http://www.news.com.au/business/money/story/0,25479,23877696-5016110,00.html
Property becomes an investment turn-off
By Nicki Bourlioufas June 17, 2008 12:40pm
- Investors are turning away from property
- RBA sees "flat" house prices
- More investing news in our Money section
WITH mortgage interest rates sitting at a 12-year high, investors are turning away from property as credit costs mount , with some investors opting to sell up before they go under.
"I have already have listed investment property for sale hoping to sell before I go under," said one NEWS.com.au reader in a recent survey on interest rates.
The Reserve Bank has warned that it may need to raise interest rates again if the economy doesn't slow down and inflation remains high, according to minutes released today of its June meeting on interest rates.
The Reserve Bank also indicated houses prices would likely remain "flat" in the m onths ahead.
"Falls in auction clearance rates in both Sydney and Melbourne from the highs reached late in 2007 to below-average levels in the past few months were consistent with a continuation of flat house prices," the RBA minutes said.
Property less attractive
A survey of 2331 NEWS.com.au readers in March – which was the last time the RBA hiked rates – found property investment intentions were at their lowest in the three-year history of the survey.Just 9 per cent of people were more likely to buy property in the months ahead compared to the current quarter.
The survey conducted by NEWS.com.au with online polling firm Coredata found that if there was another 1 percentage point rise in interest rates, 47 per cent of property investors would be likely to sell their assets.
Higher official interest rates have pushed up mortgage repayments towards 10 per cent this year. Higher rates have also weighed on property values by reducing demand, especially in the outer suburbs of big cities.
Costs too high
Many NEWS.com.au readers expressed the view that it was no longer worth investing in property due to increases in interest rates, which have coincided with a sharp rise in living costs.
One NEWS.com.au reader with investment properties said: "I have sold my investment property before getting into trouble. I am a real estate agent and business is now very quiet.”
“I was concerned I would not meet investment property loans," said another reader.
Some investors are keeping their options open and holding into their property, but are prepared to sell if economic growth slows.
"I have a rental investment property and use negative gearing to offset my losses each month. I'm becoming more reliant on monthly rental income to keep me afloat. If the worst comes to the worst (that is, economic recession), I can always sell my investment property and be debt free. I'm grateful that I have that choice."
Another less upbeat reader said: "I have to sell my investment property. But nobody wants to buy it!!!"
Some economists expect the Reserve Bank of Australia to keep on raising interest rates this year while others say slowing economic growth in Australia will cap interest rates at current levels.
The official cash rates stands at 7.25 per cent, and standard variable mortgage rates are currently at a 12-year high around 9.5 per cent.
Hi scamp
quote
Property is a NO GO until at least 2011. Invest in gold and an economics study if you want to become investors.
I have been considering your posts, what do you suggest one make investments into till 2011. i have no idea where to invest the money i have, but i see a great need to let it work for the future? Whats of good value to read and study?
Natural Gas, Oil and precious metals exploration companies. Pick up some books like "How to thrive when oild hits $200 per barrel"
I have two rental property and I am out of pocket by $250fn, by the end of financial year I end up even. If ever we have a property bust and I think I will be safe cause my loan is fixed for 2 years and I only borrow 60% of the purchase price. So… Im a bit confussed of all the media report etc……should I SELL both property now and buy again in two years time..
That would be financial suicide my friend.
ormeau is your post for me?
Yes mate, sounds like you have a sizable chunk of equity and your not over extended. if your rents/tax are cutting it even then hold and stay mate. Why pay tens of thousands in fees etc for sell/buy again?
Market cools but new hotspots emerge
By Terry Ryder, 17th June 2008
Regardless of the stage of the property cycle, there are always new hotspots emerging that have the potential to out-perform the market and deliver above-average growth to investors.
We have identified a new batch of such locations worthy of real estate buyers' attention in the latest quarterly edition of The Ryder Report.
The report includes new hotspot alerts for each Australian state and territory:
Queensland: Bowen Hills/Newstead
New South Wales: Ballina/Yamba
Victoria: The Surf Coast
South Australia: Strathalbyn
Western Australia: Boddington
Australian Capital Territory: Acton
Tasmania: CambridgeNo part of the Northern Territory was recommended as a future hotspot due to the massive downtown in sales across what is a rapidly cooling market.
