Affordability improves nationwide

Housing in Australia is at its most affordable level in seven years, according to the Housing Industry Association (HIA).
The HIA-CBA First Home Buyer Affordability Index showed there was a 14.6 per cent improvement in affordability for the March 2009 quarter, which followed a 40 per cent surge at the end of 2008.
Over the same period the average home loan repayment fell by 11 per cent to $1831 per month, compared to the previous amount of $2056.
The HIA attributes the current affordability of housing to the boost to the First Home Owners Grant, record low interest rates and relatively stable house prices.
Affordability improved in all capital cities and regional areas in the March 2009 quarter, with the largest improvement found in Hobart, Adelaide and Sydney.
Aside from the current economic climate, the HIA's chief executive Chris Lamont says for many homebuyers there has never been a better time to buy.
"The boosted grant, which now provides a minimum of $21,000 for new homes across Australia along with the significant builder discounts on house-and-land packages, is increasing the number of first homebuyers entering the new home market."
Lamont notes that the grant has created and secured jobs in the residential construction sector.
"It is also assisting in boosting the supply of housing which we know to be grossly short of the nation's requirements."
Housing affordability is expected to improve even further for the June quarter.
Editor of Australian Property Investor magazine Eynas Brodie says it's pleasing to see the door opening wider for people who want to enter the housing market but haven't been able to in recent times.

How to profit from the next property boom

Property investors need to plan ahead in order to take advantage of the next upturn in the property cycle, according to quantity surveying firm Asset Economics.
"Property booms never last (and) neither do property busts," the firm says in its latest newsletter.
To take advantage of the next boom, investors need to buy for long-term capital growth and anticipate the ripple effect.
"As our next property cycle comes around, it will be the most desirable, the most sought-after areas that start growing first," Asset Economics says. "These are usually the most affluent areas."
From there, capital growth starts to "ripple outwards" through adjoining suburbs, it adds.
Asset Economics has identified a number of suburbs around southeast Queensland that it says will be among the first to move in a positive direction. These are:
- Bayside areas east of Oxley Avenue in Redcliffe, Woody Point and Scarborough;
- Stafford (must have city views), Kelvin Grove and The Grange in northern Brisbane;
- Murarrie, Carina and Mount Gravatt in Brisbane's east;
- Fairfield and Greenslopes on Brisbane's southside;
- Indooroopilly and Chelmer in the city's west;
- All areas east of the Nicklin Way and the Sunshine Motorway on the Sunshine Coast, including Mooloolaba, Buddina and Currimundi;
- Southport and Hope Island on the Gold Coast.

Changes to First Homers Grant to Affect Prices

If the First Home Owners Boost ends after the June 30 deadline it's likely property prices will be pushed up in the short term, according to new research.
The boost has been responsible for increased activity in the residential property market since it was introduced in October last year.
Research conducted by BIS Shrapnel for QBE LMI shows that if it's extended beyond June 30, first homebuyer demand could peak at 180,000 loans next year.
But if it isn't continued demand for new and established housing will be pulled forward, resulting in short term rises in property prices of five per cent.
The amount of loans taken out by first homebuyers has been on the rise as current conditions provide incentive, including the boost to the grant, rising rents and lower interest rates.
First homebuyers have also typically been borrowing more money, with research showing their average loan size has increased from $264,500 in October last year to $280,600 in February this year.
CEO of QBE LMI Ian Graham warns government incentives alone shouldn't be the main motivation for buying.
"First homebuyers, irrespective of whether the first homeowners grant boost scheme is extended or not, need to ask whether they are buying for the right reasons as a home purchase or mortgage is a long term commitment and they need to be able to service interest rate increases in the future," he says.
"This is particularly important if the boost scheme is not extended beyond June 30, 2009, as this may result in a hasty decision by first homebuyers on their choice and the price they are prepared to pay for their home."

Short term relief for mortgage stress

Lower interest rates and government payments have relieved mortgage stress in Australia but it’s predicted to rise again later in the year.
The number of households experiencing mortgage stress fell 5.5 per cent from February to March 2009 to reach 587,000, according to the Fujitsu Mortgage Stress-O-Meter monthly update.
The number of severe stressed households fell 36 per cent, with 96,500 households still at risk or having to sell up or lose their homes.
Mild stress increased 6.2 per cent, explained by the fall in severe stress, as well as lower incomes due to the reduction of overtime hours and falling investment incomes.
Martin North of Fujitsu Consulting says falling interest rates and government intervention have significantly improved mortgage stress levels.
"This is good news in the short term and the additional government payments will reinforce this trend over the next couple of months," he says.
"We still expect to see a significant rise in mortgage stress later in the year, as unemployment continues to bite."
"Recent interventions have definitely postponed the inevitable but for example, if unemployment reached 7.5 per cent by December 2009 this would translate into over 1.2 million households experiencing some degree of stress, of which over 460,000 would be close to the edge."
The report drew attention to first homebuyers, pointing out they're still entering the market with small deposits. North says this is a concern because they're left with very little protection against falling house prices and potential unemployment.
"If unemployment were to rise by 7.5 per cent by December, up to one-third of the 125,000 first-time buyers who entered the market in the last 12 months could find themselves in mortgage stress," he says.
"It would be wise to ensure prospective purchasers had a

