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Weekly Market Update:
05th March 2010
Quick Summary:
Click the links below for quick reference or else read the article in full
Interest Rates Up
It's been a week of bad news, then good news, for property investors.
On Tuesday the RBA increased its cash benchmark rate by 25 basis points, and soon thereafter the major banks announced a similar rise to their home loan rates.
Higher interest rates means larger interest payments and less cashflow for investors. Furthermore, as housing affordability decreases, there are less people looking to buy and so there isn't the same pressure on property prices to keep rising at the same heady growth percentages.
Economic Growth Up, New Home Approvals Down
Economic growth (GDP) is now running at 2.7% per annum, which is above the original forecast of 2%. Unemployment is lower than expected. Company profits are holding up well.
On the other hand, new housing approvals fell in January but are well up on the year before. Some are blaming red tape, but I personally think the fall can be easily explained by developers pausing for breath and waiting to see how the end of the FHOG Boost impacts their ability to presell (which is needed for funding). Expect approvals to pick up in Feb in line with higher property prices and increasing confidence.
Property Bubble? Perhaps, But Expect Growth To Continue
I know some people are still holding out for a property crash, but based on economic growth, such an event is looking less and less likely.
That said, I think we are in a housing bubble of some sort because property price growth has run ahead of the economy. However, unlike in the US and UK, it is more likely the bubble will deflate here rather than burst.
Even if the market did burst, buying property won't be an easy because lenders will drop LVRs and become a lot more choosy about who they lend to. This is what has happened in the US, and until lenders ease up, the US property market will remain in a sustained downturn.
In summary, you should be encouraged. Our economy is tracking well, and so the outlook for property prices is good. It will take a few more interest rate increases before the heat comes out of the real estate market, and so although the rate of growth may slow, I expect there will be good capital appreciation for the remainder of 2010.
Our 3-Day Mega Conference: May 7, 8 & 9
Finally, we'll soon be releasing details about our upcoming 3 Day Mega Conference.
It will be the third year we've run the event, and this year it's back in Melbourne on May 7, 8 and 9.
The lineup of speakers is amazing, and remaining places will be hotly contested as the event is already 60% presold.
Make sure you keep an eye on your email inbox as I'll be sending you further details next week.