There is a general easing of buyer demand across the national residential property market, against a backdrop of interest rate rises, economic and sharemarket volatility, and soaring family bills in supermarkets and service stations.
However, at every phase of the cycle there are new out-performers emerging that will be the future hotspots delivering good capital growth. They key to successful property investing at any time, but particularly in the current market cycle, is to focus on future growth potential rather than past price growth.
The greatest danger for property investors is buying in areas purely because they showed the highest growth last year. The underlying premise of this strategy is that what happened last year will happen in the future, and that's nonsense."
The latest 95-page edition of The Ryder Report includes state-by-state analysis of Australia's property markets, their growth contributors and emerging hotspots.
Queensland:
The Queensland market continues to be driven by strong interstate migration and will also benefit from new State Government initiatives abolishing stamp duty for first home buyers and mortgage duty for everyone. Queensland's biggest problem is coping with its growth, but many large new transport infrastructure projects are underway.
Hotspot Alert: Brisbane has a history of successful urban renewal in locations such as Teneriffe, New Farm and West End. It's pretty clear that postcode 4006 (Bowen Hills and Newstead) will be the next beneficiary. This area is set to shed its daggy image on the back of the redevelopment of the Exhibition Grounds and Queensland Newspapers sites in Bowen Hills and the old gasworks site in Newstead.
New South Wales:
The Sydney market had recently shown signs of recovery but a declining sharemarket has cooled the top end and interest rate rises have burdened the lower end. However, there is life beyond Sydney and maybe it is time for investors to stop stressing over the capital and look elsewhere in the state for growth.
Hotspot Alert: Ballina and Yamba on the far north coast are set to benefit from one of the country's most influential pieces of new transport infrastructure – the Tugun Bypass on the southern Gold Coast. This newly opened bypass makes northern NSW more accessible to the larger population bases of south east Queensland. Ballina and Yamba are still relatively affordable and are home to a number of new residential developments.
Victoria:
Like New South Wales, it is a good time for Victorian investors to look outside Melbourne. The prestige Melbourne suburbs are very volatile and the more affordable areas further out have better prospects right now, particularly those benefiting from new infrastructure and government spending.
Hotspot Alert: Locations such as Lorne and Torquay on The Surf Coast south of Geelong will be the big beneficiaries of the Geelong Bypass. These are already popular destinations for city people but they are about to become even more so courtesy of quicker travel times – which can revolutionise the appeal of an area. Lorne is already quite expensive but Torquay provides a cheaper option.
South Australia:
South Australia's property market won't repeat its growth of 2007, but still looks solid. It is the least expensive market on the Australian mainland and has good prospects in areas such as mining expansion, overseas migration and job creation that tend to underpin property price growth.
Hotspot Alert: Adelaide's surging price growth has not yet reached Strathalbyn, 60km out of the city centre. The town will benefit from the ‘ripple effect' from events in the city sooner or later. Regarded as one of the most attractive towns in South Australia, Strathalbyn is also set to benefit from renewed mining activity that complements its established tourism and agricultural industries.
Western Australia:
Western Australia's property market is dogged by a huge affordability problem that is overpowering the state's ongoing economic boom. The state's property market is on a real rollercoaster ride and has some agony still to come before things level out.
Hotspot Alert: Boddington, a small town 130km south of Perth, is set for major economic growth due to the re-opening and expansion of the Boddington Gold Mine. The construction phase has created 1,000 jobs and the mine will require a permanent workforce of 650. Boddington is on the banks of the Hotham River and also has an alumina project and established sheep and timber industries.
Tasmania:
Tasmania's property market continues to chug along quite nicely, despite its mediocre economic growth. The state remains an affordable and attractive destination for mainland investors.
Hotspot Alert: Cambridge, near the airport east of Hobart, is home to a wave of new retail development that will create the first dedicated shopping precinct outside the CBD. National retailers such as Harvey Norman, Mitre 10 and Direct Factory Outlets (DFO) are opening in the area and surrounding suburbs will benefit from the job creation.
