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Can you afford not to buy?; Australian home prices among the world’s highest and still haven’t peaked
Topic Started: 20 Aug 2014, 12:15 PM (729 Views)
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Can you afford it? Can you afford to ignore it?

August 20, 2014 - 12:15AM
David Potts

Our home prices are among the world’s highest and still haven’t peaked.

But if you’re thinking of buying there’s no need to rush, because from here on the rises are expected to be more sedate as the surge in building approvals kicks in and real incomes falter.

At the same time, rents for units are more than keeping up with inflation in Sydney and Melbourne though at best are flat in the other capitals.

Independent property commentators are tipping values will rise an average 6 or 7 per cent in the next year, compared with about 10 per cent last year.

‘‘Normally property prices keep going up until interest rates start to rise. There’s more upside ahead with very low rates, in fact fixed rates have been coming down but the gains will slow down a bit,’’ Shane Oliver, head of investment strategy and chief economist at AMP Capital says.

So when might rates rise?

Not for ages. Economists don’t expect the Reserve Bank to lift rates before its US counterpart, the Federal Reserve, which is planning to but hasn’t set a date as such, apart from making it clear that it won’t be until well into next year. In any case the smart money is even gambling that the Reserve has another cut in it.

Despite (or by pushing up prices perhaps because of) record low rates, affordability is a real issue.

Then there’s Sydney, described as ‘‘one out of the box’’ in the past year by Andrew Wilson, senior economist at Australian Property Monitors.

‘‘That has been due to low interest rates and investor activity, which is half the market,’’ he says, predicting 2 per cent price rises in each of this and the next quarter for Sydney.

‘‘Pent up demand has been released through lower interest rates, especially for investors in Sydney. Once it works its way through the system it wanes in impact,’’ Wilson says.

The other places to be in the next year are Adelaide and Brisbane, mainly because they have some catching up to do after last year’s under-performance.

‘‘Melbourne is likely to record half the growth it did last year – so that will be about 4 to 5 per cent,’’ Wilson says.

‘‘Perth is looking flat this year,’’ he says, and it wasn’t a reference to the city's topography.

Just as record low mortgage rates have boosted demand, an unusually long home building slump has limited supply. No wonder prices have been shooting up.

Although there’s a boom in housing construction under way it still has a lot of, um, ground to make up.

‘‘It’s the strongest in more than a decade but isn’t enough to make up for the under-building in the previous 10 years,’’ Oliver says.

In fact the adult population is still growing faster than new homes are being built, especially in Sydney, Melbourne and Brisbane.

St George Bank estimates the housing shortage is running at 101,300 dwellings a year.

Even so, there’s no getting around the problem of affordability.

Affordability trap

Caught in the middle between low rates and high prices, both records, are household incomes. Wages fell in real terms over the past year and rising unemployment isn’t about to turn that around for a while.

Over time property prices rise on average by the growth in household disposable incomes.

These rose strongly after the global financial crisis as Australia’s export revenues soared thanks to China’s massive spending program, which concentrated on resource-hungry infrastructure. This filtered down to the neighbourhood as jobs, cheaper manufactures and wage increases.

Those days are over, though property prices have been the last to adjust to the new reality.

That’s why once interest rates start increasing, it seems around 5 per cent annual average rises will be the best that can be expected. That suggests real growth of only 2 per cent a year.

The return for investors will be higher when you add a gross rental yield of about 4 per cent on average. This probably won’t change much because even though prices are expected to rise, which would reduce the yield, rents will also be going up.

But remember costs such as maintenance, council rates and strata levies typically knock 1.5 per cent off this.

Also more than half of recent building approvals have been for units, suggesting a looming localised glut, since new apartment blocks tend to be built near each other. Buying off-the-plan also means you’re paying a developer premium.

Anyway there’s no chance of a property bubble while affordability is so constrained – potential first home buyers are staying away in droves – and bank lending is subdued.

Read more: http://www.smh.com.au/money/investing/can-you-afford-it-can-you-afford-to-ignore-it-20140815-1032kc.html
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Debt policy? Better wait than never

September 24, 2014
Clancy Yeates

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As property fever grips the nation, fierce competition at auctions is putting intense pressure on people trying to buy their first home.

First home buyers' share of new home loans is at a record low, while investors' share is near an all-time high.

This can be hugely frustrating if you're one of the people missing out. Banks realise this, and many are keen to help by allowing buyers to simply borrow more, sometimes up to 95 per cent of the property's value.

When many of us put such a high value on home ownership, this option may seem tempting. But despite all the frustration facing first home buyers, experts advise against simply borrowing more than you'd planned to get a foot in the door.

Chris Morcom, a director at Hewison Private Wealth, points out that taking on more debt than you'd planned not only means paying the bank more interest, it can add thousands of dollars in lenders' mortgage insurance.

If possible, he advises saving a 20 per cent deposit, even if it means waiting another year or two.

"Saving that 20 per cent deposit avoids the need for lenders' mortgage insurance, and keep in mind that insurance doesn't insure the purchaser, it insures the bank," he says.

Aside from the extra cost of mortgage insurance, borrowing more than you'd planned amplifies other risks in the housing market.

One is the prospect of an interest rate rise. This applies to everyone with a loan, but as first home buyers are often quite financially stretched, they are often more sensitive to interest rate moves.

Banks and brokers will do their own calculations to check how much they think you can afford, but it's important to do these sums yourself. Rates are at record lows and will inevitably rise.

Read more: http://www.smh.com.au/money/borrowing/debt-policy-better-wait-than-never-20140919-10ibqu.html
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szokolay
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Alex Barton
20 Aug 2014, 12:15 PM

Our home prices are among the world’s highest and still haven’t peaked.
Obviously they don't live in Perth or Brisbane or ....
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Foxy
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Zero is coming...

szokolay
27 Sep 2014, 10:30 AM
Obviously they don't live in Perth or Brisbane or ....
This is just a load of drivel,
I would say that home prices adjusted for inflation have never been lower.

But that is not going to push the lemmings over the cliff.
That is Walts job.

http://www.realestate.com.au/property-house-wa-margaret+river-117252175?listingType=buy

If anyone thinks this is expensive please explain.

$300 per week.
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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