GriffithRE.com - the team with a difference

RBA: State governments part of housing problem

noreply@blogger.com (Nick Chauhan Griffith RE) — Tue, 27 Apr 2010 06:48:00 +0000

RBA Board minutes
• Minutes of the last Reserve Bank Board meeting indicate that the central reason why interest rates rose in April was because they were too low – inconsistent with “trend” economic growth and inflation in line with the medium term target.
• The Reserve Bank has made a pointed reference to the “land usage policies of local and state governments” as a contributing factor to the buoyant housing market conditions.
• “The prospective rise in the terms of trade” – more specifically coal, iron ore and gas prices – was a key factor behind the decision to lift rates. That is, export price increases were more significant than had been previously assumed, adding to the urgency to get rates back to normal.
• The RBA Board minutes reveal that “normal” interest rates are defined as lending rates for housing and business since 1997. Home loan rates are near “normal”, but big business rates remain below normal.

What does it all mean?
• Each time the Reserve Bank Board minutes are published, the picture becomes a little clearer. It is certainly apparent that the sharp rise in commodity prices was the key element causing the Reserve Bank to lift rates in April. In essence, the Reserve Bank hadn’t assumed such a sharp rise in mining and energy prices, and therefore was under-estimating the extent of the prospective income boost to the economy. As a consequence, Board members believed that interest rates needed to get back to normal, sooner rather than later.
• The Reserve Bank has been in a rush to get rates back to normal, and with good reason. The last thing the Bank wants is a re-run of the 2007/2008 period where it under-estimated the resources boom, causing inflation to spike higher.
• The Reserve Bank has pinned part of the blame for soaring house prices on state and local governments. However if anything it is still too polite. Many state governments have lacked the urgency and desire to address the fundamental tightness of housing markets. More land needs to be produced, developers and investors need more incentives and fewer barriers and zoning regulations need to be fundamentally re-thought. Many state and local governments are adopting a ‘business as usual’ posture despite the fact that population growth is at multi-decade highs.
• The Reserve Bank isn’t giving hints on future rate moves. The Bank wants rates back to normal, and it isn’t far away from the objective. CommSec believes that the RBA can afford to wait a month or so before lifting rates again.

What do the figures show?
Minutes from the April 2010 Reserve Bank Board meeting
Key Comments:
“In the view of the Board, with forecasts suggesting that growth in the domestic economy in 2010 would be around trend and that inflation would be around 2½ per cent, consistent with the medium-term target, the level of interest rates in the economy would be expected to be close to average. This remained the underlying rationale for consideration of any adjustment to the cash rate in the current period. Since lending rates were still a little below average, members expected that they would probably need to rise further in the period ahead.
• Buoyant housing market: “Members discussed the factors contributing to the recent strong price growth. On the demand side, population growth was strong, households had confidence about future income growth, and mortgage rates were at below-average levels. At the same time, the supply of new housing was not expanding sufficiently, partly because of the land usage policies of local and state governments and also because of the tightness of finance for developers.”
• Terms of trade: “Recent data for the world economy suggested that the recovery in the major advanced economies was still tentative, but that the expansion in most of Australia’s major trading partners in Asia was proceeding strongly. This was feeding through into significant increases in the prices of resource commodities, including increases in the contract prices for coal and iron ore, which were larger than had been expected a few months ago.”
• “Normal” rates: “The increase in the cash rate in early March had been passed through in full to most variable lending rates. Members noted that lending rates for housing and business were a little below their averages for the period since 1997.”
• Consumers are confident, but not spending: “Household surveys suggested that consumer sentiment had remained at a high level in recent months, though consumers appeared quite cautious in their spending; there had been little growth in retail spending over recent months.”
• Weak commercial building: “The non-residential building sector remained subdued and, abstracting from the surge in construction of educational facilities, new approvals were at relatively low levels.”
• Terms of trade surprise/challenges: “Developments in commodity markets meant that the increase in the terms of trade through 2010 was likely to be substantially larger than forecast in the February Statement on Monetary Policy. This implied strong growth in nominal incomes in the Australian economy over 2010. The increases in coal and iron ore prices, along with the developments in the LNG sector, were also contributing to a strong outlook for investment in the resources sector. Members noted that, while the Australian economy was benefiting significantly from developments in the resources sector, these would also pose challenges.

What is the importance of the economic data?
• The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.

What are the implications for interest rates and investors?
• There is a simple reason why the ACT is at the top of the state/territory economic rankings – it has handled the demands of a growing population and strong demand for housing. Other states and territories have addressed the problem differently, but less successfully. For more homes to be built, governments need to get back to the planning drawing board.
• Interest rates are destined to rise in coming months, but rate hikes should be less frequent given that the RBA is broadly back where it wants to be.

Source Craig James, Chief Economist, CommSec

Reserve Bank tipped to raise interest rates today

noreply@blogger.com (Nick Chauhan Griffith RE) — Mon, 05 Apr 2010 23:12:00 +0000

Home borrowers are expected to be hit with some bad news when the Reserve Bank of Australia (RBA) meets today.

Most economists predict the central bank will vote to raise rates by a quarter of a percentage point at its board meeting in Sydney.

A jump in the cash rate - from four per cent to 4.25 per cent - would see monthly repayments on an average $300,000 home loan rise by $50.

The news for borrowers is expected to get worse, with most experts expecting rates to climb to at least five per cent by Christmas.

This would add $200 a month to average home loan repayments.

Borrowers already copped a rate rise in March, which followed three at the end of last year.

The RBA meets on Tuesday morning and is scheduled to announce its decision at 2.30pm (AEST).

Macquarie Group interest rate strategist Rory Robertson said a strengthening jobs market and Chinese demand for Australian resources added to the case for a rate rise.

"Another hike this month still looks like an 80 per cent probability," he said.

National Australia Bank Ltd has no plans to raise its standard variable interest rate higher than any move the central bank makes to the official cash rate this month.

The Reserve Bank of Australia (RBA) is expected to meet on Tuesday to discuss whether or not to lift official interest rates beyond the current 4.0 per cent.

NAB has reassured customers it won't move rates higher than the RBA and says its strategy of matching the central bank has led to a surge in its mortgage volumes.

Personal banking group executive Lisa Gray says the bank has seen an increase in customers in recent months.

"This has been across a range of products, but particularly personal transaction accounts and home loans," Ms Gray said in a statement on Monday.

Meanwhile, some of Australia's biggest property developers have urged central bank policy makers to reconsider an interest rate rise.

"Each interest rate rise is tantamount to a game of Russian roulette with Australia's housing supply," Urban Taskforce Australia chief executive Aaron Gadiel said in a statement.

He argued that with Australia undersupplied by 200,000 homes, interest rates should not be used to attack housing demand when the problem was actually the undersupply of housing.

"The Reserve Bank has been using increased interest rates as a weapon against home price inflation," Mr Gadiel said.

"Interest rate rises reduce demand for housing, but the origins of this problem lie on the supply side."

Mr Gadiel said developers were also still struggling to secure bank financing for projects.

"Weaker housing demand courtesy of interest rate increases makes it more difficult to demonstrate project viability to a bank.

"Any increase in interest rates undermines demand for housing and boosts the holding costs faced by developers."

RP Data – Rismark Home Value Index Release

noreply@blogger.com (Nick Chauhan Griffith RE) — Thu, 07 Jan 2010 01:33:00 +0000

31 December 2009

Australian home prices rise by +1.1% in November with 11.3% cumulative growth in first 11 months of 2009; results driven by robust gains in Sydney (+11.6% for year) and Melbourne (+17.0% for year).

Based on the rpdata.com residential property database, which is the nation’s largest with over 250,000 sales in the first eleven months of 2009 alone, Australia’s housing market continued to grind out strong gains in the month of November with cumulative double-digit growth recorded in the year-to-date.

According to the RP Data (rpdata.com)-Rismark National Home Value Index, which is published by the RBA in the Statement on Monetary Policy, Australian home values rose by an indicative 1.1 per cent in the month of November after 1.3 per cent growth in October (October’s initial indicative estimate was 1.4 per cent).*

Over the first 11 months of 2009, Australian home values rose by 11.3 per cent following on from their modest 3.8 per cent peak-to-trough falls in 2008.

The most important story of 2009 has been the extraordinary recovery in the Melbourne and Sydney housing markets. In the three months to end November, home values in Melbourne and Sydney have outperformed most other capitals rising by 4.5 per cent and 3.2 per cent, respectively (see summary tables for more).

Over the year-to-date, Melbourne has been Australia’s best performing capital city outside of Darwin, generating exceptional capital gains of +17.0 per cent. Sydney home values have increased by more than 1 per cent per month with cumulative growth of 11.6 per cent.

In the first 11 months of 2009, most of the other capital cities have performed strongly with Darwin (+17.9 per cent) leading the way, followed by Canberra (+10.9 per cent), Brisbane (+6.9 per cent), Perth (+6.5 per cent) and Adelaide (+5.7 per cent).

According to Christopher Joye, managing director of Rismark International, “At the end of 2008 most forecasters were predicting substantial house price falls in the following 12 months. Almost all of them were proven wrong. Australia’s housing market has surprised on the upside with impressive double-digit capital gains in the year-to-date.

The inability of most analysts to get close to divining Australia’s housing market trajectory during the GFC and in the recovery since, combined with the many misconceptions one typically hears about housing, illustrates just how poorly understood the sector is.”

Rpdata.com Research Director Tim Lawless suggests that the November results highlight that the Australian market may be less sensitive to interest rate rises and the removal of Government stimulus than many would have thought.

“The strong November results were achieved despite the 25 basis point lifts in the official cash rate in October and November as well as the wind back of the boost to the First Home Owners Grant which was halved on the first of October. First home buyers have been trending down since peaking in May ’09 and the gap is being filled by upgraders and investors who are much less sensitive to rate rises and the level of stimulus.”

Christopher Joye said, “first time buyers have been fading from the market and the withdrawal of the boost has yet to have any discernible impact on price growth. The key driver of Australian housing demand in the latter half of the year appears to have been upgraders and investors. We expect this trend to continue in 2010.”

He said that as mortgage rates normalise to around 7-8 per cent, house price growth will taper back to more modest single-digit levels in 2010. Since many borrowers did not reduce their mortgage repayments in 2008-09 when the RBA cut rates by circa 40 per cent, household balance-sheets should be well positioned to absorb higher costs.”

Rpdata.com’s Tim Lawless agreed stating that value growth in Australia’s residential sector is likely to be more subdued than what was recorded in 2009.

“2009 has been both an exceptional and surprising year for Australia’s property market.”

“Looking forward we would expect market conditions to moderate into 2010 as interest rates continue move back to a neutral setting and the remainder of the Government stimulus is rolled back. The primary driver of growth will continue to be an under supply of housing coupled with extraordinary housing demand fuelled by population growth,” he said.

Market dynamics

The median Australian home price in all capital cities over the three months to end November was $439,800 (including houses and units). If we include all regions across Australia (i.e. not just the circa 40 per cent of homes located in capital cities), the national median dwelling price is $395,000. (Note: that these are the ‘middle value’ or 50th percentile median prices based on the pooled sales over the last three months.)

The median Australian house price in capital cities is $470,000 while the median unit price is $390,000.

The most expensive houses, based on median price, are in Sydney ($550,000), followed by Canberra ($535,000), Darwin ($501,000), Melbourne ($486,400), Perth ($485,000), Brisbane ($449,850), Adelaide ($372,000) and Hobart ($330,000).

Sydney has the most expensive unit market with a median price of ($417,000). This is followed by Melbourne ($402,500), Canberra ($390,000), Perth ($385,000), Brisbane ($375,000), Darwin ($357,000), Adelaide ($310,000) and Hobart ($270,750).

In the month of November, detached houses (+1.0 per cent) have underperformed units (+1.3 per cent).

Over the three months to end November, unit values (+3.1 per cent) have also shaded houses (+2.9 per cent).

And in the year-to-date, units (+12.5 per cent) have materially outperformed houses (+10.9 per cent) presumably due to the influence of the first time buyers’ boost.

National rental yields tapered slightly in November with the gross annualised rental yield for units being 4.9 per cent while house yields are lower at 4.1 per cent.