Australian Outlook by Maquarie Economics

! With no data released in Australia this week, the Reserve Bank of Australia
(RBA) provided an update on how they feel about the current health of the
Australian economy and financial system. The Financial Stability Review was
released, while head of economic analysis, Anthony Richards, spoke on the
‘Conditions and prospects in the housing sector’.
Impact
! Richards provided an optimistic outlook on the Australian housing market over
the medium term. He argues that the massive degree of policy stimulus
provided in the past six months has contributed to far more accommodative
conditions in the housing market, resulting in a pick up in interest from
potential home-buyers, as well as easier conditions for existing home-owners.
! He also addressed some key features that distinguish the Australian housing
market from those of the US and UK. Meanwhile the Financial Stability
Review provided a relatively upbeat assessment of the Australian financial
system.
Analysis
! Housing finance commitments have increased markedly in the past few
months, driven by dramatic improvements in housing affordability. While this
improvement has mostly been focussed on approvals for existing homes, the
RBA liaison with homebuilders has shown some evidence of a pick-up in
construction activity as well. Furthermore, improvements in auction clearance
rates compared to this time last year are also showing a pick-up in demand
for housing.
! Indeed this week’s speech by the RBA’s head of economic analysis, Anthony
Richards, highlights these signs of life in the Australian housing market, which
is likely to be the key sector contributing to a turnaround in fortunes for the
domestic economy in the year ahead.
! Richards also notes some key factors that differentiate the Australian housing
market from those in the US and UK, which have experienced sharply falling
house prices over the past year.
! The first key point is that Australian monetary policy has been far more
effective in gaining traction on market rates compared to global peers. The
RBA has lowered the official cash rate by 400bp since September last year.
Since then, standard variable mortgage rates have come down by 375bp, and
the average interest rate paid on all outstanding loans (an average of fixed
and floating) has come down by 265bp.
! As a result, affordability has improved substantially in Australia, which is
contributing to stronger demand, particularly at the lower end of the housing
market. Indeed, as the second chart opposite shows, while house prices have
fallen sharply in the most expensive suburbs, prices in other suburbs (which
are a much larger proportion of total housing stock) have held up reasonably
well.
! In contrast, central banks in the UK and US have cut official rates by even
more than the RBA, but rates paid by mortgage holders have fallen by less
than 200bp in the UK and less than 50bp in th
! The final key factor addressed in the speech was a
comparison of lending standards between Australia and
the US.
! The comparison of non-performing loans in the US and
Australia is stark. Most importantly, is that even during
the boom years, Australian lending standards were
nowhere near as relaxed as in the US, with the ratio of
US non-performing loans much higher, even when both
economies were growing strongly.
! Subsequently, Richards explicitly stated that he does not
believe that the current easier conditions in Australia will
lead to an expansion of riskier lending practices. This is
due to a recent tightening of lending standards and a
reduction in maximum loan-to-value ratios.
! Furthermore, Richards highlights that ‘many of the
lenders that might have been most likely to write riskier
loans have scaled back their activity’.
! Indeed, this theme was also prevalent in the RBA’s semiannual
Financial Stability Review, which provided a
positive assessment of the Australian financial system,
despite global financial market instability.
Lending practices have been far more stringent in
AustraliaBanks' non-performing housing loans as % of on balance sheet
loans.

! While the banking system is no doubt facing some of the
most difficult conditions for some time, the RBA report
highlights that the Australian banks continue to find
themselves well placed to weather the global financial
storm, as they considerably outperform global peers.
! The RBA highlighted the key points of strength within the
Australian banking sector. These include strong
profitability, limited exposure to high risk securities,
strong capital positions and the maintenance of high
credit ratings by the major banks.
! Certainly, the key theme pushed by policymakers this
week is one of relative strength across both the housing
market and financial system in Australia.
! That said, we do not believe that too much can be read
into this positive rhetoric in regards to the outlook for
interest rates. While the housing market will be very
important in generating a turnaround in activity over the
medium term, the RBA will still be very concerned about
the worsening short-term outlook, as unemployment rises
and confidence levels remain fragilee US.

