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Market Update:
Week Ending 26th Feb 2010
Quick Summary:
Click the links below for quick reference or else read the article in full
Market Update - Final Spots
In case you've missed my recent emails, I'll be in Sydney, Melbourne, Brisbane, Adelaide and Perth in March to run a LIVE 2-hour market update.
Aside from talking about property trends, I'll be focussing on explaining how to use demographics to spot property and suburbs that will achieve above market returns in months and years to come.
I have also set aside time to explain how you can use a clever accounting structure to save tax, protect assets and maximise your borrowing ability.
There aren't many seats left though. Brisbane has already sold out, and remaining seats are as follows:
MELBOURNE (22nd March): 21 Seats Remaining
SYDNEY (24th March): 26 Seats Remaining
PERTH (29th March): 34 Seats Remaining
ADELAIDE(30th March): 38 Seats Remaining
It's likely that Melbourne and Sydney will sell out by Monday, and Perth and Adelaide may not be far behind.
That's why if you're planning on coming and haven't already booked then you should do so right now at:
http://www.propertyinvesting.com/seminars/live-update
The link above contains pricing and venue details too.
How Housing Affordability Acts A Barometer For The Property Market
One of the unexpected upsides of the global financial crisis was the improvement to housing affordability caused by falling house prices and lower interest rates.
The good times were short-lived though as the latest HIA-CBA First Home Buyer Affordability Report (released 22 Feb) reveals that affordability 'tanked' (i.e. plummeted) in December.
In fact, the index states that houses are now about as affordable for first homebuyers as they were in 2008. The problem is though, interest rates in 2008 were 8%+ whereas now they are at 6.65%.
As interest rates continue to increase, affordability will worsen and the index will, well... what's worse than tanking? Imploding?
Investors need to distance themselves from the emotion associated with the evaporation of the Great Australian Dream of home ownership, and instead sniff around for clues about how changes to affordability can act as a barometer for the wider property market.
To begin with, as housing becomes less affordable, first homeowners are forced to rent because they don't have the required deposit saved and/or access to enough finance needed to purchase.
More demand in the rental market will cause rents to rise, and in turn, investors can expect gross yields to increase. Whether net yields improve depends on how much of the additional income is eaten away by rising interest rates.
If you can get a good deal, one strategy you might like to adopt is to fix your rate now so that when rents increase, a higher proportion will flow through to your bottom line. Of course, there are downsides to locking in your interest rate, so make an informed decision.
Next, as more people rent, there are fewer buyers, and fewer buyers means less upwards pressure on property prices. Don't expect a sudden shift in sentiment though... trends in real estate generally take many months to change.
For example, the HIA is expecting a "moderate housing recovery with 152,000 dwelling commencements, still well down on the 190,000 required by increases in the level of Australia's population."
In summary then, the 'tanking' of affordability is a reflection of a market boom in months past, and a shifting of the sands as first home buyers turn to renting rather than owning.
Investors can now expect rates of growth to moderate, and income returns to increase. At the same time though, any extra cash flow might be quickly gobbled up by further interest rate increases.
All in all then, it's unlikely that the property market has peaked in terms of overall prices, but rather the heady growth rates have run their course for the time being. That said, income returns are set to increase as competition for rental properties strengthens.
HEADS UP: RBA Meets Next Week
Finally, next week's update will be sent on Tuesday once the RBA has announced its position on whether a rate increase is warranted. They didn't make any changes at their last meeting, but I'm not sure the good times will last much longer. We'll see.