Notes
* This data is indicative and subject to revision. It is typically based on approximately 30-40 per cent of the total population of expected home sales. RP Data ultimately collects roughly 100 per cent of all property sales via its license agreements with every State and Territory Government Valuer General and Land Titles Office. This is reflected in subsequently reported index results (ie, in the months preceding the current indicative period).

**The median price is the 50th percentile observation based on all pooled home sales over the three months to end November 2009. This is different to the medians reported by other parties for several reasons. First, where appropriate it includes all property types (ie, not just detached houses, like the ABS). Second, the median value reported by the likes of APM is calculated using a ‘stratification technique’, which is different to the simple 50th percentile observation used here. RP Data-Rismark’s previously reported ‘median values’ must also be interpreted differently. These are the index values attributable to the RP Data-Rismark ‘hedonic index’, which was originally based at inception on median automated property valuation estimates (ie, the median of a statistical valuation of all capital city homes). The change in the index value over time reflects the underlying capital growth rates generated by residential property in the relevant region. These growth rates are not influenced by capital expenditure on homes, compositional changes in the types of properties being transacted, or variations in the type and quality of new homes manufactured over time. The RP Data-Rismark ‘median values’ are not, therefore, the same as the ‘simple median price’ associated with all homes sold during a given period. In future, we will report simple median prices to avoid any further confusion.
Source- Rp Data

New mortgage values to slump by $14 billion

noreply@blogger.com (Nick Chauhan Griffith RE) — Sun, 13 Dec 2009 22:44:00 +0000

Higher interest rates and the end of the first home buyers' boost will blow a $14 billion hole in the mortgage market next year, experts have warned.

The value of all new home loans was expected to fall by $14.4 billion in the 12 months to September 2010, down 8.8 per cent from the same period a year earlier, a report by independent consultants Market Intelligence Strategy Centre (MISC) says.

"This will reflect a slower return of investor lending and still strained funding, which will restrict small-lender activity, as well as further rate increases," the MISC report released on Monday said.

An MISC spokesman said the $14.4 billion decline, if realised, would be the largest total fall since 2003, when the value of all new home loans written backpedalled by about $35 billion.

The bulk of the contraction was expected to take place in the December and March quarters, before the housing market returns to growth in June next year.

"The bottom of the market will not be reached till the March 2010 quarter," the report said.

"MISC believes this quarter will see the lowest point in new mortgage demand for the 2010 year and that June and September quarters will show positive growth, albeit still far les than 2009 experience."

The Reserve Bank of Australia (RBA) has lifted the cash rate at its past three meetings to 3.75 per cent, and market economists anticipate further rate hikes in 2010.

Data from MISC, which conducts research on behalf of the banks, found the value of all new home loans written fell by 5.9 per cent in the September quarter.

It was the first contraction in five quarters as lending was negatively influenced by tighter lending criteria, higher loan-to-valuation ratios and increased rates on fixed rate home loans.

The MISC report also said that rising house prices had eroded the effect of the boost to the first home owner grant, which ends on December 31.

The federal government grant currently provides $10,500 for those buying a home and $14,000 for those building a home or buying a new home

Source: Money Ninemsn.com
14/12/2009 7:30:00 AM

NAB lays down challenge to other majors

noreply@blogger.com (Nick Chauhan Griffith RE) — Fri, 11 Dec 2009 00:55:00 +0000

NAB has thrown down the gauntlet to the other two majors, after raising its variable mortgage rate by just 25 basis points – in line with the Reserve Bank.

The bold move from NAB flies in the face of some other majors who have been citing higher funding costs as a driver for moving their rates above the official cash rate.

Westpac was the first bank to move after the RBA announcement, upping its standard variable rate by 45 basis points.

From today, NAB customers will pay a standard variable rate of 6.49 per cent compared to Westpac’s 6.76 per cent, which equates to a saving of $51 per month on a $300,000 mortgage.

NAB’s decision to raise rates by the same amount as the Reserve Bank has opened up the biggest mortgage rate gap between the majors on record.

Lisa Gray, group executive NAB personal banking, said the last time there was such a wide gap between the majors was “decades ago.”

“We are determined to be competitive, to offer our customers a better deal and attract new customers to NAB. Today we are sending a message to customers at Westpac, and the other banks, that NAB can offer them a better deal,” Ms Gray said.

“NAB has offered the cheapest standard variable interest rate amongst the major banks for the past six months and the new rate of 6.49 per cent p.a. is likely to remain unbeaten amongst the major banks.

“We have been very considered with this announcement given funding costs and the cost of raising deposits continues to fluctuate and is expected to increase further. However we believe that improving our reputation and relationships with our customers and the community is core to the long term sustainability and success of our business.”

Friday, 04 December 2009 Source REB

RBA lifts rates by 25 basis points

noreply@blogger.com (Nick Chauhan Griffith RE) — Fri, 13 Nov 2009 00:54:00 +0000

Reserve Bank Board meeting

• The Reserve Bank (RBA) has increased interest rates for the second consecutive month, lifting the cash rate from 3.25 per cent to 3.50 per cent.
• The RBA said “it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker.”

What does it all mean?
• The Reserve Bank certainly hasn’t sought to frighten the horses with the latest rate hike. All and sundry had expected a move of 25 basis points and the Reserve Bank didn’t disappoint. At this point in the cycle, a move of 25 basis points strikes a nice balance – it edges the cash rate back to more normal levels without threatening the economic recovery. There has been little change in the wording or tone of the statement, suggesting that the RBA will continue to lift rates in 25 basis point increments.
• It is far from certain that rates will rise again in December. The Reserve Bank has never lifted rates for three consecutive months, although it did cut rates five consecutive times late last year and early this year in the midst of the global financial crisis. While the Governor did warn that he wouldn’t be timid in removing monetary stimulus, the Reserve Bank has already lifted rates twice at a time when other central banks are solidly on the sidelines. In addition inflation continues to ease, especially once housing is stripped out, and the firmer currency will assist in keeping inflation contained over the next 6-9 months. We expect the next tranche of rate hikes in February and March 2010.
• A year from now the cash rate will most likely be around 4.50 per cent – a level that will make the Reserve Bank much more comfortable. While a cash rate around 5 per cent has been regarded as a ‘neutral’ monetary policy setting in the past, this may prove too high if the Aussie dollar remains close to, or above, US90 cents. A strong currency not only leads to lower prices of imported goods and lower inflation but makes it tough for exporters and tourism.

Interest rate decision and past cycles
• The Reserve Bank has lifted rates for the second straight month – the first back-to-back rate hike since March 2008. The cash rate was lifted by 25 basis points to 3.50 per cent. Rates had stood at a 49-year low of 3.00 per cent before the decision in October to lift the cash rate.
• The first rate hike in the new cycle occurred six months after rates were last reduced back in April 2009. There were six rate cuts in the last cycle with the cash rate cut from 7.25 per cent to 3.00 per cent. Interestingly the previous tightening cycle in 2002 also began six months after the final rate cut was delivered.
• If banks pass on the interest rate increase in full then repayments on a 25-year $300,000 home loan will increase by $46.21 a month. Even with the rate hike, monetary policy is still clearly expansionary. The Reserve Bank has previously indicated that the “normal” or neutral cash rate is around 5.00 per cent. A neutral cash rate means that monetary policy is neither expansionary nor contractionary.
• The Reserve Bank has now adopted a “tightening” bias. That is, the RBA has indicated that further rate hikes are likely in coming months: “it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker.”

What are the implications for interest rates and investors?
• Around a third of people rent, a third of people own their homes outright and a third of people are buying homes. But over time, the proportion of home owners with a mortgage has been rising. So the community is far more interest rate sensitive. Still, when rates were coming down in 2008, many home buyers elected not to cut their loan repayments. So with interest rates still historically low, there will be negligible effects on the economy. But the Reserve Bank must be careful when lifting rates in 2010 – arguably it went too far with rate hikes in 2007 and early 2008.
• The Reserve Bank will continue to ‘normalise’ rate settings over 2010 – that is, lift rates to more ‘normal’ levels in line with more ‘normal’ economic conditions.
• Apart from Australia, only Israel and Norway have lifted interest rates. The longer that Australia effectively ‘goes on its own’ in lifting rates (at least compared with major economies) the higher the Australian dollar is likely to go, constraining earnings for globally-focussed companies. The Reserve Bank has continued to highlight that the Aussie dollar will act as a dampening influence on tourism and export sectors and constrain inflation.

Source Craig James, Chief Economist, CommSec

Global warming may heat up Tree Change markets

noreply@blogger.com (Nick Chauhan Griffith RE) — Fri, 30 Oct 2009 00:38:00 +0000

A Parliamentary report on global warming released this week highlights the uncertainty surrounding coastal property markets. Some prospective Sea Changers may become Tree Change converts.

Tree Change properties, often considered the poor cousin to Sea Change properties, may be given an unexpected boost, with a recent Parliamentary report highlighting potential issues associated with properties located close to the water due to global warming. The report, released this week by the House Standing Committee on Climate Change, Water, Environment and the Arts and titled ‘Managing our coastal zone in a changing climate’ suggests that a one centimetre rise in sea levels could lead to at least one metre of erosion on the shoreline, making coastal properties vulnerable to flooding, erosion, high tides and surging storms.

The implications for coastal property markets around Australia are likely to be far reaching, particularly for properties within 3km of the ocean and less than six metres above sea level:

• Insurance companies are likely to reassess the value of premiums on potentially affected properties;
• Coastal property owners may be slugged with additional charges aimed at funding the works associated with coastal remediation and risk mitigation (or it may be the broader community that funds these activities)
• New development in areas that are subject to potential inundation may be blocked or face large hurdles associated with planning and development approval
• Existing homes may actually rise more in value due to new supply constraints

In all likelihood, the values of coastal properties will continue to rise despite the heightened uncertainty that surrounds coastal markets. Ultimately, most owners and buyers will choose lifestyle and prestige over the more practical considerations raised in the report.

There will, however, be a portion of the market that turns away from the coast and look towards higher ground. ‘Tree Change’, where buyers move from the city to a rural location, has been gathering momentum for some time. Hinterland markets and agricultural regions close to the capital cities have become more popular due to the high prices of properties located near the water and the increasing demand from baby boomers who are winding down or approaching retirement. The increased uncertainty surrounding coastal markets is likely to propel demand for these regions even higher.

Traditionally, Tree Change buyers have been attracted to the larger land areas that rural locations offer together with the tranquility and privacy that comes naturally in these locations.

Some of the most popular Tree Change markets in each state are highlighted in the graphs and tables below. All have seen a considerable reduction in sales volumes that is synonymous with lifestyle markets around Australia. Apart from Tasmania’s Derwent Valley and Victoria’s Yarra Ranges, all have seen a reduction in the median house price over the last year. The most popular Tree Change markets are generally those that are within commuting distance to a capital city or major centre

Over the longer time period, however, growth in house prices has been fairly consistent with most markets analysed recording a reasonable rate of growth over the last five years. The Blue Mountains in New South Wales is the exception with house prices still lower than what they were when the market peaked in 2004. Such a poor performance over the last five years is likely to be viewed as an opportunity by many prospective buyers who can still take advantage of relatively low prices in a Tree Change market that is within commuting distance to the Sydney CBD.

Information supplied by Rp data

Global warming may heat up Tree Change markets

noreply@blogger.com (Nick Chauhan Griffith RE) — Fri, 30 Oct 2009 00:18:00 +0000

A Parliamentary report on global warming released this week highlights the uncertainty surrounding coastal property markets. Some prospective Sea Changers may become Tree Change converts.

Tree Change properties, often considered the poor cousin to Sea Change properties, may be given an unexpected boost, with a recent Parliamentary report highlighting potential issues associated with properties located close to the water due to global warming. The report, released this week by the House Standing Committee on Climate Change, Water, Environment and the Arts and titled ‘Managing our coastal zone in a changing climate’ suggests that a one centimetre rise in sea levels could lead to at least one metre of erosion on the shoreline, making coastal properties vulnerable to flooding, erosion, high tides and surging storms.