Prospects looking good for housing market

Investors don’t need to be convinced that the current residential property market will reap rewards, according to BIS Shrapnel senior economist Jason Anderson.
With rents high and continuing to grow, he says they can already see the benefits.
Speaking at a BIS Shrapnel business forecasting conference in Brisbane last week, Anderson forecasted rental growth would remain strong due to the ongoing undersupply of housing in Australia.
Rental rates have increased by 18 per cent over the past three years and he estimates they’ll rise by another 25 per cent over the next three years.
"Housing deficiency is surging and in terms of supply, things are going to get worse over the next two years," he says. "Demand will skyrocket and as long as demand continues, rents have to keep going up."
In addition to further rent hikes, Anderson anticipates house prices will experience solid growth over the next three years, with an average yearly growth of around five to six per cent.
Interest rates are also expected to remain low, making property more affordable and creating favourable conditions for investors to buy.
While there has been a lot of speculation that rising unemployment will have a detrimental impact on the property market, Anderson firmly believes that won't be the case because interest rate cuts will outweigh any potential negative effects of unemployment. He notes that the vast majority of the community won't be impacted by unemployment, while significantly more will be influenced by a drop in mortgage rates.
"The rise in unemployment will fortunately be limited to perhaps three to five per cent of all households," he says. "That leaves the other 95 to 97 per cent still thinking about their housing needs without the constraint of unemployment. Even if half of those act in a way that's more cautious because they fear unemployment, it still leaves a vast majority that will respond to low interest rates and strong growth in rent. Both of those 'forces' are supportive towards increases in property prices."
Anderson points to history to provide evidence that unemployment won't cause property prices to plummet and says it's entirely possible for rents and unemployment to rise at the same time.
"It's false to say property prices will fall because unemployment is going up," he says. "The last peak in unemployment in 1992 didn't trigger a property market meltdown."
Unemployment rose by 360,000 people during 1990/91 and 1991/92, but dwelling approvals showed a rise of 20 per cent in 1991/92 and house prices grew by an average of five per cent per year during 1991/92 and 1992/93.
The experience of the early 1990s was that investors continued to buy property despite the absence of strong property price growth, showing that the attraction of declining interest rates offset the impact of unemployment. This time around Anderson says it should be even better because interest rates have been cut well ahead of evidence of rising unemployment.
According to anecdotal evidence, he says while first homebuyers are still more active, there's already a groundswell of investor demand.
"If that's the case and it continues to build over the next month, that's a pretty early recovery in investor demand," he says. In previous cycles, Anderson notes investors have come back into the market later rather than sooner.
Strong rental growth is one reason why investors are starting to buy again and the other is that interest rates have been cut earlier and more substantially that what has been seen in previous cycles.
BIS Shrapnel's managing director Robert Mellor, also speaking at the conference, said he expected the Reserve Bank of Australia (RBA) to continue to take a wait-and-see approach to interest rates. He believes it will leave interest rates as they are for the next two to three months and will likely lower it by half a per cent in the second half of this year.
Looking to the future, he says the RBA will slowly edge up rates.
"There will be a slight upward movement in rates in the latter half of 2010 and more in 2011 and 2012," he says.
Anderson forecasts rates will rise after unemployment peaks, which would probably happen by the middle of next year.
"It will be later rather than sooner and I think it will be the first half of 2010." Anderson says investing in the residential property market is still a good prospect for the medium term. With prices likely to increase by about five or six per cent per year, he says you'll be investing more for yields than capital gain.
"Yields are increasing at a significant rate and it's the cash flow benefit which should be the focus in a world where interest rates are low. In the medium term it (residential property) will be a good investment for those reasons."
Anderson believes the argument for buying property under these circumstances is compelling and as such, there's going to be a much more rapid response from investors.
"The economy needs the housing sector to perform well, to offset the decline in business investment," he says.
While investors don't need to be told that the current market provides opportunities for good investments, Anderson says upgraders do need convincing that the market is good so that the middle part can start to pick up.

Variable rates tipped between 4 & 5 per cent

Mortgage Choice managing director Paul Lahiff believes official interest rates will bottom out between two per cent and 2.5 per cent, putting variable rates into “the high fours, low fives”.
In an exclusive web video interview with API, Lahiff says that as a property investor himself, he won’t be thinking about fixing his interest rates until later this year.
“The last quarter of calendar (year) ’09, I’d be starting to think about it,” he says. “As I’m a property investor myself, I wouldn’t be doing anything much before September or October.”
Lahiff says he feels the Australian property market is in much better shape than some markets overseas.
“We don’t have enough houses being built, the rental vacancy rates are certainly a lot lower here than overseas and I think largely that Australian lenders didn’t really overcommit people, so in comparison to the US we had none of the damage that was created over there by lending to people who really couldn’t afford to repay the amount of mortgage (they took out),” he says

Positive cash flows returns

How would you like to buy a property that puts money back into your pocket at the end of every month?
Well, positive cash flow property is back on the agenda in 2009 thanks to falling interest rates and rising rents. Australian Property Investor magazine’s March issue reveals where investors can look for such properties – and it’s not just in mining towns any more.
"The combination of escalation rents, rapidly falling interest rates and the availability of good deals in a buyers' market has put cash flow positive property back on the cards in 2009," says API deputy editor Matthew Liddy.
"Positive cash flow property is often linked to mining towns – where workers have created a huge demand for rental property – but it's now becoming available in other parts of the country as well," Liddy says.
"In fact, property investors are reporting that cash flow positive property is there for the taking on the outskirts of Australia's capital cities."
Liddy says that some investors focused on a strategy of negative gearing have been known to wonder why you'd invest in a positive cash flow property when owning that property might bump you up into a higher tax bracket.
"But to the positive cash flow fan, that's a little like asking why you'd accept a pay rise given it might mean you'd pay more tax,” he says.
"This conflict just serves to highlight that different people invest in property to achieve different aims."

