of Australian property to overseas investors - particularly new or off-the-plan property, given that FIRB rules exclude non-residents from buying established property."

"The reality is that inward investment flows into Australian residential property are modest, and represent a very small proportion of the total market.   According to FITB, in 2011-12, around $15.5billion was invested in off-the-plan developments, either by overseas buyers or by development companies marketing to overseas buyers.  Compare this to the $500 billion in mortgage financing for property purchases recorded by the ABS in the year to November 2012 -- overseas buyers represent just 3% of the residential property market.   The most significant issue for property investors emanating from a weaker dollar is the potential flow-on for inflation and mortgage rates.

"Unless there is a precipitous decline in the Australian dollar, there is little to worry local property investors.  But large declines do happen from time to time."

Saturday, March 9, 2013

Not Back to Boom Time

"AMP Capital’s head of investment strategy, Shane Oliver, also predicts “a year or two” of house price gains but “not a lot”.  “It’s not back to boom time,” he says. “House prices are high relative to income, lending is constrained and borrowers are cautious.

“Everyone knows the story of housing in the US, the UK and Spain. I think Australians are well aware that prices can go down. That realisation was not there pre-GFC.”
The global crisis has changed the psyche in other ways. No longer is buying and renovating a home the No. 1 ambition.
“We are a long way from the time when the The Block was the most popular show on TV,” Oliver says.
Of course, if mortgage rates fall much further, all bets are off. If the cash rate drops to 2 per cent, as one lead strategist predicts, the lure of cheap money and rising property prices will be hard to resist.  But it is unlikely. Most analysts predict one or two more cuts to the cash rate and some competitive offers on mortgages."

See AFR - Preparing for lift-off

Friday, March 8, 2013

Recovery?

"Australia’s housing recovery, which is seven months young, is solidifying. The question is how hard and long it will run. In January last year I wrote that if the Reserve Bank of Australia cut rates again, one could expect the rebound in this interest rate-sensitive sector to accelerate. ...

With banks dulling earlier policy easings, Australia’s housing market did not get any real relief until the RBA’s hefty 75 basis point cuts over May and June. The response was almost immediate: home values in most Australian cities began appreciating in June last year. Since then they have risen about 4 per cent across the five major capital cities, with better growth again in Sydney, Melbourne and Perth.  Additional cuts in October and December ensured that the cost of housing has accelerated more rapidly this year. Based on the latest data to March 7, Australian dwelling values have climbed more than 2 per cent already in 2013."

See Chris Joye in AFR:  Property Stuggles Back

Monday, February 25, 2013

Asset Price Inflation Coming?

"One important difference in 2001 was that Australia’s household debt-to-disposable income ratio was a substantially lower 95 per cent. By 2006 it had hit 150 per cent, which is about where it is today.

In the early 2000s families could assume more leverage to bolster their purchasing power. They may not be able to do this again.  However, the signs of housing momentum are building. Australia’s largest mortgage broker processed more home loans last month than in any January previously.
RP Data’s CEO, Graham Mirabito, says that his valuation subsidiary, ValEx, which covers 80 to 90 per cent of all loan transactions,, last week mediated more valuation requests than ever before.
The RBA with its policy settings is certainly doing everything possible to fire up the embers. It says rates are not at “emergency lows” but they sure look like it.
During the GFC, the RBA pushed the average discounted home loan rate down to 5.4 per cent. Discount home loan rates today are only 30 basis points higher at 5.7 per cent.
Fixed-rate home loans are cheaper than ever. The average three-year fixed-rate loan in 2009 was 6.6 per cent. Today it is just 5.5 per cent. On Friday, Westpac announced a two-year fixed-rate product for just 4.99 per cent.
It is hard to imagine how these circumstances will not stimulate hearty asset price inflation."

Tuesday, December 4, 2012

Market Flat, according to RP Data

Dwelling values across all of Australia’s capital city housing markets, except Melbourne, rose over November with values now just -0.1 per cent lower over the past 12 months.

Across the 8 capital cities, the month of November saw the RP Data-Rismark Home Value index rise 0.4 per cent during the first two weeks only to relinquish these gains in the last two weeks and finish flat for the month.