The implications for coastal property markets around Australia are likely to be far reaching, particularly for properties within 3km of the ocean and less than six metres above sea level:

• Insurance companies are likely to reassess the value of premiums on potentially affected properties;
• Coastal property owners may be slugged with additional charges aimed at funding the works associated with coastal remediation and risk mitigation (or it may be the broader community that funds these activities)
• New development in areas that are subject to potential inundation may be blocked or face large hurdles associated with planning and development approval
• Existing homes may actually rise more in value due to new supply constraints

In all likelihood, the values of coastal properties will continue to rise despite the heightened uncertainty that surrounds coastal markets. Ultimately, most owners and buyers will choose lifestyle and prestige over the more practical considerations raised in the report.

There will, however, be a portion of the market that turns away from the coast and look towards higher ground. ‘Tree Change’, where buyers move from the city to a rural location, has been gathering momentum for some time. Hinterland markets and agricultural regions close to the capital cities have become more popular due to the high prices of properties located near the water and the increasing demand from baby boomers who are winding down or approaching retirement. The increased uncertainty surrounding coastal markets is likely to propel demand for these regions even higher.

Traditionally, Tree Change buyers have been attracted to the larger land areas that rural locations offer together with the tranquility and privacy that comes naturally in these locations.

Some of the most popular Tree Change markets in each state are highlighted in the graphs and tables below. All have seen a considerable reduction in sales volumes that is synonymous with lifestyle markets around Australia. Apart from Tasmania’s Derwent Valley and Victoria’s Yarra Ranges, all have seen a reduction in the median house price over the last year. The most popular Tree Change markets are generally those that are within commuting distance to a capital city or major centre.

Over the longer time period, however, growth in house prices has been fairly consistent with most markets analysed recording a reasonable rate of growth over the last five years. The Blue Mountains in New South Wales is the exception with house prices still lower than what they were when the market peaked in 2004. Such a poor performance over the last five years is likely to be viewed as an opportunity by many prospective buyers who can still take advantage of relatively low prices in a Tree Change market that is within commuting distance to the Sydney CBD.

Supplied by Rp Data Index report, 30th October 2009

luxury Home prices rise....

noreply@blogger.com (Nick Chauhan Griffith RE) — Thu, 29 Oct 2009 03:04:00 +0000

House prices are rising at the fastest pace in six years but rising interest rates could halt the boom, experts have warned.

Nationally, house prices rose by 3.7 percent in the three months to September alone and have already gained by 7.1 percent this year, according to Australian Property Monitors (APM).

Melbourne and Hobart saw the biggest growth in house prices in the last three months, with prices rising by 6.1 percent and 5.4 percent respectively, while Darwin saw the biggest rise in apartment prices, up 11.9 percent.

AMP economist Matthew Bell said the gains had been powered by a recovery in sales at the luxury end of the market and by owners who sold property to the rush of new first home buyers, who are now upgrading.

"The extraordinary recovery at the upper end of the market experienced in June in most major capitals has now spread to the rest of the country," he said.

"In addition, sellers who sold properties into the booming first home owner market over the past year have used sale proceeds to upgrade to more expensive homes and units, placing even more pressure on upper end markets."

However, APM cautioned that rising interest rates could pose a threat to continued growth in house prices.

Economists are expecting the Reserve Bank of Australia to raise interest rates several times in the coming months with rates likely to rise by 25 basis points following the RBA’s meeting next Tuesday.

Many predict the cash rate will be around 5.5 percent by the end of 2010 and there are fears that some, particularly first home buyers who entered the market amid record low rates and government incentives, may have over committed themselves.

"Despite this, we expect that strong rental yields and the prospect of future capital gains are enticing many investors to enter the market in the second half of 2009 and early 2010," Mr Bell said.

He added that rates would be a crucial factor in whether price growth continues.

"While the explosive growth seen in the upper end of the market is expected to slow as prices reach and exceed their late 2007 highs, moderate to strong growth is expected across the market as a whole for the remainder of 2009 and 2010," he said.

"The question as to whether this growth can be sustained throughout 2010 depends on how quickly mortgage rates rise in the next six months."

Australians will get further insight into house prices tomorrow when APM rival RP Data publishes its monthly house price index.

Supplied by ninemsn.com.au 29th october 2009

Home prices soar to record highs in August

noreply@blogger.com (Nick Chauhan Griffith RE) — Fri, 09 Oct 2009 00:18:00 +0000

Monthly home prices

· Australian home prices soared to record highs in August, underpinned by low interest rates, grants to first home owners and growing confidence about the job market.

· The RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia – lifted by 1.9 per cent in August, the eighth consecutive monthly gain. Over the past year, Australian dwelling prices have risen by 6.6 per cent – the strongest gain in 15 months.

· Across all capital cities, dwelling prices are higher than a year ago. The RP Data-Rismark Hedonic Australian Home Value Index is now 3.8 per cent higher than the previous peak set in February 2008.

· Higher-priced suburbs are now showing stronger price gains than cheaper suburbs. Both top-end and medium-price home prices have risen 8.2 per cent since the start of the year with prices in cheaper suburbs up 7.5 per cent.

What does it all mean?

· It is a simple case of supply and demand. Demand for homes is being spurred by super-low interest rates, the fastest population growth in 40 years and grants to first home buyers. At the same time, Australia continues to experience an under-supply of homes through lack of building over recent years. Demand is out-stripping supply of homes, and as a result prices are rising.

· If home prices were just rising in the cheaper suburbs then you could put the gains down to the grants to first home buyers. But prices in upper-end suburbs are now rising at a faster pace than cheaper locales.

·For the two-thirds of Australians that either own or are buying homes, the solid growth in home prices is clearly good news. Rising home and share prices are lifting wealth levels and consumer confidence – both factors that should underpin spending levels in coming months.

· No doubt the coming rate hikes and lift in home building will serve to restrain growth in home prices. But it is still a case that population growth is outstripping housing supply by a big margin. And a raft of barriers on the supply-side such as zoning requirements and access to finance are preventing developers and investors from entering the market.

·Governments, industry bodies and financiers need to come together to address the barriers that exist. If action doesn’t occur to lift the supply of dwellings then Reserve Bank fears of a housing bubble could end up being realised.

·CommSec expects home prices to rise by around 8 per cent over the coming year, a rate of growth in line with longer-term averages. Strong fundamental demand for homes will continue over the year but affordability will soften as the Reserve Bank lifts interest rates to more ‘normal’ levels.

·The RP Data-Rismark index utilises Australia’s largest property database and measures prices of houses and units so it is clearly the most accurate measure of dwelling prices and one that the Reserve Bank closely monitors.

What do the figures show?

·The RP Data-Rismark Hedonic Australian Home Value Index rose by 1.9 per cent in August, the eighth consecutive monthly gain. House prices lifted by 1.8 per cent with unit (apartment) prices up by 2.1 per cent.

·Over the first eight months of 2009 capital city home prices rose by 7.9 per cent. Over the year to August dwelling (home) prices were up 6.6 per cent – the strongest annual increase in 15 months.

·House prices in August were up 6.0 per cent on a year ago with unit prices up 8.3 per cent.

·In August, Melbourne dwelling prices rose by 2.7 per cent followed by Sydney (up 2.1 per cent), Canberra (up 1.9 per cent), Brisbane (up 1.4 per cent), Adelaide (up 1.3 per cent) and Perth (up 0.6 per cent). Dwelling prices fell by 0.8 per cent in Darwin after soaring by 3.1 per cent in July.

·Over the past year, Darwin dwelling prices recorded the strongest gain, up 17.9 per cent, followed by Melbourne (up 9.5 per cent), Canberra (up 8.6 per cent), Sydney (up 7.4 per cent), Brisbane & Adelaide (both up 3.8 per cent) and Perth (up 1.8 per cent).

·RP Data-Rismark calculates the median capital city house price across Australia at a record high of $514,416 with the median unit value at a record high of $418,806.

·According to RP Data-Rismark, returns on Australian dwellings (accumulation index), grew by 11.7 per cent over the past year, the fastest pace in 15 months. The gross annualised rental yield for units of stands at 14.1 per cent while house rental yields stand at 10.9 per cent.

What is the importance of the economic data?

·The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database including over 170,000 sales during the first eight months of 2009 (and over 129 million data records in total). Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.

·The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2009 index results compare the end of March index with the end of December index.

·Rising house prices serve to lift consumer confidence and wealth levels. However rapid increases in home prices lead to weaker housing affordability.

What are the implications for interest rates and investors?

·The strong lift in home prices increases the risk that the Reserve Bank will lift rates later this year rather than early next year. CommSec still expects the Reserve Bank to deliver the first rate hike in February 2010, but the chance of a move in November or December has risen to around 40-45 per cent.

·The lift in home prices in response to strong fundamental demand will lead to greater home building and renovation activity. The strong lift in home prices improves prospects for consumer and housing-dependent companies.

Source Savanth Sebastian, Economist, CommSec

National Home Value Index Release

noreply@blogger.com (Nick Chauhan Griffith RE) — Thu, 01 Oct 2009 01:07:00 +0000

National property values jumped by almost 2 per cent in August in the largest monthly movement since the RP Data-Rismark Home Value Indices began in January 2005.

Using the rpdata.com (ASX: RPX) property database, which is Australia’s largest and includes over 170,000 sales during the first eight months of 2009, Australia’s housing recovery solidified during the month of August with strong capital gains registered across the country despite evidence of fading first home buyer numbers.

According to the “market-leading” RP Data-Rismark National Home Value Index (see Background on p4), home values in Australia rose by an exceptional 1.9 per cent during the month of August. This brings cumulative capital growth in the first eight months of 2009 to a better than expected 7.9 per cent. This is also the single highest monthly index result since the RP Data-Rismark National Home Value Index began in January 2005.

According to rpdata.com research director, Tim Lawless, the August results surprised on the upside and are indicative of very high levels of buyer confidence combined with low levels of listings.

“These buoyant conditions sit in striking contrast to the same time last year when values were falling, less than half of the auctions held cleared and sales volumes were at rock bottom. We are now seeing home values rising at a solid rate, almost 80 per cent of auctions are clearing, and sales volumes have bounced back significantly”, Mr Lawless said.

Rismark International managing director, Christopher Joye, added, “Australia’s housing market is being underpinned by the strongest population growth since 1971, record housing shortages, historically low mortgage rates, better than expected employment outcomes, and one of the world’s most profitable banking systems.”

Australian home values have now risen 3.8 per cent past their February 2008 peak. This rebound followed peak-to-trough falls in national home values of just 3.8 per cent in 2008, which compares exceptionally well with the 15 per cent and 30 per cent house price declines seen in the UK and US, respectively.

Dispelling concerns that the recovery is limited to first home buyers Mr Joye commented, “In contrast to claims that this is a first time buyer bubble, the cheapest 20 per cent of suburbs in Australia have actually underperformed both the mid-priced market and Australia’s 20 per cent most expensive suburbs since the housing market bottomed in December 2008.”

“As recently noted by the RBA, all major lenders now require a minimum 10 per cent deposit and are applying the strictest credit standards we’ve seen in over a decade. Australian housing credit growth has also been running at levels that are extremely low by historical standards and noticeably less than the growth experienced in the 1991 recession,” Mr Joye said.

Rpdata.com’s Tim Lawless concurred with Mr Joye and said that over the last three months the premium residential market increased in value by 4.5 per cent compared with a 3.4 per cent gain in the middle market and a 2.8 per cent improvement at the cheapest end. (Note: numbers in chart to right show changes since December 2008 in the cheap, middle market, and expensive suburbs.)

“Despite the strong gains, the bounce in the premium sector has not been enough to offset the peak to trough fall of 9.9 per cent between February 2008 and January 2009. Prices in Australia’s most expensive markets are still 1.1 per cent lower than at their peak.”

Mr Joye added, “While the resounding recovery in Australia’s housing market confirms our forecasts, we expect medium term growth rates to be more measured as mortgage rates normalise back to between 7-8 per cent. This would bring the cost of housing finance back in line with its 2000-01 levels, which is notably well below the searing 9.6% highs endured by borrowers in August 2008 care of the RBA.”

In closing Tim Lawless said that the upward momentum in Australian house prices is a critical economic signal from the market to builders and developers to encourage them to reinvest in producing new housing supply. This was a message reinforced by the RBA’s Dr Anthony Richards in a speech to CEDA yesterday: policymakers need to facilitate significant new investment in housing supply to alleviate Australia’s growing housing shortage, which ANZ and Westpac estimate has risen to around 200,000 homes.

