that isn't what is happening elsewhere. the cost of funding is falling, not rising. Even without a rate reduction a number of banks have looked to increase their rate discounts over recent weeks.
With the AUD falling I would have thought the cost of financing in Aus would rise. Is this not the case?
I don't think it is fair to say that investors drive the price. Rents through investors almost certainly set some kind of floor on the price for low-end properties, but the price of most property is driven by upgraders who represent most of the transactions and who get a direct buying power boost from both price rises and from interest rate cuts.
Well, my position is that you have to sell to upgrade. If you are in the bottom end, you will often sell to an investor to upgrade to next tier up. I personally believe there are around 4 tiers below 1.2M in Sydney, (scale as you like for elsewhere). Investors tend to buy in tier 1 and 2 (although Asian buyers often buy in tier 3 and 4). If there is no price support from investors in tier 1 and 2, less OOs in those tiers are able to upgrade.
How do OO upgraders get a boost from price rises? Don't they buy in the same market they sell in?
Sheepdog
5 Aug 2013, 10:39 PM
With the AUD falling I would have thought the cost of financing in Aus would rise. Is this not the case?
It depends on how it was hedged. With certain types of hedges if the currency falls faster than the reference rates you can actually come out ahead in the short term.
The fed Tapering will put the “risk on” so prices will likely decline pushing up yields worldwide. The double wammy for Aust will be the simultaneous flight to safety as money leaves emerging markets and finds a home in the US. This will likely manifest in the 10yr jumping to 4.5% and pushing up fixed term mortgage rates.
The reserve will likely keep lowering until the higher GDP numbers we will see (with the lower $A) manifest in lower unemployment. This is unlikely to occur until the 3rd quarter and more likely the 4th quarter, so around a 9 month window. The cash rate should be under 2% by then. If the unemployment numbers decrease then the diversification between the fixed and variable mortgage rates will cease with the variable rate increasing.
The fed Tapering will put the “risk on” so prices will likely decline pushing up yields worldwide. The double wammy for Aust will be the simultaneous flight to safety as money leaves emerging markets and finds a home in the US. This will likely manifest in the 10yr jumping to 4.5% and pushing up fixed term mortgage rates.
The reserve will likely keep lowering until the higher GDP numbers we will see (with the lower $A) manifest in lower unemployment. This is unlikely to occur until the 3rd quarter and more likely the 4th quarter, so around a 9 month window. The cash rate should be under 2% by then. If the unemployment numbers decrease then the diversification between the fixed and variable mortgage rates will cease with the variable rate increasing.
Well that's what we saw when Bernanke gave the wrong impression, but I would expect that after any initial spike when they actually do taper, the market will get comfortable with the taper. It would also depend on the speed or extent of the taper.
Any expressed market opinion is my own and is not to be taken as financial advice
Well, my position is that you have to sell to upgrade. If you are in the bottom end, you will often sell to an investor to upgrade to next tier up. I personally believe there are around 4 tiers below 1.2M in Sydney, (scale as you like for elsewhere). Investors tend to buy in tier 1 and 2 (although Asian buyers often buy in tier 3 and 4). If there is no price support from investors in tier 1 and 2, less OOs in those tiers are able to upgrade.
It's true that a property that starts out as a FHB property will probably end up as an investor property once FHBs are no longer interested and all it is good for is rental stock. That said, I've bought in excess of 10 properties and never once bought one from the person who lived in it. That said, I already agreed that rents, through investors, will set a floor on the bottom tier. A property that gets $400/wk in rent is never going to sell for less than $350k in Brisbane, for example. Possibly a bit higher.
Quote:
How do OO upgraders get a boost from price rises? Don't they buy in the same market they sell in?
Indeed they do. That's why upgraders can very quickly feed an upward spiral in prices. Investors, on the other hand, don't upgrade their properties - either they are buying or selling at any given time. There is one kind of investor who can feed the fire and that is the idiot who is always equity-out-buy-another when their LVR drops below, say, 80%. I don't know any, but I am reliably told they exist. These guys do tend to max out their capacity to pay holding costs pretty quickly and then they crash and burn when interest rates go up though. It's not a sustainable strategy really.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
My holding costs are lower than they have ver been. Plus I have a big loan reverting to variable in the new year, plus rent rises, plus pay rises, the portfolio is now very low maintenance from a cost and personal focus viewpoint.
... but the price of most property is driven by upgraders who represent most of the transactions and who get a direct buying power boost from both price rises and from interest rate cuts.
... er, that's a difficult premise to square with the ongoing AFG figures showing investors going mano a mano with refi, in volume terms.
At least some of the refi market is just that: refi. Another part of it, which will be increasingly relevent over time, involves downsizing (i.e. not always upgraders) rather than upsizing.
Meanwhile the consistent first-among-equals in terms of market influencers remains the investment market.
... er, that's a difficult premise to square with the ongoing AFG figures showing investors going mano a mano with refi, in volume terms.
At least some of the refi market is just that: refi. Another part of it, which will be increasingly relevent over time, involves downsizing rather than upsizing.
Over time, upgraders have been over 50% of transactions while investors have been around 30% and FHBs making up the rest. Since 2008 rents have risen much faster than prices so it's not surprising we have seen investors up as a percentage. I believe this is about to change quite significantly. I'm not seeing many slam-dunk investment opportunities in the listings any more.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
the wonderful thing here is we can pass pictures and videos without this type of thing (april sounds a bit far away though) 'will probably start to rise towards year end or into the new year'
Does febuary 2014 sound fair?
An independent member could quickly determine the 'vibe' of fixed rates in febuary - if it's too close to call with mixed signals from different providers it would mean nothing has really changed
what do you think?
I chose April as that would be inclusive of 1st Quarter results of 2014. Q1 I think qualifies as early in a year.
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
It's true that a property that starts out as a FHB property will probably end up as an investor property once FHBs are no longer interested and all it is good for is rental stock. That said, I've bought in excess of 10 properties and never once bought one from the person who lived in it. That said, I already agreed that rents, through investors, will set a floor on the bottom tier. A property that gets $400/wk in rent is never going to sell for less than $350k in Brisbane, for example. Possibly a bit higher.
Indeed they do. That's why upgraders can very quickly feed an upward spiral in prices. Investors, on the other hand, don't upgrade their properties - either they are buying or selling at any given time. There is one kind of investor who can feed the fire and that is the idiot who is always equity-out-buy-another when their LVR drops below, say, 80%. I don't know any, but I am reliably told they exist. These guys do tend to max out their capacity to pay holding costs pretty quickly and then they crash and burn when interest rates go up though. It's not a sustainable strategy really.
Let's agree that the > 1.2M market operates on it's own set of economic drivers. For the tiers below that, price rises are a bottom up effect. Investors buy almost exclusively in the bottom 2 tiers of the market. As they are 20% of the market, in the bottom 2 tiers, they are 40% of the market. If they are bidding prices up in those 2 tiers, they are driving the market, as upgraders FROM those 2 tiers sell higher and bid up prices in the next tier up. As I said earlier, this investor led boom can continue until investors are either debt saturated, or in Australia the land tax makes the cost of carry too high. Of course, rising interest rates will have the opposite effect, but we live in ZIRP world now, wealth is created in the central bank, or at least the appearance of it anyway.
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