March Interest Rate Outllook by Maquarie Research

􀂃 We review the outlook for interest rates following the Reserve Bank of
Australia’s (RBA) decision to leave interest rates unchanged following its
March Board meeting.
Impact
􀂃 The RBA’s decision to leave the cash rate unchanged at 3.25% in March
indicates that it is sufficiently confident in the resilience of the Australian
economy – which “has not experienced the sort of large contraction seen
elsewhere” – to risk further undermining sentiment. But in our view, this
marks a temporary pause in the rate cutting cycle, rather than its end, with a
weakening labour market eventually forcing the RBA to cut rates to 2½%.
Analysis – The ECB is no role model for central banks
􀂃 It is not good enough for a central bank to say that because its official interest
rates are already low, it has done enough to support the economy. This is the
mistake that the European Central Bank has consistently made, with the
result that the economy is much weaker now than it needed to be. This also
has the implication that policy will eventually have to be loosened even more
aggressively due to the weakened state of the economy.
􀂃 As shown in the chart opposite, while the RBA’s official cash rate is already
well below its recent trough in 2001, lending rates (ie mortgage and business
loan rates) are only around the same level as in 2001, when the headwinds
facing the domestic economy were significantly less, confidence was stronger,
and the health of the financial sector was significantly better.
􀂃 In that light, there appeared to be a clear case for cutting rates further now.
This is particularly evident given the RBA Governor Glenn Stevens’
observation that Australia is facing a crisis of confidence as well as a credit
crisis. Any perception that the central bank has ‘thrown in the towel’ – that is,
accepted that lower interest rates wouldn’t help the economy, or that the
economy doesn’t need help – would be particularly damaging to sentiment.
􀂃 Another argument for doing nothing is that a further rate cut wouldn’t help.
However, there is no evidence to support this assertion. There are now firm
signs that people are beginning to return to the housing market, and by
making lending even more attractive, further rate cuts should both bring
forward the timing of the recovery, as well as the ultimate size of the
improvement.
􀂃 To be sure, retail banks are warning that they might not fully pass on further
RBA rate cuts, however, this argues for the RBA doing more rather than less.
And to the extent that bank balance sheets are improved by wider margins,
then this is also beneficial.
􀂃 As such, we do not find the reasons for leaving rates unchanged compelling,
and think that this represents a pause in the rate-cutting cycle, rather than its
end. To be sure, the RBA is very sensitive to a rising unemployment rate, and
this could be the next trigger for lower rates. Alternatively, any sign that
housing lending or retail sales – both of which have shown signs of life
recently – were beginning to capitulate would also force them to resume the
easing cycle.

Property less volatile than share market

The Australian property market has been labelled ‘resilient’ after prices were found to have fallen by just 2.9 per cent during 2008.
Home values fell in most capital cities over the year with the exception of Darwin and Adelaide, according to the recently released RP Data-Rismark International Property Values Indices.
Values in Darwin grew by as much as 11.1 per cent and Adelaide prices rose by 3 per cent.
Meanwhile, Perth experienced the biggest fall in property prices of any capital city in Australia, dropping by 7.3 per cent.
RP Data national research director Tim Lawless says Australia’s residential market has been one of the best performers during the global economic crisis.
While Australian property values decreased by 2.9 per cent over 2008, the fall is not as dramatic as the 41.3 per cent fall in the S&P/ASX 200 and the 20 per cent drop in US housing prices.
Lawless says the resilience of Australia’s market can be attributed to the critical undersupply of housing, estimated to be 140,000 homes and growing, combined with record population growth.
“The Australian residential property market has been protected by Australia’s very strong banking system, where the four major Australian banks all enjoy a ‘AAA’ rating (only 13 banks around the world are currently rated AAA),” he says.
Rismark International head of research Matthew Hardman says residential values in the lower and middle market levels will hold up due to low interest rates and the continued shortage of housing.
“For property prices to fall rapidly, a combination of oversupply and forced liquidity through high unemployment or a significant population exodus is required,” he says.
Hardman doesn’t believe prices will fall by 20 per cent, as predicted by some experts.
He says rising unemployment will put downward pressure on prices but it won’t outweigh the undersupply and low interest rates.
While investors have remained relatively inactive in the market, Lawless predicts investment activity will pick up during 2009 due in part to the proven lack of volatility in the market.
He says prices will rise in the lower end of the market as first homebuyers and investors compete for housing stock.
“The markets most prone to further declines in value will be coastal and holiday regions together with mining towns.”
Australian Property Investor editor Eynas Brodie says unlike some, she hasn’t been surprised by the property market’s resilience in this tough economic climate.
“Multiple data collectors, not just RP Data, have reported that at a national level values fell by only 2 to 3 per cent in 2008,” she says. “The total returns on residential property Australia-wide were actually positive once rents were factored in.
“Ultimately supply and demand are the biggest drivers of market movements and our property market is still chronically undersupplied. This has put a floor under property prices nationwide.”

Properties in some suburban cities still selling quickly

Houses and units in Melbourne are selling quicker than in other capital cities around Australia, according to research by RP Data.
Although property is generally taking long to sell, figures show that in some suburbs within the mainland capital cities it’s still selling within a short time frame.
In an analysis conducted to November 2008, research analyst Cameron Kusher found houses in Melbourne and Canberra were taking an average of 31 days to sell, while Sydney houses were selling in 32 days on average.
Meanwhile, units in Melbourne, Sydney and Brisbane had the shortest average time on the market, selling in 28, 30 and 43 days respectively.
Houses in Melbourne’s Bayswater sold the quickest, being on the market for an average of 19 days and units in the Melbourne suburb of
Hughesdale changed hands in the shortest amount of time, averaging 16 days.
Kusher says in most capital city markets properties are taking longer to sell than 12 months ago.
“This is understandable given the current economic conditions and the fact that 2007 was a reasonably strong year for price growth across Australia, excluding the Sydney and Perth markets,” he says.
Houses and units in Adelaide and Darwin are taking the longest time to sell and these two capital cities are the only ones that had positive price growth in 2008.
“This is likely representative of the fact that vendors are holding out for a better sale price,” says Kusher.Australian Property Investor editor Eynas Brodie says sellers who price their property to sell from the beginning will have the best chance of success.
“Gone are the days when you could mark up your property to leave wiggle room for negotiation,” she says.
“In a market where buyers are spoilt for choice, this can be enough to stop prospective buyers from even taking a look.
“It’s important for sellers to remember that a property is only worth what the market is willing to pay for it.”