“This price growth will also go a long way to comforting risk-averse lenders to start providing credit again to developers, which has been one of the main bottlenecks on the supply-side. And it will stimulate the reallocation of resources away from other sectors of the economy into much-needed housing investment.” Mr Lawless said.

Other key findings from the August RP Data-Rismark Index results:

Unit values (+2.1 per cent) have marginally outperformed house values (+1.8 per cent) in the month of August. Over the course of 2009, units (+8.5 per cent) have also generated slightly higher capital growth than houses (+7.7 per cent).

Most capital cities recorded robust gains in the month of August with every single city experiencing rises in home values during the first eight months of 2009.

After several years of subdued growth following the end of Australia’s last housing boom in 2003, which saw Australia’s “house price-to-income ratio” fall by nearly 20 per cent through to December 2008, home values in the two major capital cities, Melbourne and Sydney, have led the recovery in 2009 with total capital gains of 11.6 per cent and 8.6 per cent, respectively.

Following Melbourne, Darwin has been the next best performing capital city with growth of 9.7 per cent in 2009. Interestingly, Darwin also continues to deliver the highest rental yields, implying that the market may have room for further growth.

Home values in Canberra (+6.7 per cent), Brisbane (+5.2 per cent), Perth (+4.1 per cent) and Adelaide (+3.1 per cent) have also realised sustained gains in 2009.

As RP Data-Rismark correctly anticipated, residential real estate in Perth has experienced a recovery in 2009 after a period of falling prices since September 2007. While Perth dwellings have recorded 4.1 per cent growth in the first eight months of the year they still remain 3.6 per cent below their September 2007 peak.

National rental yields have softened slightly given the strong capital growth with the gross annualised rental yield for units being 5.1 per cent while house rental yields are slightly lower at 4.3 per cent.

30 September 2009 Rp Data Source

End of September signals the phasing out of the Boost

noreply@blogger.com (Nick Chauhan Griffith RE) — Mon, 28 Sep 2009 00:01:00 +0000

The first stage of the phasing out of the First Home Owners Grant Boost (FHOG Boost) will happen in alittle over a week, on September 30.

From October until December 2009 the FHOG Boost will be reduced from $14,000 to $10,500 for established homes and from $21,000 to $14,000 for newly constructed homes.
From 1 January 2010, the FHOG will return to the $7,000 previously provided to first home buyers of newand established housing, before the implementation of the Boost.
“It’s important for first home buyers to act now if they want to receive the maximum grant before it is phasedout,” said Real Estate Institute of Australia (REIA) President, Mr David Airey.

“To assist consumers with eligibility requirements and information about obtaining the Boost, the Government has a website1 to direct potential first home buyers to their relevant state or territory revenueoffice,” he said.

The decision made by the Government to extend the Boost as part of the Federal Budget reflects the position the REIA presented to Government, which was to extend the Boost for both new and existing homes and introduce a plan to phase the Boost out gradually.

“It is great to see the number of first home buyers in Australia that have been able to secure a home since the FHOG Boost was implemented,” concluded Mr Airey.

“Australian Bureau of Statistics (ABS) figures have shown that the proportion of first home buyers has increased from 19.5 per cent in October 2008 to a record 28.5 per cent in May 2009. Government figures show that at the end of July, 137,000 homes had been purchased with the aid of the FHOG Boost,” he said
_______________________
REI Media Release 24th September 2009

Reserve Bank patiently sits on the sidelines report

noreply@blogger.com (Nick Chauhan Griffith RE) — Mon, 21 Sep 2009 00:56:00 +0000

• Reserve Bank Board members agreed on “a wait and see” policy at the last interest rate meeting, noting the significant improvement in economic conditions in domestic and global economies and allowing market interest rates to price in rate hikes.
• There are two key factors holding the Reserve Bank from raising interest rates. The bank is still unsure about the sustainability of the recovery and is also concerned about the health of business balance sheets.
• Board members noted the “strong macro stimulus” and the strength in the Asian region has provided a considerable support to the Australian economy adding to concerns over the already relatively high levels of underlying inflation.
• Australia’s chief commodity forecaster, ABARE, expects Australian winter crop production to have increased by 3.4 per cent to 36 million tonnes. Forecasts for Australia’s 2009/10 wheat crop is expected to rise by 3.4 per cent to 22.7Mt.

What does it all mean?
• It is pretty clear from the minutes of the latest Reserve Bank Board meeting that the Board believes that the best approach is to hold off on any rate hikes until more concrete economic data is available in coming months. The Reserve Bank Board has confirmed that the Australian economy is on a recovery path with the “strong macro stimulus” and the strength in the Asian region supporting the Australian economy.

The Reserve Bank Board is in “wait and see mode” on interest rates. Board members are still not convinced that the economy can stand on its own two feet. The Board also believes that further repair work is necessary on bank and private company balance sheets. However a quiet confidence is perceived in the Board minutes with members noting that domestic economic conditions continued to evolve in line with bank forecasts. And as the risks to the global and domestic economy diminish, the board will no doubt become more relaxed about raising interest rates.

In particular members focused on the strength in the Asian economies in particular China. The pickup in car sales in China and increasing export volumes throughout the Asian region bodes well for the longer term fundamentals for the Australian economy. Importantly Board members believed that the Chinese economy would continue to record solid growth outcomes in the longer term.

•The Board clearly believed that with interest rates at 49 years lows and significant fiscal stimulus currently been undertaken, it was having an expansionary effect on the Australian economy. However with fiscal stimulus waning, the Board is likely to keep the monetary stimulus in place until the recovery gets a strong foothold. As a result the Reserve Bank decided the more prudent course was to keep rates on hold at the last meeting.
• Certainly the relatively high underlying measures of inflation, coupled with the stronger level of domestic economic activity will be a key concern going forward, and the likely barometer for the timing of rate hikes. The Board noted that the rise in market interest rates had effectively done part of its job already, adding to the borrowing costs for business and mortgage holders and restraining the momentum of the economy.
• At this stage the Reserve Bank looks likely to keep rates on hold in upcoming months. However CommSec is not ruling out the possibility of the first rate hike of 25 basis points taking place in December.
• The rural sector certainly did its part in ensuring that the Australian economy avoided a recession and will play a significant part in supporting the economy until the recovery gains a strong foothold. ABARE has revised up forecasts for Australia’s winter crop production by 3.4 per cent to 36 million tonnes.
• The one major risk to forecasts is the possibility of not enough healthy rain, especially in Queensland and Northern NSW. Already the lack of winter rains has had a critical effect on crop production. However improvement in weather patterns in Western Australia has helped to support the upgraded crop estimates. The combination of higher production, favourable prices will be offset by a stronger Australian dollar.

What do the figures show?
• The Australian Bureau of Agricultural and Resource Economics (ABARE) expects Australian winter crop production to have increased by 3.4 per cent to 36 million tonnes on a year ago.
• Forecasts for Australia’s 2009/10 wheat crop are expected to rise by 3.4 per cent to 22.7Mt. ABARE did note that the winter rainfall was below average in Queensland and Northern NSW, however widespread rainfall over the first week of Spring has provided a degree of improvement for crop production However further good rain is needed. Western Australian crop production is expected to fare better above average spring rainfall expected.
• Barley production is tipped to rise from 7.7Mt over 2009-10 to 7.9Mt. Canola crop production is estimated to hold steady at 1.7 million tonnes in 2009-10. Sorghum production will fall 4.6pct in the year to 1.85 million tonnes, while cotton seed production will fall 12 per cent to 531,000 tons in 2010.
Minutes from the May Reserve Bank Board meeting
Key Comments:
• “Members were briefed on the recent data for the Chinese economy, which had been somewhat mixed. Car sales had risen very sharply and export volumes had also been growing, including recently to the United States and Europe.”… “Overall, members observed that some slowing in the Chinese economy relative to the rapid pace in the June quarter had been inevitable but that the longer-term prospects were strong”
• “Of most significance to Australia, the Asian region had recorded strong growth in the June quarter. While this had been largely driven by domestic demand in these economies, reflecting strong economic stimulus, there were also recent signs of a pick-up in their exports...”
• “Outside Asia, most economies had experienced another fall in GDP in the June quarter, though more recent information suggested that the majority of these economies were now approaching a turning point.”
• “The US economy was expected to grow in the September quarter, after contracting by 4 per cent over the previous year”
• “In relation to housing markets, members observed that in countries that had experienced better economic outcomes and/or fewer financial sector problems (e.g. China, Canada, Norway and Australia), house prices now appeared to be rising quite solidly and were above or around earlier peaks. Even in the US and UK, which had earlier experienced significant falls in house prices, there had been some up-ticks recently”
• Retail sales: “Measures of sentiment had continued to strengthen. Consumer sentiment had risen sharply over the three months to August. Liaison with retailers suggested that household spending had softened somewhat in July but had been better in August.”
• Business investment: “The data for business investment in the June quarter indicated a strong rise in spending on plant and equipment, with a sharp increase in spending on a wide range of capital goods, including cars. However, this mostly reflected the bringing forward of spending to qualify for tax allowances. Car sales had subsequently fallen in July.”
• Exports: “The data for June quarter export volumes showed most categories were growing or holding up reasonably well. Manufacturing exports were the exception, and had fallen broadly in line with the falls seen in many other countries. On average, commodity prices had been broadly steady since the last meeting.”
• Financial markets: “There were some favourable signs in the Australian residential mortgage-backed securities market. The gap between secondary market yields and primary market yields was continuing to close, such that the prospect of issuance without the support of the Australian Office of Financial Management was increasing.”
• “Turning to banks’ funding, members noted that there had been a continuation of the strong competition for deposits. Together with an increase in term interest rates, which were rising because of expectations of monetary tightening, this was contributing to an increase in bank funding costs.”
• Outlook: “An important question for members was whether the global economic improvement would be sustained, or whether it was mainly a reflection of the strong macroeconomic stimulus that had been applied over the past year and might in due course fade. Members were also conscious that, even though financial market conditions had improved significantly and debt markets were beginning to function again, banks, corporates and households in many countries still faced significant balance sheet adjustments.”
• Policy decision: “As at the previous meeting, members noted that the policy decision in the near term involved balancing the risk of over staying an accommodative stance, and that of prematurely tightening and adversely affecting confidence and demand. The meeting concluded that the balance was best struck by leaving the cash rate unchanged for the time being, pending further evaluation of incoming information at future meetings.”

What is the importance of the economic data?
• The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
• The Australian Bureau of Agricultural and Resource Economics (ABARE) release its Crop Report each quarter. The latest estimates on winter and summer crops assists investors in assessing conditions for the rural and resources sector and companies leveraged to these industries
What are the implications for interest rates and investors?
• CommSec is pencilling in the first rate hike within the first quarter of 2010. With longer term interest rates and funding costs for banks rising the Reserve Bank is more likely to hold of on any rate hikes and allow the market to price in higher cash rates.
• However if the domestic economy continues along the current recovery path a rate hike in December cannot be ruled out.

Information supplied by Jason Smith- Paid on Exchange

A healthy property market is emerging

noreply@blogger.com (Nick Chauhan Griffith RE) — Thu, 13 Aug 2009 00:38:00 +0000

Real Estate Institute of Australia (REIA) President, Mr David Airey said that recent indicators point to a
consolidation of the housing market.
“According to Australian Property Monitors (APM), Sydney clearance rates were 69.3 per cent this past weekend, compared to 47.5 percent 12 months ago on the same number of properties put to auction,” he said.

“In Melbourne, the clearance rates (using APM data) were at a 12 month high of 87 per cent,” continued MrAirey.

ABS figures released this week show that finance commitments, excluding refinancing, are at their highest level for the past 18 months

“Other positive signs are the increasing level of investors in the market and the first signs that the influence of the First Home Owner Grant Boost (FHOG Boost) is beginning to abate,” continued Mr Airey.

The value of investment housing commitments rose again in June; following increases in each of the previous three months
The number of first home buyer commitments as a percentage of the total has declined for the first time since the FHOG Boost was introduced in October last year.
“There are strong signs of a healthy property market ahead,” concluded Mr Airey.

