What Is Your Opinion Of The Current Market ?

Submitted by wealth4life.com on July 25, 2009 - 11:16am.

Joined: 28/07/2003

Hello all,

I thought I would ask and open question to the forum on how do you see the current market from your perspective and from where you live.

There are so many differing opinions currently and every opinion from the expert is contradicted over the following days, so is the market on the bottom, going up, what about getting money or credit from the banks etc.

D

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Michael 888 [275 Posts]

July 25, 2009 - 12:48pm

Joined: 11/06/2005

“Mr. Market” is a fragmented, schizophrenic, multi-faced personality. Amongst the doom and gloom and, of late some yipee-kay-aying that we are bombarded with by the media, it is timely to reflect on where we're at and where we're heading with regards residential property.

Certainly, we are in interesting times and whilst not to trivialise the softening of the economy, I still focus on the full half of the glass. I'm not Pollyanna, however IMHO people who focus too much on the negative and trying to avoid what they don't want are by virtue of their attention on the imbedded command (avoiding loss/poverty/sickness/failure or whatever) likely to perpetuate (or at least add to) their unwanted situation. Don’t avoid what you don’t want, rather pursue what you do wish/want/desire.

My take on things moving forward from here, is that top shelf elite properties are likely to come off perhaps up to a further 5-10 % or track sideways from here having softened significantly over the last 12-15 months or so. This will depend on suburbs and how exposed the OO's (owner occupiers) still are to equities and business/commercial uncertainty. The middle shelf and this for simplicities sake would include suburbs where most properties are around the median price range (or slightly above) for the capital city in question, may see some gain or track sideways.

I feel the lower end may see some further rally due to affordability issues with FHOG although that may wane as the scale-back unfolds as one component but also due to reducing interest rates, making that sector more affordable to its intended purchasers. I feel investors may also push the bottom end up with falling interest rates. That lower end may, however fall off as job losses hit OO's who over-committed a couple of years ago and perhaps even locked in at nine's. This is the sector I find the most frustrating to prognosticate on. Perhaps some pull-back of the low shelf property rally due to unemployment (in family OO's) or no effect over the medium term.

The media also feeds the emotional roller coaster that determines the “sentiment of the herd” when it comes to buying, as real estate institute spokesperson’s are heard to report higher clearance rates to perpetuate a positive bull-style frenzy that the herd interpret as “I better hurry and buy or I’ll miss out.” Some investors also follow a similar credo. A higher clearance rate right now is due to shortage of stock. Anecdotally, I am noticing fewer for sale, in Melbourne at least, so what gets listed and has reasonable vendors, will sell.

We haven't bottomed as a market collectively, although there are sub-markets such as fringe FHB suburbs. The large development houses (Delfin Lend Lease, Devine, Stockland, etc) are laughing with the enhanced FHOG, encouraging young ones who haven't lived thru any economic slowdown or contraction to go full bore on instant gratification by buying an (affordable) brand new box on land in places with no (or little) amenity. Some have barely saved for the closing costs. I expect some future pain is likely to be delivered to them. These people fund the whole purchase with FHOG as deposit and whilst DSR may be OK for now, wait till they lose a job or take a pay cut from the culling of hours or, as will be inevitable, interest rates rise again......and they will.

Night follows day, contraction follows expansion, a slump follows a boom which follows a slump. A “market” will always correct to its median or average/mean trend line of sentiment. For me, some more pain to come IMO.........these are opportune times to be cashed up with folding stuff, offsets, LOC or equity (with skinny LVR's) and pounce when the deal is good. It is always darkest before the dawn.......I expect a little more nightfall and then the cycle will again begin with daylight. Let the games begin. I also liken the cycle to the digestion process. We have fed our faces (by eating too much during the last boom) and the slowdown has been necessary to digest the food. Now we are in the elimination phase where the excesses are dealt with as waste leading to recession. As the catharsis continues, this prepares the appetite for more feeding frenzy to resume.

Personally right now, I'm sitting on my hands and am looking for commercial opportunities (that tick all my boxes) or multi-door resi that is +ve CF or at least washing its own face; but not just anywhere. It must have amenity and infrastruture and be of the "small fish in the big pond" type, so the massess can afford to rent and the masses can afford to buy if I need to liquidate.

Credit supply may IMHO become tighter as there is another tranche of mortgage re-sets to come out of the US in 2010 and 2011.......according to some, we are in the eye of the storm so to speak. Whilst these are not all sub-prime, I see the problem with these re-sets as people having "upside down" equity due to the housing collapse (generically) across much of the US. If their contract also nominate a clause of re-evaluating LVR's at that time, the folk with sweetheart rates may need to cash/equity inject or be foreclosed..........

Whilst fundamentally the supply/demand issues comparing Aus with the US hedges us somewhat here, it is the supply of credit and the cost to our banks that will affect our market IMO.

Aren't our mortgage insurers here US companies? .......we may still feel the squeeze here as money dries up and values start going sideways. There may be OO demand and investor demand, however if funds are tight, transaction volumes will fall and values might stagnate for a while........may then bring more pent up demand akin to winding up a spring.........and when it's let go, values will rise sharply as a mini-boom begins, before some equilibrium is established.

I am certainly no economist, however that's my take in a generic sense. There will of course be out-performers and under-performers as not all markets are in sync. It is indeed a confusing, yet in some respects, opportune time we are in.

What's your take on all this D?

Cheers....................Michael.
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