Properties in some suburban cities still selling quickly

Houses and units in Melbourne are selling quicker than in other capital cities around Australia, according to research by RP Data.
Although property is generally taking long to sell, figures show that in some suburbs within the mainland capital cities it’s still selling within a short time frame.
In an analysis conducted to November 2008, research analyst Cameron Kusher found houses in Melbourne and Canberra were taking an average of 31 days to sell, while Sydney houses were selling in 32 days on average.
Meanwhile, units in Melbourne, Sydney and Brisbane had the shortest average time on the market, selling in 28, 30 and 43 days respectively.
Houses in Melbourne’s Bayswater sold the quickest, being on the market for an average of 19 days and units in the Melbourne suburb of
Hughesdale changed hands in the shortest amount of time, averaging 16 days.
Kusher says in most capital city markets properties are taking longer to sell than 12 months ago.
“This is understandable given the current economic conditions and the fact that 2007 was a reasonably strong year for price growth across Australia, excluding the Sydney and Perth markets,” he says.
Houses and units in Adelaide and Darwin are taking the longest time to sell and these two capital cities are the only ones that had positive price growth in 2008.
“This is likely representative of the fact that vendors are holding out for a better sale price,” says Kusher.Australian Property Investor editor Eynas Brodie says sellers who price their property to sell from the beginning will have the best chance of success.
“Gone are the days when you could mark up your property to leave wiggle room for negotiation,” she says.
“In a market where buyers are spoilt for choice, this can be enough to stop prospective buyers from even taking a look.
“It’s important for sellers to remember that a property is only worth what the market is willing to pay for it.”

Think twice before fixing, broker advises

Homeowners considering fixing their mortgage rates should hold their fire and seek advice, according to Loan Market Group executive director John Kolenda.
With official interest rates at a 45-year low of 3.25 per cent, it’s a tempting time to move to a fixed-rate home loan but Kolenda says market economists expect the cash rate to fall as low as 2 per cent.
"I think rates will be at the bottom of the cycle when the Reserve Bank makes a 25 basis points cut," he says.
"We have seen the RBA make aggressive rate cuts of up to 100 basis points to try and prevent the Australian economy going into recession.
"When the central bank starts making smaller cuts that will demonstrate that it believes it has gone about as low as it needs to with the cash rate."
However, API deputy editor Matthew Liddy notes that fixed rates tend to move on the basis of changes in the wholesale money market, rather than strictly following the Reserve Bank's changes to the cash rate.
"This means that fixed rates could rise well before the Reserve Bank looks to start lifting rates once they hit their bottom," Liddy says. "As a result, it's never easy to pick the exact time when fixed rates are at their lowest point."
Kolenda says borrowers considering changing to a fixed rate should seek professional advice because fixed loans are often less flexible than their variable counterparts.
"Many fixed rate home loans don't allow you to make significant extra repayments to reduce the principal and if you do decide to pay it out early or refinance, there may be some substantial exit costs," he says.
"A good solution with rates at generational lows is to consider splitting your loan between a fixed and variable interest rate."

Property Prices unlikely to fall further for investors

Now is as good a time as any to buy property, according to investor and entrepreneur Damian Collins.
Investors can get good prices for property in this market, he says, and if you’re going to buy, make sure you get a good deal.
“You don’t have to rush in, but if you’re going to get into the market don’t try to time it too much,” he says.
Collins, who has 30 properties and runs a company called Momentum Wealth, admits one of his biggest regrets is trying to time the property market.
“Residential property is relatively stable in price, it might drop back 5 or 10 per cent,” he says.
“I’ve lost more money waiting for the right time to buy rather than actually getting in and buying.”
According to Collins the under $400,000 market, driven by first homebuyers and investors, is starting to pick up in some parts of Australia, particularly Perth and Sydney.
“It’s doing reasonably well because of the $21,000 grant and rates are down now to 5 per cent.
“There’s a lot more investor interest in property and some of those are getting taken up.”
He says Melbourne and Sydney are going to be a bit further behind and the under $400,000 market in these cities is likely to pick up in the second half of this year.
Meanwhile, Collins believes the $600,000-plus market won’t pick up until the middle half of next year.
He says it’s owner-occupier driven, less rate sensitive and is much more sensitive to business confidence.
“There will be a progressional start from the bottom and it will work its way up into the top end of the property market,” he says.
While Collins predicts property prices in the top end of the market could come back another 10 per cent, he doesn’t foresee they will fall any further in the under $400,000 segment of the market.
“We’re seeing in Perth and Sydney it’s slowly gone from a buyers’ market to a sellers’ market,” he says.
“It’s gone past that equilibrium to a bit of a sellers’ market, there’s been a little bit of price growth in that segment.”
Median price figures may drop, he says, but that doesn’t reflect individual property prices, rather it’s related to the fact that there are more properties selling in the lower end of the market.
Collins says interest rates are likely to fall again and with yields increasing, investors will be attracted to the opportunity to have a cash neutral or positively geared property from day one.