The Real Estate Institute of Australia (REIA) is the national professional association for the real estate sector in Australia

Supplied by REI Australia Media Release, Wednesday 12th August

ABS confirms house price resilience

noreply@blogger.com (Nick Chauhan Griffith RE) — Thu, 06 Aug 2009 00:58:00 +0000

The ABS data on house prices released today shows the resilience of housing as well as the impact of the combined actions of the government and the Reserve Bank of Australia (RBA) in their response to the global financial crisis.

The latest figures show that house prices for established homes increased by 4.2 per cent in the June quarter 2009 and over the past 12 months, decreased by a modest 1.4 per cent. Since the peak in March 2008, prices have dropped only 2.2 per cent.
REIA President, Mr David Airey said, “The ABS figures fly in the face of the prophesies of the doomsayers’such as Professor Steve Keen from the University of Western Sydney. This data confirms the stance taken by REIA; that since late last year, there has been great opportunity for home buyers and investors to enter
the housing market.”

“Will Professor Keen now take the promised walk to the top of Mount Kosciuszko where the quiet and clear mountain air provides an opportunity to contemplate the real estate market?” *
_______________________________________
*Professor Keen forecast last November that house prices
would fall 40% in Australia. A view not held by Mr. Rory
Robertson of the Macquarie Bank. The difference in opinion
led to a bet with the loser to walk from Canberra to the top
of Mount Kosciuszko.

By Real Estate Institute of Australia 5/8/09

RP Data – Rismark Home Value Index Release

noreply@blogger.com (Nick Chauhan Griffith RE) — Tue, 30 Jun 2009 05:42:00 +0000

Out today, the monthly RP Data-Rismark International, national Home Value Index confirmed that home values in Australia continued to trend upwards over the month of May to now reach a national median of $468,819; just 0.1 per cent, or $520, shy of their peak in February 2008.

The results reveal that apart from Perth, for the first five months of 2009 home values in every mainland capital city in Australia increased.

Based on Australia’s largest property database, which includes around 90,000 capital city home sales in 2009 alone, the monthly RP Data-Rismark National Home Value Index recorded an overall increase of 0.9 per cent in the month of May, and a remarkable 3.9 per cent gain over the first five months of 2009. During the 12 months to May 2009, Australian home values have increased by 1.6 per cent.

RP Data head of research Tim Lawless said, “These latest results herald a national residential market recovery.”

“It’s important to note that it has taken just 15 months for values to recover from the February ‘08 peak. I believe these results are encouraging, especially when we take a closer look at other Western markets around the world where prices are mostly in decline,” Mr Lawless said.

Rismark International managing director Christopher Joye concurred with Mr Lawless’ comments and said, “The February RP Data-Rismark Index results were the first clear signs of the so-called economic ‘green shoots’. All of the subsequent evidence—housing finance approvals, auction clearance rates, and other independent house price data—has affirmed this story of an incredibly resilient housing market.”

“The recovery in Australia’s housing market, which has defied countless doomsayers, has in turn been the cornerstone of the Australian economy’s stability in 2009. The robust rise in Australian home values this year has given builders and developers confidence to hire labour and buy materials to invest in new homes. It has also given existing owners the confidence that their largest investment has been a secure store of wealth while other asset-classes have been decimated”, Mr Joye said.

The improvement in market conditions during 2009 has been largely driven by an increase in owner-occupier (as opposed to investor) activity, which, according to ABS data, is up 23 per cent over the year.

According to Mr Lawless, although investor activity remains low, investment interest is likely to gather pace in the second half of 2009.

“Investors and first home buyers typically compete for similar housing stock. As first home buyer demand starts to taper leading up to the wind back of the first home buyer’s boost, it is likely investor participation will grow. Investors are becoming increasingly attracted to the strong rental yields that are creating positive cash flow opportunities within key markets around Australia.”

The RBA, which subscribes to the RP Data-Rismark Index data, confirmed its findings in their June Board Minutes, which noted that “dwelling prices showed a modest rise in April, following gains in the previous few months.” RP Data-Rismark was the only major index provider that the RBA covered to publicly release its April results.

The Australian Bureau of Statistics housing finance data in April also showed the first signs of a rebound in investor participation.

Given the capital gains recorded across most cities, growth in rental yields is now flattening. The gross annualised rental yield for units is now 5.3 per cent while house rental yields are slightly lower at 4.5 per cent.

In terms of property types, units continue to outperform houses. Over the first five months of 2009 unit values increased by 4.5 per cent while house values rose by 3.7 per cent.

Mr Lawless said, “The stronger performance of the unit market is due to a number of factors.”

“Comparing median house and unit values nationally, the price gap between is just over $90,000, so the affordability proposition for units is compelling. Units are generally located closer to the city and along transport spines which is very appealing to many Gen Y and Gen X buyers.”

*Technical Note: Readers should be aware of three technical points. First, the monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Accordingly, the first quarter of 2009 index results compare the end of March index with the end of December index. Another way to measure index returns is to combine all the months together in a quarter and compare them to the previous quarter’s pooled index. So you would combine all sales in January, February and March and compute an index value. You would then compare this to the pooled October, November, and December index value. The problem here is that because many home sales are reported by the Valuer Generals offices with a 1-3 month delay, the sample sizes in the more recent months are smaller than the earlier month. So in the first quarter of 2009, January’s sales will dominate because there are more January sales than February and March. In practice, however, there will in the end be a much higher number of sales in February and March. This is the approach used by the ABS. To overcome this problem, RP Data-Rismark treats each month separately. The other issue is that the ABS uses a stratified median price index. If more lower valued homes are selling because of an increase in, say, first time buyer activity, median price indices can report lower returns when in fact house prices be rising. RP Data-Rismark’s hedonic regression method overcomes this problem. Finally, unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.

City by City Summary

Sydney

Sydney home values have increased by 3.5 per cent over the 12 months to May 2009 with house values up by 2.5 per cent and unit values climbing an impressive 5.7 per cent. Over the first five months of 2009 Sydney has been one of Australia’s best performing cities with median house values up by 5.1 per cent and median unit values increasing by 5.4 per cent. Growth in Sydney home values has been a long time coming, with Australia’s largest property market recording virtually no value growth between 2004 and 2009. The recovery in the Sydney market is being lead by the more affordable western suburbs of Sydney; the same areas that saw the greatest value decline during the last five years. Rental yields for houses and units in Sydney remain strong with houses returning 4.6 per cent and units 5.6 per cent.

Melbourne

Melbourne home values have risen by 3.5 per cent over the 12 months to May 2009. Over this period, house values have increased by 3.3 per cent and unit values by 4.5 per cent. Over the first five months of 2009, Melbourne has been the best performing capital city market in terms of appreciation in median dwelling values. The impressive result is reflected in the strong performance of house values which are up by 5.9 per cent during 2009 and units which have recorded value increases of 6.7 per cent. Melbourne houses (together with Sydney) currently have the shortest average time on market at 29 days.

Brisbane

Brisbane home values remain slightly in the red on an annual basis, with home values -0.5 per cent lower in May than the same time last year. Over the first five months of 2009 Brisbane has begun to once again show positive growth. During the first five months of the year house values increased 1.6 per cent whilst unit values fell by -0.3 per cent despite the fact Brisbane is home to mainland Australia’s most affordable unit market. Rental returns for houses have softened slightly and currently sit at 4.6 per cent whilst unit rental yields continue to improve and are now recorded at 5.5 per cent.

Adelaide

Adelaide home values have recorded a fall of -0.7 per cent during the year to May with Adelaide being the only mainland capital city with a median home value under $400,000. Over this period, house values have declined by -1.3 per cent whilst the value of units has increased by 1.7 per cent. During the first five months of this year property values have proven to be quite resilient with house values quite flat (-0.2 per cent) and unit values increasing by 3.0 per cent. The city also is recording comparatively low rental yields, with houses averaging a 4.3 per cent gross return and 5.0 per cent for units. The low yields are the result of home values rising at a much more rapid pace than rental rates during 2007; a phenomenon that is common in high capital growth markets.

Perth

Perth is the only mainland capital city market to record a fall in property values during the first five months of 2009. On an annual basis Perth house values have fallen by -4.6 per cent and unit values have depreciated -5.1 per cent. The Perth market continues to buck the trend of the rest of the Australian market with house values falling by -0.5 per cent during the first five months of 2009 whilst units values are down -0.3 per cent during the period. Although Perth is currently Australia’s softest market, the slow performance needs to be viewed in light of the spectacular (and unsustainable) growth in Perth values between 2005 and mid 2007. Annualised price growth peaked around 45 per cent during the middle of 2006.

Darwin

The northern capital continues to show strong growth with the market seemingly unaffected by the Global Financial Crisis. During the 12 months to May 2009, median house values increased by 14.8 per cent and median unit values showed phenomenal growth of 13.1 per cent. During 2009 to May, house values have continued their strong performance, climbing by 4.8 per cent and units have increased by an impressive 7.6 per cent. As well as recording exceptional value growth, Darwin still has the nations best rental yields at 6.3 per cent for houses and 6.3 per cent for units.

Canberra

The last 12 months has seen a relatively flat market for Canberra with dwelling values falling by -0.2 per cent. Over this period, house values actually fell by -1.2 per cent and unit values increased by 4.1 per cent. The first five months of this year has seen house values appreciate by 1.7 per cent and unit values increased by 3.3 per cent. Canberra remains home to the nations second best gross rental yields which sit at 5.4 per cent for houses and 5.7 per cent for units.

