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Market Update:
Week Ending 5th Feb 2010
Quick Summary:
Click the links below for quick reference or else read the article in full
Interest Rates On Hold - RBA Cautious About Killing Recovery
The RBA surprised economists by not increasing interest rates. Rather than adopt a 'shoot first and ask questions later' approach, the RBA was more cautious in believing that our economic recovery isn't 'in the bank' just yet.
This viewpoint has been confirmed by:
a) Weaker than expected December retail spending data - that is, lower spending reflects the cautious attitude people have with overspending in difficult times (compare this with the tendency to splurge when they are spending bonus cash handouts provided by the government as stimulus)
Global Economy Jitters - Sentiment Remains Uncertain
b) A significant correction on Wall Street overnight, which analysts partly blame on worrying about whether the governments of Greece, Spain and Portugal can repay their debts. The Dow is now looking like it could break and hold below the psychological 10,000 mark.
Linking the discussion above to real estate, keeping interest rates on hold will have a positive impact on property, because the financial gap between owning and renting isn't widened.
That is, if interest rates increase then housing becomes less affordable and potential buyers choose to rent instead. This decreases demand for homes, and therefore there is less pressure on property prices.
The global news effects our attitude towards risk. The worse the news, the less inclined we are to spend, and so the economy naturally slows. However, if it slows too far, then we start going backwards (which is a recession).
New Home Sales Fall 4.6% In Dec - New Home Prices May Follow
Turning to more specific property news, it was reported that new home sales fell by 4.6% in December. Lower government subsidies and interest rate increases in late 2009 were blamed.
While true, I think another contributing factor is the windback of the First Home Owners Grant brought forward demand, as those who were interested in buying made their commitment before the grant was wound back (i.e. pre 1st October).
We are now in a 'lull' period until fresh new buyers (either immigration or else people reaching house buying age) emerge. Until then, new home sales are likely to remain flat, because the same $7000 FHOG incentive is now applicable irrespective of whether you buy a new or existing home.
In fact, you might see new home prices fall slightly as developers cut margins and advertise specials in order to maintain turnover which is needed to keep their trades busy.
Overall though, strong immigration and relatively low interest rates should see the trend of increasing median house prices continue.
UK Man Loses Mansion Because Of Stupidity!
Finally, for something a little different. A UK man has found out why it's important to get planning approval before building. In his case, he built a luxury home (literally a castle!) without planning approval and somehow hid it behind a hay stack. Some years later, he removed the haystack only for the council to slap a demolition order on his McMansion. It ended up in court, and he lost.
You can read all about it at:
http://abcnews.go.com/Business/wireStory?id=9738267