Home Ownership possible for more Australians

Housing affordability is the best it's been in five years and it’s expected to get even better.
The HIA-CBA First Home Buyer Affordability Index improved by 39.2 per cent in the December 2008 quarter.
Housing became more affordable in all capital cities and regional areas, but the largest improvements were in Perth, Brisbane and regional Western Australia.
Over the December 2008 quarter the average home loan repayment fell 26 per cent from $2796 to $2056.
Chris Lamont of the Housing Industry Association (HIA) says the improvement in housing affordability was due to big reductions in variable mortgage rates and the First Home Owners Boost.
"For would-be first homebuyers conditions have improved significantly and clearly many Australians are taking up the opportunity to get into homeownership," he says.
Based on HIA economic modelling, 135,000 households have come out of mortgage stress since December 2008.
"Previously a household would have to be earning in the order of $85,000 per annum to afford a modestly priced home without going into severe mortgage stress," says Lamont.
"The improvement in housing affordability means those on a more modest income can now contemplate a home of their own."
According to the HIA further interest rate cuts in the first quarter of this year are expected to show another improvement in housing affordability in the next report.
Australian Property Investor editor Eynas Brodie encourages prospective first homebuyers who are currently renting to seriously consider entering the market this year, before buying conditions change.
"With the gap closing between home loan repayments and rents, potential homeowners should crunch the numbers to see if they can afford to purchase their own place while interest rates are falling and the government incentives are being offered.
"Interest rates won't stay low forever and many expect property prices to rise as consumer confidence returns."

Termites on the rise with temperature

Termite attacks on Australian homes are on the rise, according to building advisory service Archicentre.
The hot weather and continuing drought are blamed for the increasing intensity of the attacks, estimated to cost homeowners $910 million each year.
As they look for more moist parts of the house, termites relocate from roof voids and wall cavities to subfloors, eating flooring and skirting boards more aggressively.
Queensland state manager of Archicentre Ron Tanton says it's important for homeowners to undertake regular termite and building inspections.
He says increasingly inspectors are finding houses with water leaks under showers and cracking of pipes due to the drought or lack of maintenance.
"The extreme dryness in roof voids because of very hot days is a less attractive environment for termites who are seeking the more moist areas such as under the house," he says.
"Homeowners need to be aware that these water leaks and moisture build-up in subfloors and around the home form a magnet for timber pests such as termites and borers.
"This means damage to flooring materials and structural timbers like joists is more severe than normal.
"Increased moisture will accelerate the development of termite colonies but increased ground moisture may reduce the possible structural damage to houses caused by drought induced drying."
According to Archicentre's research, this year the average cost of pest treatment is about $2500 and the average cost of repairs to damage is about $4500.
The cycle time - from the initial attack, to awareness, treatment and eradication - is about five years.

Stimulus Package to benefit housing industry

The Federal Government will invest in new housing as part of its $42 billion Nation Building and Jobs Plan.
The Housing Industry Association's (HIA) Ron Silberberg says the initiative will benefit the housing industry by creating jobs for more than 35,000 Australians, with the potential for another 50,000 jobs to be generated, and it will also help support low-income tenants.
"The measure could not have come at a more appropriate time," he says.
"A number of manufacturers have already made decisions to close plant or to lay off staff.
"This measure will require the industry to tool up and re-hiring is likely to occur as soon as this funding starts flowing."
HIA members from around Australia have shown overwhelming interest in building the 20,000 new houses outlined in the plan.
Silberberg says while the housing industry can deliver, it's important for the package to be dealt with effectively and efficiently.
"We need a flexible and timely process for assessing expressions of interest.
"This is a fiscal stimulus measure and practical measures are required at both the Federal and State Government levels to ensure a speedy and beneficial impact on jobs."

China's stimulus plan taking effect

China's economy is showing signs that a 4 trillion (A$900 billion) stimulus package is gathering momentum. Economists now expect the world's third biggest economy may expand 6.6 per cent in the second quarter after slowing to 6.3 per cent in the three months to March31, the weakest since 1999.
China is trying to reverse an economic slide that has already cost 20 million jobs, raising the risk of social unrest as exports plunge and the property market sags. Spending on roads, railways and housing has increased prices for iron ore, put a floor under industrial output and helped to drive a record $US237billion (A$367 billion) of new loans in January.
"China looks set to be the first major economy to recover from the current global meltdown" said Lu Ting, and economist with Merrill Lynch in Hong Kong.
"China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened to a near collapse"

Projects hire more hands

Two of Gold Coast's biggest highrise projects are set to hire more workers, defying the impact of the economic crisis which has led to lay-offs at Queensland construction sites.
About 500 workers are employed by builder Grocon on the Soul site at Surfers Paradise and the Oracle at Broadbeach.
Grocon Queensland's general manager, Neil Baxter, said a further 370 workers were expected to be hired across both projects next year.
"These two projects will not be completed until 2011 so employment will continue for some time", Mr Baxter said