Information provided by Rp data 30th June 2009

RBA Board minutes; ABARE crop report

noreply@blogger.com (Nick Chauhan Griffith RE) — Mon, 22 Jun 2009 00:49:00 +0000

Reserve Bank Board adopts wait and see policy

Reserve Bank Board members agreed on “a wait and see” policy at the last interest rate meeting, noting the significant improvement in economic conditions in domestic and global economies.
Board members noted the significant stimulus injected into the Australian economy: “that the fiscal expansion, together with the monetary policy easing over recent months, represented the largest macroeconomic policy stimulus over recent decades”.
Australia’s chief commodity forecaster, ABARE, expects Australian winter crop production to have increased by 5 per cent to 34.8 million tonnes. Forecasts for Australia’s 2009/10 wheat crop is expected to rise by 2.7 per cent to 21.9Mt.
What does it all mean?
It is pretty clear from the minutes of the latest Reserve Bank Board meeting that the Board believes that the best approach is to hold off on any further rate cuts in the short term. The Reserve Bank Board has indicated that the Australian economy has been front loaded with more than enough ammunition to combat the current downturn, and the domestic economy is showing signs of having passed through the worst of the downturn.
A quiet confidence is perceived in the Board minutes with members noting that the global economy has shown signs of improvement. In particular members focused on the strong initial recovery recorded in China. Importantly board members believed that the Chinese economy would continue to record solid growth outcomes in the near term.
A qualitative assessment of the Reserve Bank Board by CommSec highlights the more optimistic tone of the meeting. Only 17 per cent of the statement highlighted a negative viewpoint while a resounding 60 per cent of the statement was more positive. The Board clearly believed that with interest rates at 49 years lows and significant fiscal stimulus currently been undertaken, it was having an expansionary effect on the Australian economy. However gauging the size and extent of recovery was the difficult part. As a result the Reserve Bank decided the more prudent course was to keep rates on hold.
The Reserve Bank is in effect holding back on any future rate cuts unless they become absolutely necessary. Certainly the weak inflation outlook will ensure that if further rate cuts are needed the board is available to provide them.
At this stage the Reserve Bank looks likely to keep rates on hold in up coming months. However CommSec is not ruling out the possibility of another rate cut of 25 basis points over the last quarter of this year.
While the global recession dominates headlines, farmers can look to more improving conditions. The rains over late May and Early June have ensured that the upcoming winter harvest is likely to be significantly higher than a year ago. Importantly the one area that is still uncertain is Western Australia where farmers are still waiting on healthy rains. The combination of higher production, favourable prices and a lower Australian dollar points to better prospects for farm incomes.
What do the figures show?
The Australian Bureau of Agricultural and Resource Economics (ABARE) expects Australian winter crop production to have increased by 5 per cent to 34.8 million tonnes on a year ago.
Forecasts for Australia’s 2009/10 wheat crop are expected to rise by 2.7 per cent to 21.9Mt. ABARE did note that rainfall in May and June was timely for crop sowing in the Eastern and Southern states while Western Australian crop production is still uncertain with conditions still dry.
Barley production is tipped to rise from 6.8Mt over 2008-09 to 7.7Mt. Canola crop production is estimated at 1.7 million tonnes, down from 1.9 million tonnes in 2008-09. Sorghum production will fall 17pct in the year to 1.9 million tonnes, while cotton seed production will rise 35 per cent to 604,000 tons in 2010.
Minutes from the May Reserve Bank Board meeting
Key Comments:
“Members took particular note of the strong recovery in Chinese industrial production and the pick-up in production in a number of east Asian economies, including Japan. The story was not as positive in the western advanced economies, where industrial production was still falling in the United States and the Euro area, albeit at a slower rate in the former.”
“Recent data provided further signs that growth had picked up in China. Members noted the very large increases in fixed capital investment by the public sector and the strong credit growth..”
“Members noted that the rate of decline in output in the advanced economies was slowing. Although recent data for the United States had been mixed, there were some signs that the rate of deterioration in the labour market had slowed.”
“The Euro area economy remained in recession. In most countries, GDP in the March quarter had fallen by more than in the December quarter, with Germany in particular recording a large fall” ….
“Members concluded their discussion of the world economy by observing that, despite the slightly more positive data for the world economy as a whole, a considerable degree of uncertainty regarding prospects for recovery remained. Growth was likely to be below trend for some time, and spare capacity and unemployment were expected to rise”
Retail sales: “These data showed that the level of spending was about 5 per cent higher than in November last year, with the recent fiscal stimulus packages a factor in this growth. Liaison conducted by the staff indicated that retail conditions had been strong in May, partly reflecting the tax bonus payments in the second half of April and early May.”
Business investment: “business investment in the March quarter recorded a large decline, with falls in spending on both equipment and buildings & structures. In addition, business expectations about future investment spending were downgraded. However, in contrast to many other economies, investment as a share of GDP was not expected to fall to unusually low levels, in large part because of continuing high levels of investment in the mining sector.”
Exports: “exports in the March quarter had been remarkably strong, especially in light of the large decline in global trade that had taken place since late last year. Rural exports, notably wheat, had risen strongly, and there had been a smaller fall in manufacturing exports than that experienced in some other countries.””
Financial markets: “Members were informed that the general improvement in conditions in credit markets had continued. A significant rise in government bond yields was consistent with that improvement, but also suggested that concerns were rising about the global supply of sovereign debt.”
“Global credit spreads had fallen further during the month and were now at levels prevailing prior to the collapse of Lehman Brothers in September last year. Domestic money market spreads had declined to around the lowest points since the onset of the financial crisis.”
Outlook: “In Australia, the economy was experiencing a downturn but, on the information available so far, this would be less severe than in most other countries. Here too the outlook was for a fairly gradual expansion getting under way later in the year, with spare capacity tending to increase and inflation tending to decline. Recent information had not led to any downward revision to the outlook; if anything, some indicators had been on the stronger side.”
Policy decision: “Monetary policy had been eased significantly, and budgetary measures were also providing significant support to demand. Indications were that these policies were having some impact, though the full effects would take time yet to be seen. Board members did not see a pressing case for any further action at this meeting, though they viewed the inflation outlook as affording scope for some further easing of monetary policy.”
What is the importance of the economic data?
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
The Australian Bureau of Agricultural and Resource Economics (ABARE) release its Crop Report each quarter. The latest estimates on winter and summer crops assists investors in assessing conditions for the rural and resources sector and companies leveraged to these industries
What are the implications for interest rates and investors?
CommSec is pencilling in a small 25 basis point rate cut later in the year – just in case. In the current environment it looks more likely that rates will be left on hold. Still, with longer term interest rates and funding costs for banks rising the potential for one further rate cuts is on the cards.

Source CommSec

media contacts

noreply@blogger.com (Nick Chauhan Griffith RE) — Mon, 15 Jun 2009 04:06:00 +0000

ABS figures show signs of a stabilising and growing property market
The Real Estate Institute of Australia (REIA) President, Mr David Airey said ABS figures released today highlight
a property market that has stabilised and showing signs of growth as investors make a return to the market, with
first home buyers continuing to be very active.
“This is a really positive sign for the property market and shows that investors are starting to re-gain their
confidence while the main driving factor for first home buyers are low interest rates and the availability of the
First Home Owner’s Grant Boost (FHOG Boost)”, continued Mr Airey.
The data released also shows a 0.9% increase in the number of established home purchases, in comparison to a 0.5% decline in the number of new home purchases.

“These results show that REIA made an accurate assessment of buyer preferences in its submissions for an extension of the FHOG Boost for both new and existing homes”, continued Mr Airey.
“While the proportion of first home buyers increased to 28% of total owner occupier housing finance
commitments, the average loan size decreased by $2,500, reflecting the tightening of bank lending practices in
the current economy”, concluded Mr Airey.
REI Media Release Wednesday 10th June 2009

No Recession!

noreply@blogger.com (Nick Chauhan Griffith RE) — Tue, 09 Jun 2009 04:26:00 +0000

National accounts
· The Australian economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter.
· The Australian economy out-performed all other industrialised nations in the quarter by a big margin.
· No state government is officially in recession once exports and imports are taken into account.
· CommSec expects the Australian economy to rebound far quicker than Federal Treasury. In 2008/09 the economy will probably grow by only 0.6 per cent, but 2.1 per cent growth is tipped for 2009/10 and 4.1 per cent growth is expected in 2010/11.
What does it all mean?
· In may not spark dancing in the streets, but it is clearly good news that the economy has avoided recession. Because this downturn has been all about confidence. If consumers and businesses become confident about spending and hiring again then recovery should be a lot quicker and stronger than most analysts thought possible just a month ago.
· Is Australia the wonder from down under? It certainly looks that way. Every other major developed economy went into reverse in a big way in the first three months of the year but Australia actually grew. Much of the credit for Australia’s resilience must be given to the swift actions of the Reserve Bank and the Government in stimulating our economy. And the weaker Aussie dollar played a key role in boosting the competitiveness of our exports.
· If the near-death experience of the economy has taught us anything it is not to count your chickens before they hatch. Forecasts for economic growth and unemployment are just that – forecasts. Forecasts inevitably miss their mark and that’s why businesses and consumers should spend more time looking at their balance sheets than worrying about what may happen.
· Gloom and doom reports in the media almost caused Australians to talk themselves into recession. The important thing now is that commentary and analysis of our economic situation becomes more balanced. While the tough times abroad must be acknowledged, the strong position of our economy must be similarly recognised.
· It’s amazing how much time is spent looking backwards, not forwards. While Australians should take a short amount of time to assess the latest economic growth figures, they should spend a far greater amount of time on what lies ahead. The good news is that the global economy appears to have bottomed, China is recovering strongly and the housing market is driving the domestic upturn. Businesses must now look to take on staff to take advantage of the stronger economic conditions that lie ahead.
· Rumours of the death of the Australian economy have been highly exaggerated. Despite premature pronouncements, the economy has avoided recession – if only just – and now it should be a case of companies and consumers getting on with business. Too much time has been spent fretting over a possible recession when Australians should have been spending more time focussing on their improved financial circumstances.
· The Australian economy was certainly flattened by the global financial crisis but it is clear that it has avoided the sort of downturn experienced by other major developed economies. The swift stimulatory actions taken by the Reserve Bank and the Federal Government can take credit for Australia’s impressive resilience, together with the strength of our banking system.
· The worst of the economic slowdown is now over. It is becoming clearer by the day that forecasters became too pessimistic, failing to give equal weight to the responsiveness of policymakers as to the fundamental problems faced by the US economy. The federal budget is less than a month old but already it looks to be out of date. The economy could rebound much quicker than expected, reducing the size of the potential budget deficit.
· One thing is clear – Australia went close to talking itself into recession. Our economic conditions were nowhere near as bad as other parts of the globe, but somehow we all thought they were as bad. If Australians focus on the opportunities that lie ahead then the rebound could be much quicker and stronger than envisaged only a month ago.
· CommSec expects the Australian economy to rebound far quicker than Federal Treasury. In 2008/09 the economy will probably grow by only 0.6 per cent, but 2.1 per cent growth is tipped for 2009/10 and 4.1 per cent growth is expected in 2010/11.
What do the figures show?
· Economic Growth: The economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter. Annual economic growth fell from 0.8 per cent to 0.4 per cent.
· The non-farm economy grew by 0.5 per cent in the March quarter after contracting by 0.8 per cent in the December quarter. Annual growth held steady at a flat result.
· Farm GDP contracted by 2.5 per cent in the quarter to be up 15.9 per cent over the year.
· Growth drivers: Private business investment subtracted 1.1 percentage points (pp) from overall GDP growth in the March quarter. Government investment subtracted 0.1pp while government consumption added 0.1pp. Household consumption added 0.3pp with net exports (exports less imports) adding 2.2pp – marking the biggest boost in 48 years, while inventories remained flat.
· Inflation: The best measure of domestic price pressures, the household consumption implicit price deflator, rose by 0.9 per cent in the March quarter with annual growth at 3.8 per cent. Real non-farm unit labour costs fell by 1.3 per cent in the March quarter to stand 1.4 per cent lower over the year.
· Productivity: GDP per hour worked in the market sector fell by 0.5 per cent in the March quarter in seasonally adjusted terms after rising by 0.7 per cent in the December quarter. Annual productivity growth fell by 0.1 per cent in the March quarter.
· States: South Australia posted the strongest growth over the quarter with state final demand up 2.0 per cent, followed by the ACT which posted a flat result. Weakest was Northern Territory down 9.2 per cent, Queensland down 3.1 per cent and Tasmania down 2.5 per cent. Vic was down 2.1 per cent followed by NSW down 0.2 per cent.
· Stronger consumer spending. Household consumption rose by 0.6 per cent in the March quarter, with annual growth of 0.8 per cent. Strongest growth of spending in the quarter was recorded by Clothing and footwear (up 1.8 per cent). Hotel, café and restaurant (up 1.5 per cent), Communication (up 1.3 per cent), and Food, Recreation and Electricity, Gas and other fuel (up 1.1 per cent) also posted firm growth. The weakest area was the purchase of Vehicles (down 1.4 per cent), followed by Furnishing and household equipment (down 0.8 per cent) and Health (down 0.3 per cent).
· Sectors: Seven of 17 industry sectors expanded in the March quarter. Government, administration and defence gained 4.1 per cent over the quarter (3.2 per cent annual) with Health and community services up 1.1 per cent over the quarter (2.7 per cent annual). Transport and storage fell 2.4 per cent (-1.9 per cent annual), Agricultre, forestry and fishing fell 2.4 per cent (15.2 per cent annual) and Construction fell 2.4 per cent (up 0.1 per cent in annual terms).
· Other points:
· Profit share rises. In seasonally adjusted terms, the ratio of profits to total factor income rose from 26.6 to 26.9 per cent in the March quarter. The wages share fell from 53.3 to 52.9 per cent in the March quarter.
· Household savings fell. Households found it more difficult to save in the latest quarter – with the household saving ratio falling from 6.9 per cent to 1.8 per cent, in seasonally adjusted terms in the March quarter.
· Imports took a smaller share of spending. The imports to sales ratio fell from an eight year high of 0.392 in the December quarter to 0.35 in the March quarter.
· The inventory to sales ratio rose from 0.634 in the December quarter to 0.657 per cent in the March quarter.
What is the importance of the economic data?
· The quarterly National Income, Expenditure and Product release (national accounts) from the Bureau of Statistics is the most complete assessment of Australia’s economic performance. Detailed estimates are provided on incomes (wages, profits), spending (such as household, dwelling investment and trade (exports and imports) and production (comparing industry performance). Other data includes household saving and the economic performance of States and Territories.
· The main use of the national accounts figures is as a historical record of economic performance. The information has little forward-looking value for currency, interest rate or share markets.
What are the implications for interest rates and investors?
· The world is experiencing its biggest ever post war slowdown, so we were never going to come out of this totally unscathed. Growth was at best flat over the last year. More importantly for companies and investors forward looking indicators like building approvals and retail sales suggest the domestic economy has likely seen the worst of this global downturn.
Source Craig James, Chief Equities Economist, CommSec

No Recession!

noreply@blogger.com (Nick Chauhan Griffith RE) — Tue, 09 Jun 2009 00:04:00 +0000

National accounts

· The Australian economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter.
· The Australian economy out-performed all other industrialised nations in the quarter by a big margin.
· No state government is officially in recession once exports and imports are taken into account.
· CommSec expects the Australian economy to rebound far quicker than Federal Treasury. In 2008/09 the economy will probably grow by only 0.6 per cent, but 2.1 per cent growth is tipped for 2009/10 and 4.1 per cent growth is expected in 2010/11.

