Thursday, August 26, 2010

Housing 40% overvalued - Morgan Stanley

The following article comes from The Australian which is an ominous warning to all potential real estate investors and those thinking of selling.


LOCAL property investors have become "Ponzi borrowers" in a market 40 per cent overvalued, according to a Morgan Stanley strategist.

In a bearish note to clients this morning, Morgan Stanley strategist chief strategist Gerard Minack warned Australia's housing "bubble" could be pricked should banks tighten credit or "loss-making" middle-class landlords start to sell.

He argues owner-occupiers are in too much debt and investors are riskily relying on capital gains to repay their loans and interest repayments. Compounding the problem is "ill-advised policy", such as the government's first home-buyers grant, which has combined to make Australian houses "40 per cent above fair value", Mr Minack says.

"Buying an asset that's over-priced never ends well," he said. "The real return on residential property over the next decade is likely to be negative, in my view."

"Owner-occupiers have played a game of financial chicken, competing for property by taking on increasingly imprudent amounts of debt. Investors have become Ponzi borrowers -- Hyman Minsky's term for borrowers who rely on capital gains to repay debt and interest -- in the belief that housing is a sure-fire long-term investment. History shows that it isn't."

Australian Bureau of Statistics figures show overall average house prices rose 18.4 per cent for the full year to June, with Sydney prices rising 21.4 per cent -- the largest since it began recording these figures in 2002.|
But the rate of growth has been slowing in recent months as rising interest rates feed through the economy.
Commonwealth Bank of Australia, the nation's largest bank by market value, also warned last week it could be forced to raise rates independent of the Reserve Bank. CBA's full-year results showed some key business units were struggling with higher costs.

On the positive side, Mr Minack said the most plausible trigger for a correction in the Australian housing market -- broad-based jobs losses -- doesn't appear likely in the near term. This means big price declines in the near term "seems low".

Australia's jobless rate rose to 5.3 per cent in July, from 5.1 per cent, as more people decided to look for work and as full-time employment fell for the first time in 11 months.
The RBA – one of the few central bank's in the developed world to raise rates since the global financial crisis -- has been on hold since May as six rate rises since October feed through the economy. The official cash rate stands at 4.5 per cent.

But Mr Minack said Australia dodging of the worst of the global financial crisis didn't demonstrate that there's no housing bubble.
"I'm not persuaded by arguments that houses are sustainably priced; I'm not persuaded by the view that debt is not a problem; and I'm not persuaded that policy-makers could prevent collateral damage to banks," he said.

Friday, August 6, 2010

Perth Real Estate Now Favouring Buyers

The Real Estate Institute of WA has released more disappointing figures for the WA real estate market showing that the state-wide sales in the June quarter have dropped 7% which is the lowest in almost two years. First home buyers such as myself are still holding back on purchases, sitting on the sideline and waiting to see how the market is going as interest rates pressure continues to increase.

Why is the market in the buyer's favour now?

  • More houses are on the market in June 14,500 compared to 12,700 in previous quarter
  • Average time to sell has increased by nine days 
  • Median house price is back down to $490,000
  • 61% of sales were sold at less than asking price by an average of 5.8% cheaper
  • Vacancy rates of rental properties are at 4.3% which is still higher than average 3% pushing rent prices up
What are your thoughts about the current Perth housing market? Buy or sell? Are you a local or overseas? Love to hear comments from you.

Wednesday, August 4, 2010

Election failing to address First Homebuyer Affordability Problem

We have only 17 days left of the election campaign to decide who will be running the nation for the next three years and it seems that both sides of politics has chosen not to deal much with the hot potato of housing affordability.

Today, News.com.au mentioned that housing affordability is the biggest issue in the West. It's now the elephant in the room that some are trying to bring to the attention of Abbott or Gillard. Interest rates yesterday were held steady by the Reserve Bank, potentially reducing the likelihood of making housing a major election issue but sure enough, the next rate review will probably give the next government something to think about.

Housing prices have gone up again in the most recently released figures showing a 3.1% increase across the nation but a very small 0.4% increase in WA. However this is contradicted by RP Data's figures released last week which showed a drop of 2.5% in WA.

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