Macquarie Research Economics Report

Australian economics
February interest rate outlook
Event
􀂃 We review the outlook for interest rates following the RBA’s decision to cut the
cash rate by 100bp and the release of its quarterly Statement on Monetary
Policy (SoMP).
Impact
􀂃 In the wake of an increasingly dire global economic outlook, Australian
policymakers have been very decisive and aggressive in attempting to
insulate the domestic economy. The RBA has lowered the official cash rate by
a substantial 400bp since September and the effectiveness of monetary policy
in Australia is highlighted throughout the SoMP. While the RBA are not about
to rest on their laurels, the tone of the quarterly Statement suggests that
interest rates are now approaching a trough, likely at 2.50% by mid-2009.
Analysis – rates decelerating towards their nadir
􀂃 The RBA cut interest rates by 100bp in February, bringing the official cash
rate down to 3.25%. The Board cited "a significant deterioration in world
economic conditions" and "a significant dampening effect on (domestic)
confidence" as reasoning behind the large reduction in interest rates.
􀂃 The capacity of monetary policy to impact on activity in Australia is evidenced
by the swift and full pass through of the rate cut by the major banks into
standard variable mortgage rate reductions. Importantly, credit card and
business lending rates have also been lowered, although not necessarily by
the full 100bp.
􀂃 Meanwhile, the Reserve Bank's quarterly SoMP has revealed a very cautious
outlook for domestic activity, driven by increasingly pessimistic views
surrounding the global economic outlook. In the three months since the
Bank's last SoMP, the global economy has deteriorated significantly further.
􀂃 That said, the Australian economy is still forecast to marginally side-step a
recession given that "the impact on domestic growth will be moderated by the
easings... in monetary and fiscal policy and by the significant depreciation in
the exchange rate".
􀂃 The RBA has significantly lowered their expectations for GDP, with growth set
to trough at 0.25% mid-way through 2009. This very small increase in growth
is due to a bounce in rural production, with non-farm GDP falling to 0%YoY
growth.
􀂃 A key reason behind the downgrades in the growth profile stems from the
Bank's increasingly pessimistic view on global economic conditions. The RBA
sees trading partner output contracting by 0.75% in 2009, down from annual
growth of 5.25% in 2006 and 2007. It is important to note that this represents
even weaker assumptions on global economic activity than suggested by the
IMF only two weeks ago.
􀂃 The weakness in domestic economic activity means that the bank now sees
employment falling over 2009, with "the unemployment rate rising materially
over the next year or so". While the bank does not provide a forecast for the
unemployment rate, a small decline in employment over the year is broadly consistent with an unemployment rate of above 6% by the end of the year.

Free Advice from Terri Scheer Insurance

Legal Liability - Who is responsible?
Gaynor Megaw, Business Relationship Manager, New South Wales
Who is responsible if a tenant or tenant's guest trips on a loose piece of carpet or floor tile and
injures themselves in a fall? Who covers the medical bills and the expense for not being able to go
to work?? What if they also hit their head against a wall and do not recover? Scary thought.
This unfortunate accident is just one of many unforseen scenarios that could happen at any
investment property. It’s quite likely there would be a liability suit against the landlord by the tenant
which could result in the court awarding them a large payout, not to mention the cost of the legal
fees!
If the Landlord does not have adequate Legal Liability cover or no cover at all, they could be in
serious financial difficulty.
All of the Terri Scheer Landlord insurance products contain Legal Liability cover up to $20 million to
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Landlords have a legal responsibility (or duty of care) to their tenants to ensure they maintain their
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damage other people's property for which the Landlord may be deemed legally responsible.
This is what insurance is all about - covering those times when the unexpected occurs.
The Property Manager also has an assumed duty of care to the Landlord to inform them of the unique risks involved in leasing their
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Landlords trust that their Property Manager will professionally manage their property in all aspects including risk management and by
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Opportunity beckons for first homebuyers
Posted on Feb 10, 2009 at 01:17 PM
Conditions are primed for first homebuyers to enter the market and those with job confidence will move ahead to take advantage of it, according to a mortgage broker.
Kristy Sheppard of Mortgage Choice says the pros of buying now include the grants on offer, less buyer competition, the rental squeeze, falling interest rates and property prices.
As the economic downturn continues, she says first homebuyers will weigh these up with the cons of buying, including job instability, falling property prices and availability of finance.
Loan applications by first homebuyers have clearly increased since the First Home Owners Boost was announced in October and Sheppard says it wouldn’t be surprising if the Federal Government extended it by another six months.


“Certainly there is a lot of call for it from a range of industry participants,” she says.
“First homebuyers are being targeted because they will be new entrants to the property market, providing greater stimulation to that sector and the economy than those who are already active participants in the property market.”
While Sheppard says now is the perfect time for first homebuyers to enter the market, it’s important for them to make sure they can service a mortgage a couple of years down the track.
“The boost and other incentives can better allow them to take out a mortgage but they also need to remember to allow for interest rate and fee rises over the longer term plus any changes to their financial circumstances in the future,” she says.
Last year Australians were mostly worried about interest rates but that is no longer the case according to a recent consumer sentiment survey conducted for Mortgage Choice.
It found the primary concern for Australians at the moment is job security.
Twenty per cent of respondents said employment was their main concern, followed by economic management at the Federal Government level and other costs of living.
Last year interest rates were the biggest concern, followed by Federal Government economic management, petrol prices, job security and a fall in housing prices.Order your copy of API’s First Homebuyers Guide ebook for information on how to make your first purchase at www.apimagazine.com.au/ebooks

Sales upbeat at Downs
February 7th, 2009
HUNTINGTON Downs has experienced a rush of inquiries and subsequent sales since releasing the 'acreage accessory' blocks of land to the market in December, with just three blocks remaining from the original seven.
The $41 million development released seven blocks with accessory offerings of a swimming pool, or tennis court, or stable or hobby shed, offering buyers the opportunity to save up to $50,000 on their selected blocks at a cost to the developer.
The three remaining blocks range in size from 4073 sq m to 4864 sq m with prices from $320,000.
Huntington Downs sales manager, Chris Restom, attributed the sales rush to forward thinking marketing and generous incentives. He also said that the very low interest rate levels offered the discerning buyer far more comfort in making the purchasing decision at Huntington Downs.
Nestled on the edge of the northern Gold Coast Hinterland and encompassing 174 hectares of forest reserve, Huntington Downs has achieved almost $10 million in sales.
Huntington Downs has views across the Hinterland and is surrounded by a bush environment with walking tracks, eco trails, pony trails, lakes and reserves.
Developer Hatia Property Corporation director, Faisal Hatia, said "We've had strong sales enquiries regarding this unique opportunity. Many buyers are looking to save money where they can in the current market and up to $50,000 worth of extra value when you purchase a block of premium acreage land is a great incentive for purchasers," he said.
Mr Hatia said Huntington Downs was developed to meet the demand for affordable, prestige acreage property.
Buyers also received a 12-month full golf membership at the Gold Coast Country Club, including lessons and a set of golf clubs.