Australian Capital Territory:
National economic factors, combined with easing of demand due to public service cuts and increased supply through new land releases, is cooling the Canberra property market.
Hotspot Alert: The inner-western suburb of Acton, beside Lake Burley Griffin, is dominated by the Australian National University and only recently became a residential area. New apartment developments, such as Acton Tower, represent the changing face of Canberra and offer an attractive place to live that is accessible to the city.
ENDS
Hotspot Alert: Brisbane has a history of successful urban renewal in locations such as Teneriffe, New Farm and West End. It's pretty clear that postcode 4006 (Bowen Hills and Newstead) will be the next beneficiary. This area is set to shed its daggy image on the back of the redevelopment of the Exhibition Grounds and Queensland Newspapers sites in Bowen Hills and the old gasworks site in Newstead.
I agree completly with this report but would hasten to add that I predict that Woolloongabba on the south side will equal Bowen Hills at the other end of the cross river tunnel. Units in both of these areas are priced at approx $100K under their adjoining suburbs.
VERY INTRESTED WHERE CAN I GET GOOD ADVICE ON INVESTING IN NATURAL GAS, OIL AND PRECIOUS METALS AND WHERE CAN I PICK UP THIS BOOK.
Dan7 wrote:VERY INTRESTED WHERE CAN I GET GOOD ADVICE ON INVESTING IN NATURAL GAS, OIL AND PRECIOUS METALS AND WHERE CAN I PICK UP THIS BOOK.
Dan, I believe the earlier forumite was referring to the following book:
"The coming economic collapse: How you can thrive when oil costs $200 a barrel"
written by Stephen Leeb.Its a pretty good book and will help you understand just how reliant we are globally on oil and the effects that will be felt as product supply is unable to meet demand. Also listing stocks and avenues to invest in during this period.
I would like to add though, I believe that while he(Stephen Leeb) predicted considerable fallout due to increasing petrol prices on the US economy, it is my understanding that the current economic crisis there is a result of the Sub-prime mortgage sector.
My point: there may be a double blow coming here. First blow being Credit crisis(borderline recession), second and potentially more long term is the depletion of fossel fuels with particular regard for oil. The oil crisis is only just knockin at the door……..
I had to import my copy from the states and it is currently on loan to a friend. I dont believe it is widely available here in Australia.
Amazon.com would be my recommendation. Good luck
Dan7 wrote:VERY INTRESTED WHERE CAN I GET GOOD ADVICE ON INVESTING IN NATURAL GAS, OIL AND PRECIOUS METALS AND WHERE CAN I PICK UP THIS BOOK.
Patriot soldier is on the money. One of the best if not the best informative sites is http://www.latoc.com they have many books/dvd's etc full of information readily available for purchase via Amazon etc.
I would also strongly suggest you become a member of their forum, plenty of links for investment advice and the contributors/members are of a high standard.ormeau wrote:Dan7 wrote:VERY INTRESTED WHERE CAN I GET GOOD ADVICE ON INVESTING IN NATURAL GAS, OIL AND PRECIOUS METALS AND WHERE CAN I PICK UP THIS BOOK.
Patriot soldier is on the money. One of the best if not the best informative sites is http://www.latoc.com they have many books/dvd's etc full of information readily available for purchase via Amazon etc.
I would also strongly suggest you become a member of their forum, plenty of links for investment advice and the contributors/members are of a high standard.Thanks for the additional info Ormeau,
Can I ask you a couple of additional question?firstly, I tried the link and it wouldnt work on my computer…..? i googled latoc and got several results….. which is the one you are recommending?
secondly, i have read a few of your posts………. Id be interested(only if you are willing to divulge) your plans for investment in the future…. whether your looking into RE holdings or alternative forms of investment. If you dont wish to place it in public forum pls feel free to msg me.
Regards.
Don't take any notice of this fool. He did the same on the Somersoft forum and got told where to go.
Higher petrol prices could be the straw that breaks the backs of people struggling with their mortgages.
http://www.news.com.au/business/money/story/0,25479,23884172-5013951,00.html
BATTLERS in outerlying suburbs are being hit the hardest by rising fuel prices, as their distance from the city leaves them little option in curbing fuel use, an economist says.