What does it all mean?

· In may not spark dancing in the streets, but it is clearly good news that the economy has avoided recession. Because this downturn has been all about confidence. If consumers and businesses become confident about spending and hiring again then recovery should be a lot quicker and stronger than most analysts thought possible just a month ago.

· Is Australia the wonder from down under? It certainly looks that way. Every other major developed economy went into reverse in a big way in the first three months of the year but Australia actually grew. Much of the credit for Australia’s resilience must be given to the swift actions of the Reserve Bank and the Government in stimulating our economy. And the weaker Aussie dollar played a key role in boosting the competitiveness of our exports.

· If the near-death experience of the economy has taught us anything it is not to count your chickens before they hatch. Forecasts for economic growth and unemployment are just that – forecasts. Forecasts inevitably miss their mark and that’s why businesses and consumers should spend more time looking at their balance sheets than worrying about what may happen.

· Gloom and doom reports in the media almost caused Australians to talk themselves into recession. The important thing now is that commentary and analysis of our economic situation becomes more balanced. While the tough times abroad must be acknowledged, the strong position of our economy must be similarly recognised.

· It’s amazing how much time is spent looking backwards, not forwards. While Australians should take a short amount of time to assess the latest economic growth figures, they should spend a far greater amount of time on what lies ahead. The good news is that the global economy appears to have bottomed, China is recovering strongly and the housing market is driving the domestic upturn. Businesses must now look to take on staff to take advantage of the stronger economic conditions that lie ahead.

· Rumours of the death of the Australian economy have been highly exaggerated. Despite premature pronouncements, the economy has avoided recession – if only just – and now it should be a case of companies and consumers getting on with business. Too much time has been spent fretting over a possible recession when Australians should have been spending more time focussing on their improved financial circumstances.

· The Australian economy was certainly flattened by the global financial crisis but it is clear that it has avoided the sort of downturn experienced by other major developed economies. The swift stimulatory actions taken by the Reserve Bank and the Federal Government can take credit for Australia’s impressive resilience, together with the strength of our banking system.
· The worst of the economic slowdown is now over. It is becoming clearer by the day that forecasters became too pessimistic, failing to give equal weight to the responsiveness of policymakers as to the fundamental problems faced by the US economy. The federal budget is less than a month old but already it looks to be out of date. The economy could rebound much quicker than expected, reducing the size of the potential budget deficit.
· One thing is clear – Australia went close to talking itself into recession. Our economic conditions were nowhere near as bad as other parts of the globe, but somehow we all thought they were as bad. If Australians focus on the opportunities that lie ahead then the rebound could be much quicker and stronger than envisaged only a month ago.
· CommSec expects the Australian economy to rebound far quicker than Federal Treasury. In 2008/09 the economy will probably grow by only 0.6 per cent, but 2.1 per cent growth is tipped for 2009/10 and 4.1 per cent growth is expected in 2010/11.
What do the figures show?
· Economic Growth: The economy expanded by 0.4 per cent in the March quarter after contracting by a revised 0.6 per cent in the December quarter. Annual economic growth fell from 0.8 per cent to 0.4 per cent.
· The non-farm economy grew by 0.5 per cent in the March quarter after contracting by 0.8 per cent in the December quarter. Annual growth held steady at a flat result.
· Farm GDP contracted by 2.5 per cent in the quarter to be up 15.9 per cent over the year.
· Growth drivers: Private business investment subtracted 1.1 percentage points (pp) from overall GDP growth in the March quarter. Government investment subtracted 0.1pp while government consumption added 0.1pp. Household consumption added 0.3pp with net exports (exports less imports) adding 2.2pp – marking the biggest boost in 48 years, while inventories remained flat.
· Inflation: The best measure of domestic price pressures, the household consumption implicit price deflator, rose by 0.9 per cent in the March quarter with annual growth at 3.8 per cent. Real non-farm unit labour costs fell by 1.3 per cent in the March quarter to stand 1.4 per cent lower over the year.
· Productivity: GDP per hour worked in the market sector fell by 0.5 per cent in the March quarter in seasonally adjusted terms after rising by 0.7 per cent in the December quarter. Annual productivity growth fell by 0.1 per cent in the March quarter.
· States: South Australia posted the strongest growth over the quarter with state final demand up 2.0 per cent, followed by the ACT which posted a flat result. Weakest was Northern Territory down 9.2 per cent, Queensland down 3.1 per cent and Tasmania down 2.5 per cent. Vic was down 2.1 per cent followed by NSW down 0.2 per cent.
· Stronger consumer spending. Household consumption rose by 0.6 per cent in the March quarter, with annual growth of 0.8 per cent. Strongest growth of spending in the quarter was recorded by Clothing and footwear (up 1.8 per cent). Hotel, café and restaurant (up 1.5 per cent), Communication (up 1.3 per cent), and Food, Recreation and Electricity, Gas and other fuel (up 1.1 per cent) also posted firm growth. The weakest area was the purchase of Vehicles (down 1.4 per cent), followed by Furnishing and household equipment (down 0.8 per cent) and Health (down 0.3 per cent).
· Sectors: Seven of 17 industry sectors expanded in the March quarter. Government, administration and defence gained 4.1 per cent over the quarter (3.2 per cent annual) with Health and community services up 1.1 per cent over the quarter (2.7 per cent annual). Transport and storage fell 2.4 per cent (-1.9 per cent annual), Agricultre, forestry and fishing fell 2.4 per cent (15.2 per cent annual) and Construction fell 2.4 per cent (up 0.1 per cent in annual terms).
· Other points:
· Profit share rises. In seasonally adjusted terms, the ratio of profits to total factor income rose from 26.6 to 26.9 per cent in the March quarter. The wages share fell from 53.3 to 52.9 per cent in the March quarter.
· Household savings fell. Households found it more difficult to save in the latest quarter – with the household saving ratio falling from 6.9 per cent to 1.8 per cent, in seasonally adjusted terms in the March quarter.
· Imports took a smaller share of spending. The imports to sales ratio fell from an eight year high of 0.392 in the December quarter to 0.35 in the March quarter.
· The inventory to sales ratio rose from 0.634 in the December quarter to 0.657 per cent in the March quarter.
What is the importance of the economic data?
· The quarterly National Income, Expenditure and Product release (national accounts) from the Bureau of Statistics is the most complete assessment of Australia’s economic performance. Detailed estimates are provided on incomes (wages, profits), spending (such as household, dwelling investment and trade (exports and imports) and production (comparing industry performance). Other data includes household saving and the economic performance of States and Territories.
· The main use of the national accounts figures is as a historical record of economic performance. The information has little forward-looking value for currency, interest rate or share markets.
What are the implications for interest rates and investors?
· The world is experiencing its biggest ever post war slowdown, so we were never going to come out of this totally unscathed. Growth was at best flat over the last year. More importantly for companies and investors forward looking indicators like building approvals and retail sales suggest the domestic economy has likely seen the worst of this global downturn.
Source Craig James, Chief Equities Economist, CommSec

DECISION ON FHOG A POSITIVE OUTCOME

noreply@blogger.com (Nick Chauhan Griffith RE) — Thu, 14 May 2009 02:28:00 +0000

The Real Estate Institute of Australia (REIA) is pleased with the Government’s decision to extend the First Home
Owner’s Grant Boost (FHOG Boost) for both new and existing homes”, said REIA President, Mr David Airey.
The decision by the Government reflects the position the REIA presented to Government, which was to extend
the FHOG Boost for both new and existing homes and introduce a plan to phase the scheme out gradually.
“The Government has made an accurate and overall assessment of the property market in their decision to
extend the FHOG Boost for a further six months”, continued Mr Airey.
As recently as late last week the Minister for Housing, The Hon. Tanya Plibersek made herself available to
discuss the REIA’s policy. REIA would like to thank the Minister for listening to the REIA’s concerns and making
a considered decision.
“REIA provided evidence to the Government that the sale of existing homes is just as important as the sale of
new homes to stimulate the economy, if not more”, continued Mr Airey.
“This decision will benefit the property industry greatly and have tremendous flow-on effects to those in the
business of servicing the property industry such as solicitors, conveyancers, financiers, valuers, removalists,
furniture suppliers and a range of trade’s people”, concluded Mr Airey.
________________________________________________________________________________________
Extension of the FHOG Boost
The Government will extend the FHOG Boost for six more months, however, it will only continue at the full rate
until 30 September 2009.
From October until December this year the FHOG Boost will be reduced from $14,000 to $10,500 for
established homes and from $21,000 to $14,000 for newly constructed homes.

Presented by REI Media Release 12 May 2009

RBA Governor: Confidence the key

noreply@blogger.com (Nick Chauhan Griffith RE) — Tue, 28 Apr 2009 06:31:00 +0000

Reserve Bank Governor Speech: “The Road to Recovery”
· The Reserve Bank Governor has also mentioned the ‘R’ word – recession. But while he thinks that the economy is experiencing the first recession in 17 years, Glenn Stevens has been actively stressing the positives as well as the negatives.
· The Governor says that the best thing Australians can do is “to maintain confidence in ourselves and the prospects for our country over time.” Stevens noted further: “Optimism, combined with an awareness of risk, is a fundamental strength.”
· Glenn Stevens has unveiled the “Super Six” – six reasons for Australians to be optimistic about the future.
What does it all mean?
· The Reserve Bank Governor gets it. Hopefully other public officials will also eventually get it. That is, it’s all about confidence. While Australia has been dragged into recession by the global economy, the important point is to highlight the positive factors that will drive the economy forward in coming years.
· This is one of the most important speeches delivered by the Reserve Bank Governor, providing a clear and balanced assessment of just where we are at present and where we are going. It is a speech deserving to be read closely and reported widely.
· Glenn Stevens is no gloom and doom merchant. While the global economy may be a gloomy place, he sees plenty of reasons to be positive, not negative. The fact that the Governor is focussing on the opportunities ahead as well as the risks is incredibly encouraging.
· It may come to be known as the “Super Six” – Glenn Stevens’ six reasons to be upbeat on Australia’s economic future. Political stability, strong banking sector, solid public finances, sensible policy, openness to trade & investment and exposure to Asia are regarded as factors that few other countries can emulate.
· All Australians should celebrate the fact that we have a central bank governor with such pride in our economy. It is a sense of pride that all holding public office should emulate.
· While upbeat about Australia, the Governor has not minced words about the crisis imposed on Australia, referring to the ‘mess’ in the financial systems of the US, UK and Europe.
What did he say?
Selected Comments:
· Confidence: “Turning closer to home, Australians cannot do a great deal to make these improved international conditions come to pass. But we can maximise our chances of benefiting from a new international expansion.
· The first thing is to maintain some confidence in ourselves and the prospects for our country over time. We cannot achieve effortless prosperity either on the back of ever‑escalating mineral prices or simply by bidding up the prices of our houses. It is as well to realise that. But as I have said on previous occasions, Australia’s genuine long‑term economic prospects remain good, and there remain good grounds to think that we will continue to weather the storm better than most.”
· Reasons for the global recession: “The weakened ability of the financial institutions to provide credit to industry is one of the factors at work, but in my judgment a bigger one is the decline in confidence, and the sudden and widespread aversion to risk, among firms and households all over the world. It seems that everyone, everywhere, having seen the instability in financial systems in September and October 2008, and consequently feeling poorer and fearing bad times ahead, simultaneously decided to pull back their own spending, curtail their expansion plans and reduce their debt.”
· Domestic recession: “Whether or not the next GDP statistic, due in early June, shows another decline, I think the reasonable person, looking at all the information available now, would come to the conclusion that the Australian economy, too, is in recession.”
· Recession: “Most of the time, economic activity expands, as population growth, increasing wealth and aspirations to higher living standards lead to more demand, while a growing workforce, higher productivity and technological innovation push up supply capacity. That is the normal situation for an economy. But every so often – on average about once every seven or eight years, but not regularly enough to predict with accuracy – a set of conditions arises that sees demand weaken for a while, output decline and unemployment rise. That is a recession. Usually, though not always, inflation tends to fall as a result of such episodes.”
· The Super-Six: “I suggest that Australia has a very good chance of offering an economic setting in which the following conditions hold.
· First, political stability remains assured – something becoming a bit less common.
· Second, the Government does not own, and has not had to give direct financial support to, the banking system. Australia will be free of the difficult governance and exit strategy issues that such support is raising in a number of countries.
· Third, public finances remain in very sound shape, with modest debt levels and a medium‑term path for the budget back towards balance. Without the massive obligations arising from bank rescues that will inevitably narrow the options available to governments in other countries, Australia should be able to articulate such a path more effectively than most.
· Fourth, sensible policy frameworks – both macroeconomic and microeconomic – remain in place; the financial regulatory system is strong and tested.
· Fifth, we remain open for trade and investment, and have a capacity to deploy both our own and other people’s capital carefully and profitably.
· Finally, there is an exposure to, and an engagement with, an Asian region that still has the most dynamic growth potential in the world, where hundreds of millions of people will for decades to come be seeking rising living standards.
· There are rather few countries that have the potential to offer so attractive a proposition to international capital, and to their own citizens, over the years ahead. It is a proposition that, if pursued sensibly and consistently, offers the most secure basis for confidence in Australia’s future. It is such confidence that, more than anything else, will help to drive us along the road to recovery.”
· How does the global economy recover? The Reserve Bank Governor says that the “mess” in the US financial system needs to be sorted out; monetary & fiscal policies need to provide support; exit strategies need to be employed; and that global imbalances need to be addressed.
What are the implications for interest rates and investors?
· The Reserve Bank Governor’s optimism on the future certainly doesn’t appear to be laying the groundwork for future rate cuts. The latest RBA Board minutes highlighted the significant amount of stimulus being applied, and the Governor is indirectly highlighting the same in his speech.
· The Reserve Bank Governor believes that the economy is in fundamentally strong shape with the main risk being a further erosion of confidence.