Sellout a walk in The Parc
February 7th, 2009

THE first stage of The Parc, a lifestyle-focused Tugun townhouse community which developer the Sunland Group describes as 'a project for the times', has sold out ahead of its completion.
David McMahon, the Sunland general manager, said half of the 40 homes in the stage had sold to southern Gold Coast buyers.
"This is our debut project at that end of the Gold Coast and we've put a lot of work into it," he said.
"The sales show we've hit the right spot with people in the area."
Mr McMahon said Sunland had completed civil works for the 50-home second stage of The Parc and it was intended to start construction of the first 16 homes by the end of this month.
The Parc is being built on a near seven-hectare site adjacent to John Flynn Hospital and will eventually have 187 homes.
Mr McMahon said it was designed to meet the lifestyle aspirations of today's buyers.
"They want not only quality in designs and finishes, they also want space, privacy, tranquility, and recreation facilities on their doorstep," he said.
"We have come up with a masterplan that provides every owner with a private courtyard which in turn opens on to one of The Parc's six private parks.
"Some of the homes overlook a lake at The Parc's western end, with the lake circled by a walkway and cycle track."
Facilities for residents include a lap pool, swimming pool with jets, steam room, dual barbecue areas, and two lounge areas, one with kitchen facilities.
Mr McMahon said the quick sellout of stage one in part reflected a dire shortage of new townhouses at the southern end.
Prices of the stage-one homes ranged from $415,000 to $509,000.
Mr McMahon said the stage-two homes would carry tags of between $424,00 and $635,000.
"The opening of two display homes in stage one saw an acceleration in buyer interest, which translated into a sales run to both owner-occupiers and investors," he said.
"Many people like to see the finished product, so we expect that spurt in interest to carry over into the homes in the new stage."
The three-bedroom attached homes will all be double-storey, have air-conditioned living areas, and will provide parking for two vehicles.
Interiors will include stone benchtops, natural-gas cooktops, tiled living areas, walk-in wardrobes and ensuites in the master bedrooms, mirrored wardrobes in the second and third bedrooms, and roller blinds.
Sunland, which won Master Builders' Association awards in 2007 and 2008 for townhouse projects Northbridge Residences at Varsity Lakes and Greenvue at Pacific Pines, has another townhouse venture in the pipeline.
The company, subject to council development approvals, hopes to launch a 75-home community at Merrimac by June.

Thinking positively
February 7th, 2009
PROPERTIES under $500,000 will this year play a major role in an overall market recovery in 2010, according to Australian Mortgage Options managing director Robert Projeski.
"Indications are that we are likely to see further rate reductions, and, with that being the case, property sales in areas where the purchase price is up to $500,000 will see significant increases as a result of the government stimulus packages," he said.
"The bonuses for first home buyers, including a $14,000 lump sum for existing properties and an additional $7000 to acquire new properties were provisions that will hopefully be extended beyond June 30 deadline for contracts exchanged prior to that date.
"If there is an extension you will see continuing good demand for properties in the under $500,000 price bracket. This will be the start of the ripple effect when prices should start to move in an upward direction."
He said rental demand would still be very high, with vacancies very low.
"Unemployment concerns will pave the way for investors," he said.
"In addition to the properties under $500,000 are to be had in holiday homes regions.
"We believe investors will start coming back into the market with rent increases and lower borrowing costs creating positive cash flow," he said.

No Better time for Overseas Investors to buy Australian Property

On the 12th October 2008 the Australian Prime Minister, Kevin Rudd, announced the deposit and wholesale funding guarantees. The Government guarantees are designed to promote financial system stability and ensure the continued flow of credit throughout the economy at a time of heightened turbulence in international capital markets.
The guarantees apply to authorised deposit-taking institutions (ADIs) incorporated in Australia, which as a group, are of systemic importance to the functioning of the financial system and the broader economy, and which are subject to prudential regulation by the Australian Prudential Regulation Authority (APRA) in accordance with international standards. Recent developments in international wholesale funding markets have restricted the ability of Australian financial institutions to access funding, with potentially serious implications for liquidity and lending activity.
To address these pressures, the guarantees are designed to assist Australian banks, credit unions and building societies to continue to access funding in domestic and international credit markets. The guarantees are also designed to ensure that Australian institutions are not placed at a commercial disadvantage vis-à-vis their international competitors that have received similar government guarantees on their bank debt.

So what is the benefit of the guarantee for our property market?

For one, the Australian dollar cannot stay this low for long and so it is a fantastic opportunity for overseas investors to purchase property now. With the Government guarantees designed to promote financial system stability. The combination of these as well as the current financial crisis putting pressure on developers to be very negotiable with their stock, means there is not a better time to buy property than it is right now.