As usual, there existed notable dispersions in the returns observed across the individual capital cities.  According to RP Data Senior Research Analyst Cameron Kusher, the November market conditions highlight that the road to a market recovery will not be without pauses and those cities which performed very strongly in 2009 and 2010, like Melbourne, may show continued weakness. “Capital city home values remain -5.6 per cent lower than their historic highs of 15 November 2010, but, up 2% from their low of late May 2012."

Home values in Brisbane and Perth remain below where they were five years ago whereas the other mainland cities have all increased over this period. This has meant that relative to the other capital cities, Brisbane and Perth have experienced affordability improvements and subsequently we may see them become more popular from both an owner occupation and investment perspective.

Brisbane apartment prices (to 30 November 2012):
November 2012 - up 2.3%
Quarter - up 1.2%
Year to Date - down 0.7%
Year on Year - down 0.8%
Median price based on settled sales of Brisbane apartments over the quarter - $360,000.

With interest rates falling again this month, the improvement seen in November may continue through the summer months.  BOQ has passed on a 0.2% rate cut, effective 21 December 2012.

Sunday, October 7, 2012

Ugly Brisbane

Chris Joye had APM (a division of Fairfax) conduct an analysis to determine in which markets most buyers have lost or made money.  APM looked at all properties sold since January 2009, and conducted an EVR (electronic valuation) on each of these properties to determine if the current valuation was more or less than the purchase price.  In Brisbane 71% of properties sold since January 2009 were now worth less than the purchase price, according to APM's valuations.  Who says that you can't have a capital loss when buying property?

From my brief review of the property market in Brisbane (e.g., looking at listings and actual sales, talking with agents, making offers on properties, etc.) it seems to me that the situation in Brisbane is somewhat dire.  And it may not improve soon, and could get worse.  Even though interest rates are falling, a more important factor is employment -- and unemployment in Brisbane is on the increase.

See Chris Joye's Another Cut article.


Thursday, June 7, 2012

Buyers Now Saying Yes?


"The head of real estate strategy at Macquarie Capital, Rod Cornish, uses an affordability measure that brings together the mortgage rate, the level of house prices and the ability of households to pay.
Many will have seen the Cornish graph already. It is easy to follow: when affordability falls, so does housing activity; when affordability rises, housing follows.
All the elements of affordability are now moving the right way.
House prices have dropped. Mortgage rates are falling. And household income is rising.
But there are lags and hiccups. As Cornish says, mortgage rate moves take six months to have an impact. The two cuts late in 2011 would be boosting housing now if the banks had not cut the shift short with out-of-cycle rate rises."
See AFR Story
But...
"The Reserve Bank of Australia’s rate cuts, which started in November, have not boosted demand in the housing market, meaning one in seven homes bought in the past five years are still worth less than their purchase price."
See Home Buyers Still Uninspired

Tuesday, June 5, 2012

Interest Rates Down in Australia

The Australian Reserve Bank decreased its interest rate today by 0.25%.  BOQ immediately dropped its home lending rate by 0.2%.  Will this assist the Brisbane housing market?  It will not hurt, but it may not be enough to assist.  What drives residential property growth more is population growth and employment growth.  In Brisbane, many State Government consultants, contractors and employees are being fired, with the government bankrupt and trying to decrease its workforce by 20%.  So this will have a bigger, negative impact than any positive impacts of the interest rate decreases.

Saturday, April 28, 2012

Unemployment

I like this quote from the Chief Economist from Morgan Stanley:
"Traditionally what has hurt people has not been rising (interest) rates but rising unemployment. I don't care what rate you're paying, if you have a mortgage five times your income and you lose your job, you're toast.''
See Daily Telegraph from 2009.
Easy credit followed by high unemployment rates is a good indicator of whether there will be a residential property bust.  Look at Spain, with 25% unemployment for example.  So at present, Queensland should be safe.  But if the mining and construction boom ends....

Friday, April 13, 2012

ANZ lift interest rates, after 5pm on Friday

In a bad sign for property owners, ANZ has announced it will lift rates by 0.06%.  Effective 20 April 2012, ANZ’s new standard variable mortgage rate will be 7.42%pa.