Westpac senior economist Matthew Hassan says the impact of the latest round of fuel hikes had left two distinct groups of households – those that can and are cutting back on fuel consumption and those that can't.
Mr Hassan says the second group is facing a "fuel-constrained" world in which they have less to spend on other household items as their petrol bill increases.
Australians who live in outerlying suburbs are the among the hardest hit, relying on cars to get to work, and travelling further than people who live in the inner suburbs.
"When you think about those most likely to be affected by high fuel prices, they'll be households that are already relatively stretched financially that are living in outer suburbs where they don't have the option to use public transport," he said.
Mr Hassan said fuel-constrained households were among the most severely affected by higher interest rates, a weak housing market and rising food prices.
Mortgage defaults telling
Higher petrol prices could be the straw that breaks the backs of people struggling with their mortgages.
Data released yesterday by Moody's showed that it’s battlers living in outerlying, commuter suburbs that are falling behind in their mortgages.
According to Moody’s, Australia's top five suburbs for mortgage delinquencies were Paramatta, Liverpool, Canterbury and other western and south-western suburbs of Sydney.
"They don't have the option to cut back on their consumption of fuel," Mr Hassan said.
"There facing other pressures from other parts of their finances – in particular from interest rates and quite clearly are feeling the pinch from petrol up around $1.50 a litre."
Petrol prices have shot up in recent weeks as world oil prices hit record highs close to $US140 a barrel.
Squeezed from all angles
Mr Hassan said it wasn't surprising the surge in price at the pump was causing angst amongst households struggling to keep up.
"There is an exposed segment that's been squeezed from all sides, whether it's the weak housing market, whether it's interest rates, whether it's fuel prices.
"That's why it feels a lot worse than it appears to be in terms of the total numbers," Mr Hassan said.
Data released by Westpac showed although household spending on petrol remained around 3 per cent, households were buying much less fuel.
While spending on fuel has risen to $16.80 a week, per capita fuel consumption has slipped to 12.93 litres a week, Mr Hassan said.
Pain on the road ahead
Mr Hassan says there is still “quite a way” Australians can go in terms of reducing consumption of fuel.
"If you think about 2007 for example, we had record vehicle sales last year with what had been a major ramp up in the cost of fuel," he said.
Mr Hassan said consumers would reduce their fuel consumption even further as petrol prices go higher this year.
"I think we'll see that over the course of this year when people really start to reconsider … their overall usage of fuel."
Despite pain at the pump, Mr Hassan said fuel prices would not be the main driver of households in deteriorating arrears.
"Clearly there’s a segment that is going to find it very difficult this year, and fuel is only going to part of the problem of making ends meet.
"Interest rates will be the dominant driver in terms of arrears and bankruptcies, which are clearly going to start to rise to some extent."
Jon Chown wrote:I agree completly with this report but would hasten to add that I predict that Woolloongabba on the south side will equal Bowen Hills at the other end of the cross river tunnel. Units in both of these areas are priced at approx $100K under their adjoining suburbs.Thanks for the heads up I will check that are a out. Might buy again later this year.
neilfrasersmith wrote:Don't take any notice of this fool. He did the same on the Somersoft forum and got told where to go.One thread wonder, so I suppose you watched Richard Heiburg being interviewed by Kerry O Brian on the 7.30 report tonight then? Google his name if you want some reading material on the comming oil collapse loser.
This is from Yahoo Finance, its American but very interesting. Good read. Suggesting our whole suburban lifstyle is going to change.
A New Real Estate Reality
Posted on Monday, March 31, 2008, 12:00AMHousing prices dropped by over 11 percent at the beginning of this year, the largest drop in the 20 years that such data have been collected. Thank goodness.
Restoring Financial Sanity
Why are plummeting real estate prices good news? Because it's the first sign that sanity is returning to the market. And a sane real estate market — one in which sellers recognize that they won't get as much for their house as Al down the street got two years ago — is a precondition for a broader economic recovery.