Now is best time to fix loans

noreply@blogger.com (Nick Chauhan Griffith RE) — Tue, 21 Apr 2009 23:48:00 +0000

Borrowers are enjoying generational low interest rates but should consider switching at least a part of their home loan to a fixed mortgage, a leading mortgage broker says.

Loan Market Group executive director John Kolenda said now was the best time to fix a home loan even though the Reserve Bank of Australia (RBA) was expected to further cut interest rates."The best time is always that window before variable rates reach the bottom," Mr Kolenda said."If the variable rates bottom out and fixed rates start to hedge up, then they (consumers) miss the boat and it is going to cost more."ICAP senior economist Adam Carr said it was a "fantastic time" to fix the rate on a loan."What is your downside - the reality is even if the RBA cuts a few more times, banks are not going to pass all of it now," Mr Carr said."The risk is that you miss the swing and you are going to be caught out."Westpac offers a three-year fixed rate loan at 5.39 per cent compared to their standard variable rate at 5.91 per cent.Between September and April, the RBA has lowered the cash rate by 4.25 percentage points to three per cent, a 49-year low, in a bid to stimulate the local economy.Commercial banks have passed on most of the cuts to official interest rates but three of the four big banks passed on less than half the RBA's cut of 25 basis points to the cash rate on April 7.National Australia Bank left their rate unchanged.Mr Kolenda said borrowers could split their mortgage into fixed and variable components."With fixed rates, there is a certainty of knowing what your monthly payments are," he said."If you take a part-variable loan, you get the added benefit that whatever extra payments you make, you can just pile that into the variable-rate component and get that down as quick as you can."Mr Carr said when the RBA started raising the cash rate, the movement to a neutral monetary policy stance - with a cash rate around five per cent - would be swift.Borrowing rates, variable and fixed, would move accordingly, he said."When they go up, they are going to go up pretty quickly because it will be one-way traffic," Mr Carr said."Banks will need to fix that as they will need to hedge against that themselves."

(4/21/2009)brought to you by aap

Property Value Index Release

noreply@blogger.com (Nick Chauhan Griffith RE) — Fri, 03 Apr 2009 22:40:00 +0000

Released 31 March 2009

For expanded Media Release click here to view the PDF document (160kb)
Residential Property Market Back in Black as Property Values Bounce Back
The release today of the RP Data-Rismark Hedonic Property Value Index heralds some exciting news for the Australian residential market. According to the latest monthly indices, property values are experiencing a recovery from the modest 3 per cent falls seen in 2008. The findings confirmed that over the first two months of 2009, national dwelling values increased by 1.1 per cent with most of the capital gains coming in February (refer attached tables).
RP Data National Research Director Tim Lawless believes this turnaround in market conditions has largely been created by mortgage rates being at their lowest levels since 1970 and as a result, providing a significant boost to affordability. Mortgage rates peaked at 9.6 per cent in August 2008, and have fallen to 5.8 per cent with the prospect of more cuts when the RBA Board meets this coming Tuesday.
According to Christopher Joye, CEO of Rismark International, “The recovery in prices over the last quarter has been driven by the 40 per cent reduction in mortgage rates, the boost to the first home owners grant, the Government’s fiscal stimulus and a significant housing shortage. It is now clear that the boost to the first home owners grant has been one of the Government’s most successful policy measures - this price strength will hopefully encourage developers back into the market.
“The resilience of Australia’s housing market has also been underpinned by our robust banking system, which CBA recently reporting that its 90-day mortgage default rate was a stunningly low 0.38 per cent.
“Despite doomsday rhetoric from some, housing finance volumes have been strong with AFG disclosing that approvals in February 2009 were the best seen since November 2007.
“The improvement in home values in 2009 following modest 3 per cent falls in 2008 highlights the absurdity of the sensationalist predictions by one or two economists in 2008 that prices would fall by 30-40 per cent.
“These index results also vindicate statements last week by the RBA that it expects to see a measured recovery in Australia’s residential property market,” Mr Joye said.
The latest ABS housing finance data suggests real estate investors have yet to make a return to the property market. The value of investment loans has not been this low since 2002, reflecting the low level of investor confidence across all asset-classes.
RP Data’s Mr Lawless suggests the prospect of positively geared property is likely to lure more investors back into the market.
“More and more, properties are showing ‘positive cash flow’. In fact, assuming an 80 per cent loan to value ratio home loan and a discounted 5.4 per cent interest rate, investors in apartments are likely to find that rental income goes a long way towards covering mortgage repayments across every capital city.
“Another interesting dynamic over the last year has been the reversal of the ‘two tiered’ market that was evident between 2003-07.
“During this period affluent areas had a tendency to perform best as the financial services industry boomed. At the same time, the mortgage belts suffered from low sales volumes and declines in values. South West Sydney was a classic case in point - in today’s market it is the opposite. The top 10 per cent of homes in Sydney and Melbourne are off by more than 12 per cent while more affordable homes around the $450k mark have recorded price growth.
“People sometimes forget that homes worth more than $1 million account for less than 5 per cent of all sales. Their performance has therefore little impact on the broader housing market where 80 per cent of all sales occur within the $200k to $600k price bands” Mr Lawless said.

Population growth hits 40 year highs

noreply@blogger.com (Nick Chauhan Griffith RE) — Tue, 31 Mar 2009 22:30:00 +0000

Population statistics
Australia is experiencing the biggest migration boom in history with 235,800 migrants arriving in the year to September 2008. Australia’s overall population grew by 1.84 per cent over the year – the fastest rate of growth in almost 40 years.
Not only is Australia experiencing a migration boom but also a baby boom. In the year to September 295,200 babies were born – the most since quarterly records began 27 years ago.
Victoria’s population is growing at the fastest rate in nearly 40 years, while Western Australia’s population is growing at the fastest pace in 20 years. NSW noted the largest quarterly increase in population on record.
What does it all mean?
Australia’s population is growing at the fastest rate in almost 40 years and much of the boost has been provided by migrants. The remarkable lift in Australia’s population has significant consequences for the economy. The faster rate of population growth means that the economy can grow at a faster pace.
More people in Australia means greater demands for houses, roads, schools, hospitals and a raft of retail goods, and as such is providing much needed stimulus in trying times for the global economy. It can’t be stressed enough that Australia’s migrant boom is a big deal. Not just in boosting economic growth in the short-term but also in addressing the longer-term implications of Australia’s ageing population
However all the extra people also put greater demands on our economy. Extra productive capacity is being added, but it carries with it some extra inflationary risks. It’s not surprising that states have to undertake huge infrastructure programs given our fast-growing population. And our population is set to grow at a similarly fast rate over the coming year.
The strength and growth in population continues to put further upward pressure on the demand for housing. While the supply of housing remains far short of demand we are seeing that the housing sector is slowly starting to build more homes. The rental market is the tightest in 19 years and can’t get much tighter. The strength in rental yields and a more uncertain outlook for the share market is likely to see more investment in housing over the coming months.
Certainly it’s not just China’s demand for resources that is propelling the Australian economy forward. The increase in skilled migration helps meet the demand for labour by Australia’s employers. While an increase in migrants sees further demand for housing, general retail spending and even the purchase of more costly white goods. In short, the inflow of skilled migrants creates a virtuous cycle of higher employment, spending and investment, while keeping a lid on inflationary pressures.
Australia’s current baby boom is certainly a reflection of the more buoyant economic times in 2007 and early 2008. There is no doubt that starting a family is a decision that has a lot more to it than just how well the economy is travelling, however economic considerations do play a key role. The deterioration of the global economic over the last year and expected rise in unemployment in the coming year will likely see a flattening out of the birth rate – similar to what was noticed around the time of the 1991 recession.
While states like Western Australia, Queensland and Victoria are leading the population gains, there is also good news for NSW. Population growth in NSW is now the strongest in seven years, boosting the outlook for Australia’s largest state economy.
What do the figures show?
A record 235,800 people migrated to Australia over the year to September 2008. Each day an additional 646 people called Australia home.
Over the year to September, 68,388 migrants settled in NSW, followed by Victoria (62,672), Queensland (46,488), Western Australia (38,418), South Australia (15,280), ACT (2,155), Tasmania (1,619), and Northern Territory (838).
Australia’s population expanded by a record 389,300 people over the year to September to 21,542,500 people. Overall, Australia’s population grew by 1.8 per cent over the year to September 2008 – the strongest gain in records going back nearly 40 years (1970). Population growth had been strong in the 1950’s -60’s due to the post war migration and baby boom.
There were 295,200 babies born in the year to September 2008 – the largest number of births since quarterly records began 27 years ago.
Population growth increased in all states except the Northern Territory. Over the past year population growth was fastest in Western Australia (2.94 per cent), followed by Queensland (2.49 per cent), Northern Territory (2.19 per cent), Victoria (1.85 per cent) ACT (1.44 per cent), NSW (1.33 per cent), South Australia (1.13 per cent), and Tasmania (0.93 per cent).
Victoria’s population is growing at the fastest rate since the 1969 while Western Australia’s population is growing at the fastest pace in nearly 20 years (December 1988).
NSW noted the largest quarterly increase in popoulation on record with 32,919 people call NSW home in the September quarter. NSW population is growing at the fastest pace in over seven years with a growth rate of 1.33 per cent.
What is the importance of the economic data?
Demographic Statistics are issued by the Bureau of Statistics each quarter. The figures includes estimates of births, deaths, in-bound and out-bound migration movements and estimates of population change by State.
What are the implications for interest rates and investors?
In softer economic times, governments are tempted to cut migration as we have seen recently but the federal government needs to be mindful of such a negative knee-jerk decision. Extensive liaison with the business community will be required to ensure that demands for skilled staff in certain industries can be adequately met internally.
The rising number of migrants coming to Australia will add to the demand for homes in 2009. Building material companies, developers, retailers and banks have potential to gain from the lift in housing activity.
A whole raft of companies benefit from fast population growth. The building block of retail spending is population, so the increase in births and migrant numbers is likely to help keep retailers such as Woolworths, Harvey Norman and David Jones seeing continued growth.
The record number of births will add to the demand for childcare places over the next five years.
Source Craig James, Chief Equities Economist, CommSec