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Residex August 2013 Results: Further rate reductions on the horizon; To put it in perspective, Sydney house price growth in the boom of 1989 was 38%
Topic Started: 24 Sep 2013, 11:32 PM (1,450 Views)
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Further rate reductions on the horizon

by John Edwards

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Historically, the Sydney market is the lead indicator for the rest of Australia. It seems that it will again lead other capital city markets into a period of moderate to strong growth. Sydney house price growth was significantly higher in the last 12 months compared to the last three years. However, it is not a boom market and there is no “bubble” forming. It is worth remembering that for the year ending June 2010, Sydney house price growth was 17.17 per cent. Further, growth for the year ending July 2002 was 23.67 per cent and to get even more perspective, house price growth in the “boom” of 1989 was 38 per cent.

We are in a period where interest rates are low. This will be helping investors but for the first home buyer, the cost of housing is still relatively unaffordable. As a result, it is not first home buyers fuelling the current growth in housing values. Additionally, private investors are seeing high risks in the stock market due to the likely wind back of the United States’ quantitative easing monetary policy. As a result, they are looking for low risk, higher yield assets such as housing. To add fuel to the fire, the ability of Self-Managed Super Funds to now structure and use contributions for negatively geared property means a new class of investor is active in the market. In short, the growth period that is underway is being driven mainly by investors in a market where most cities have a shortage of stock.

Australia is going to see further interest rate reductions. Economic growth driven by housing investment is not going to be the saviour of an economy that is transitioning from a mining boom. Australia needs to see small to medium business stimulated strongly and the RBA will be hoping that further rate reductions will have the required effect.

The basic issue is that, while home loans have been reducing, lending rates to small businesses have not reduced sufficiently to be at a stimulatory level unless the loan is secured by housing. Banks are encouraged to maximise lending on residential securities. The capital they have to put aside to support this lending is generally much less than what is needed to support other lending activities. This is a consequence of lower risks associated with home loan lending. In short, this means that profits from home lending are higher compared to others lending activities. In fact, an analysis of the banks’ Pillar 3 disclosures by Mòrgij Analytics shows that the current weighted average risk weighting of the home loan books of the four major banks is 16.4 per cent. This suggests that for every $100 on the mortgage book, the bank only needs to set aside capital of about $1.30. A small business loan on the other hand requires many times this amount of capital to be put aside.

Ultimately, it is not acceptable to create a situation for the current and next generation where housing has a cost that causes them to rent for their entire lives.

Further interest rate reductions will continue to work in the favour of investors as it will increase their capacity to buy and support higher valued homes. This will continue to drive house prices up. Rate reductions will not cause a “bubble” that would “burst” when rates eventually increase because investors are unlikely to default and stock shortages are likely to continue to exist.

There is a feedback loop in all of this. As the investor community acquires additional housing stock and push prices up, they make it virtually impossible for younger people to own their own home. The younger population, by necessity, is forced to rent and hence create demand in the rental market. This, in turn, pushes up rental costs, which once again helps investors as interest rates increase. Also remember that interest costs are tax deductible for investors so rate increases do not have as great of an impact on this group of borrowers compared to a family paying off their home.

Read more: http://blog.residex.com.au/2013/09/24/august-property-market-update/
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Shadow
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Residex Sydney house price index now at $729K and on track to approach $1M by 2015.

I wonder how Steve Keen and Crazy Ted feel about their timing...

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But the bears keep telling me I bought at the peak?
Edited by Shadow, 25 Sep 2013, 09:13 AM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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newjez
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Care to comment on the Melbourne figures? They don't look right? Not to mention perth.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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Catweasel
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Shadow
25 Sep 2013, 09:11 AM
Residex Sydney house price index now at $729K and on track to approach $1M by 2015.

I wonder how Steve Keen and Crazy Ted feel about their timing...

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But the bears keep telling me I bought at the peak?
Catweasel say strange.

How can it ever the buy at a peak when accepted the wisdom is that mouse house price can only the go one way?

It the logic absurd.

And cannot possibly the be.

If natural law suggest directional

And a time is a infinite.
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Perthite
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newjez
25 Sep 2013, 10:02 AM
Care to comment on the Melbourne figures? They don't look right? Not to mention perth.
:D

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Elastic
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Rent for Perth units down from $470 to $430 over the year.
In fact, rents seem to be down all over Australia, unless I am reading that incorrectly, which is quite likely.

I think that more IR cuts are on the horizon given the $Aus refuses to behave.
Edited by Elastic, 25 Sep 2013, 11:57 AM.
Only a rat can win a rat race.

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Shadow
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newjez
25 Sep 2013, 10:02 AM
Care to comment on the Melbourne figures? They don't look right? Not to mention perth.
The Residex index is quite volatile as it is non-revisionary - i.e. they don't revise previous month's figures.

The various indices rarely match on a monthly or quarterly basis, as they measure different things in different ways and over different time periods, with various lags.

However they do tend to track each other over the longer term...

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Edited by Shadow, 25 Sep 2013, 12:17 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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No matter what Sydney house prices will remain steady and will continue to grow.

Facts are simple.

- Strong and stable government
- Business investment and friendly policies
- low unemployment
- slow release of properties
- good migration
- low interest rates
- good and well managed economy and banks
- no NINJA loans
- rising population

Only missing element here is support for first home buyers.
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hoofarted
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25 Sep 2013, 12:37 PM

Only missing element here is support for first home buyers.
As long as they use YOUR fuck'n money, I don't mind. There is already enough support for FHBs. What more do you want?
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miw
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Elastic
25 Sep 2013, 11:55 AM
Rent for Perth units down from $470 to $430 over the year.
In fact, rents seem to be down all over Australia, unless I am reading that incorrectly, which is quite likely.

I think that more IR cuts are on the horizon given the $Aus refuses to behave.
Yes. That was interesting. But everything I have is getting more rent than it was 12 months ago I think (typically 1-3% more). I think this may be a "median shifting further out" effect.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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