Recessions, or any economic downturn, are always caused by the same thing: Something goes wrong. That may sound overly vague, but it's rarely the same thing that causes a shock to the system. In an agrarian society, it might be a bad harvest or a failed monsoon season. In a developing country, it might be a slump in the global price of a major export, such as coffee or copper.
In the United States in 1929, it was the stock market collapse. In the early '80s, it was the recession deliberately engineered by Fed Chairman Paul Volcker to break the back of inflation. (The Fed held interest rates high enough for long enough that the economic pain persuaded workers to stop asking for higher wages, and firms to stop raising their prices.)
Bad to Be Good
In all these cases, the recovery begins when either: 1) Conditions get better — the rains come, the price of coffee rebounds, or consumers stop worrying about another terrorist attack. Or, 2) Things don't get better, but we adapt to the new reality. Coffee prices don't rebound, so farmers start growing something else.
The only route out of our current real-estate-bubble-inspired economic malaise is the latter — a new real estate reality. Property owners must recognize that some of the prices we saw over the past couple of years were an anomaly, just like Internet stocks in the '90s.
The problem with the housing bubble wasn't just that prices got out of whack for a while. The bigger problem was that those crazy prices sent erroneous signals to the rest of the economy. Artificially high housing prices caused developers to build things that shouldn't have been built; consumers to spend money that they didn't really have; banks to loan money to those developers and consumers; and Wall Street to bundle those shoddy loans into products that most of us still don't understand.
Feeling the Heat
Normally, the beauty of a market economy is that prices convey important information. When starting salaries for engineers go up, more college students major in engineering. When the price of gas gets to $4 a gallon, people drive less (or buy fuel-efficient cars).
But the housing bubble sent bad signals all over the economy. It's as if we had a broken thermometer telling us it was 30 degrees, and now we're all standing outside in 90-degree weather wearing sweaters and ski parkas. The important thing is what we do next: We can either stand there hoping the weather gets much colder, or we can recognize that it's 90 degrees and start taking off the layers.
Falling real estate prices tell me that sellers are finally starting to do the latter. I recognize the pain. A lot of people are going to lose a lot of money; some will lose their homes. But realistically that's already happened. If buyers are only willing to pay you $300,000 for a house you bought for $400,000 two years ago, the $100,000 difference is already gone.
For What It's Worth
Listing the house for $400,000 and leaving it on the market unsold isn't going to get the money back, either. That's essentially just living in the house and hoping it'll appreciate in the future. The "For Sale" sign out front is decoration, something to keep the mailbox company.
Look, I bought 50 shares of Bear Stearns stock at $90 a share. There's nothing stopping me from putting a sell order in with my broker at $90. I can keep that sell order open as long as I want, just like the permanent "For Sale" sign.
But the market reality is that JP Morgan Chase has an offer on the table for $10 a share. If I really want to sell my shares, it'll have to be at a price someone is willing to pay — which, sadly, has nothing to do with the $90 I paid in the first place.
True Value
If this were just about the price of real estate, I wouldn't care at what price people tried to sell their homes, or how long those properties stayed on the market. But it's bigger than that. Falling prices will help put the "market" back in the real estate market; it'll get us back to a point where sellers are asking prices that buyers are willing to pay.
We'll know the real value of real estate in different markets around the country. That'll give banks a sense of what their loans are worth. It'll also be a signal to buyers that they don't have to wait any longer for the deals that they know are coming.
Both will help stabilize the credit markets so that they can get back to the business of making sane loans based on realistic property valuations. And healthier credit markets will allow Wall Street to price the mortgage-backed securities that will remain illiquid as long as we have no idea which mortgages are likely to go into default and which mortgages aren't.
The Bottom Is Near
What good news am I looking for in the future? Another significant drop in housing prices, albeit smaller, say 4 or 5 percent. That would signal to buyers, sellers, banks, and Wall Street that the bottom is near.
Things have to get worse before they can get better. We're making progress.
There is another reason why prices will drop in many suburbs that are too far from the cities. With soaring petrol prices people can`t keep up anymore to pay the bills and the mortgages so either choose to sell the house and relocate closer to work maybe renting or in a smaller property or they`ll have to quit the job.
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