If you are a customer, probably a good idea to leave ANZ.

Wednesday, August 31, 2011

RP Data Home Value Index Released Today

Based on approximately 178,000 home sales over the year to July, the market-leading RP Data-Rismark Hedonic Home Value Index recorded a seasonally-adjusted fall of -0.6 per cent in capital city home values over the month of July (-0.9 per cent in raw terms).

Over the first seven months of 2011, Australian capital city home values were down -3.4 per cent. According to RP Data research director Tim Lawless, this national result conceals wide divergences across the individual cities.

Over the 12 months to July 2011, Australian capital city home values are off -2.9 per cent. Mr Lawless said that it looks like a multi-speed housing market: Brisbane (-6.6 per cent), Perth (-6.3 per cent), and Melbourne (-4.3 per cent) have all experienced significant declines over the last year, whereas the 35 per cent of Australia's capital city population that lives in Canberra (+1.9 per cent) and Sydney (+0.5 per cent) had realised capital gains.

"If rates do remain on hold, or begin to fall, we would expect to see Australia's housing market find a base and begin to generate capital gains again. If the RBA has really come to the end of its tightening cycle - which we would find surprising given the high core inflation revealed over the last six months - 2011-12 will likely be judged one of the best buying windows seen in quite some time. The turning point will arrive when otherwise hawkish Australian consumers accept the notion that rates are not going to inexorably increase," Mr Joye said.

Mr Lawless said that the current weakness in housing market conditions is related to the ongoing anxiety consumers have about their future finances as reflected in the latest consumer confidence data.

Despite some improvements in selling times in previous months, the average number of days it takes to sell a home has increased in June and July. Other key leading indicators also imply that market conditions remain soft.

Extracted from Press Release


Looking at the table above (capital growth, apartments not houses), which is extracted from the RP Data tables released today, it seems that Brisbane apartment prices may be on the rebound? Or are there so few sales in Brisbane that these numbers are not particularly reliable?

Friday, August 19, 2011

Adjusting property value growth for inflation

Brisbane has been the weakest performing capital city market over recent times with property values down -7.3% from their March 2010 peak. When the results are adjusted for inflation, the fall in values from the March 2008 peak is much more pronounced at -12.3%. Similarly in Perth, the fall from the market peak is more than double (-5.4% versus -11.3%) when the results are adjusted for inflation.

On the flip-side these conditions are likely to impact on negatively geared investors. Given this, RP Data anticipates that investor activity is likely to remain relatively subdued and those investors which are active in the market are likely to have a much greater focus on yield maximisation rather than negatively geared properties. At least for the short term, investors chasing substantial capital gains are likely to be disappointed given the anticipated market conditions.

Saturday, July 30, 2011

House Prices to Fall Further Following Next Interest Rate Rise

An increase in the cash rate will spark house price falls, according to Cameron Kusher, senior research analyst at RP Data. Rents and yields need to increase further to attract investors, he says.

“Yields are not where investors would like them to be… Some cities are doing better, for example units in Brisbane and Sydney,” he says.

See Property Observer

Saturday, July 16, 2011

Interest Rates To Plunge?

The big story today is Westpac's announcement that they predict that Australian interest rates will drop rather than rise over the next year, by up to 1%. See The Australian for a good summary of this story (just be careful that they don't try to hack into your voicemail).

My gut feeling is that Westpac is right. The US economy is not doing well and politicians their a playing games regarding government loans, consumer confidence is low, and Greece is bankrupt and that issue still has a long way to run.

The economy in Australia is very bumpy, like a crocodile's back.

So interest rates could fall in the short term. If so, the question is: will property prices increase as a result?

Wednesday, June 8, 2011

Too Much Debt

"These figures show a substantial shift in the indebtedness of Australian borrowers, who are now significantly more sensitive to moves in interest rates than they were 20 years ago," Fitch said.

"For this reason, Fitch believes any downturn could be significantly worse than the recession of 1991, on which the current mortgage default criteria is based.

See Brisbane Times