As most of Australia holidays, building approvals data just released paints an interesting portrait of the property market.
The Australian newspaper reported today (8th January) that the November residential building approvals figures announced were down 0.3% for the month, or 12.8% on last year and that this represent a three and a half year low.
Building approvals are seen as a broad gauge to test demand in the housing market. When homebuyers are awash with cash, and are optimistic, they will freely spend money on high consumption items that improve their quality of living. Things such as a new house for instance.
Conversely, as money and sentiment starts to dry up consumers defer the decision to build and instead make do with the current situation. As demand weakens then the pressure that causes price to rise begins to ease and capital appreciation becomes less certain.
As investors it is difficult for us to influence the market - instead we must invest as best we can in the circumstances we find at the time. The conclusion that I draw from the figures reported today is that it is a warning sign to avoid taking an aggressive investing position in residential property that is highly-leveraged.
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