House prices to keep rising for years

[MrBurns]

From Crikey -

The Australian banks, led by the Commonwealth, are about to end the first home buyers' party, in a move that could also kick the chocks away from the only support for the weakening Australian economy.

From next Monday, the CBA will not recognise the first home buyers grant of $14,000 for an existing home and $21,9000 for a new home as proof of savings.

It will demand 3% savings over three months; In other words, it will require all first home buyers to have saved the 3% of the purchase price over three months leading up to the application.

The Commonwealth won't accept gifts or other forms of financial assistance from parents or relatives as proof of savings of 3%, if it hasn't been in an account for at least three months.

The bank revealed the change last month but home loan brokers and real estate agents said today that the condition that first home buyers had to save 3% for at least three months represented a significant tightening of the bank's criteria.


Given the comments from the Reserve Bank yesterday about the impact of the first home buyers surge on home building and real estate, the CBA's move appears not to have been fully appreciated by Canberra.

The maximum for a graduated saving on stamp duty in NSW is $600,000 (above that full stamp duty is paid). That means first home buyers must have 3% of that or $18,000 saved in an account for at least three months prior to the application being made.

The cut-off will be homes where the loan to valuation ratio is above 85%. That's a bit rich: if someone has, say, 12% of the value of the intended purchase, the CBA will treat them as if they


Unless intending buyers have that level of savings, all first home buyer lending will cease from the Commonwealth.

The Commonwealth is introducing this to slow the pace of applications: it has been swamped by the surge in first home buying interest. In the past month it has hired 110 new staff to help process the applications.

As it's the biggest home lender, housing finance will slow sharply, especially if other banks follow suit. They are waiting to see what happens. All banks are taking a tougher stand on credit checks and making sure the valuation of the house or land is OK. That is delaying transactions.

The CBA has already advised its various lending channels of the changes that will apply from next Monday, 23 March.

The move comes a day after the bank big noted itself by saying that it will offer repayment holidays for six to 12 months for people who lose their jobs: but interest would continue to accrue.

The CBA's attempt to put a cork on the boom in home lending won't go down well in Canberra with the Rudd Government where it has already guaranteed (for a fee) all loans and deposits, especially offshore funding, for three years.

At the same time, the credit crunch has destroyed the non bank lending sector: Aussie Home Loans is now 33% owned by the CBA, the NAB bought Wizard cheaply from GE and Rams is owned by Westpac and its rump is a poorly thought of shadow of itself.

Among the other banks, the ANZ hasn't gone after first home buyers in a big way: it has been refusing to do home loans above LVRs of 90%, and has lost market share. St George is still doing 100% home loans, but the applications and credit records have to be completely spotless. The NAB and Westpac are understood to be still accepting the home buyers grant as savings for new home loans.

And real estate agents and conveyancers say there's a slow rise in the level of second and third home buyers now in the market.

But all the growth and the rebound is coming from first home buyers, thanks to the boosts to the grants in the December stimulus package.

So great was the boost that in January, the share of first home buyers in housing finance approvals was the highest on record at 26.5%.

In the minutes of the March Reserve Bank Board meeting it was noted:

In a sign of increased demand for housing, patterns of housing finance indicated an increase in housing loan approvals of about 10 per cent over the past few months, partly spurred by the increased incentives for first home buyers to enter the market.


However, credit growth had remained low as borrowers had evidently taken advantage of the extra cash flows created by lower lending interest rates to increase debt repayments.


Further signs of an increased level of activity in the secondary housing market were significant rises in auction clearance rates in both Sydney and Melbourne in February, and a component of the Westpac-Melbourne Institute consumer sentiment survey indicated that current conditions were conducive to buying a dwelling.

The move by the CBA, especially if followed by the other banks, will take away one of the few growth options in the wider economy, especially for the strained building sector where thousands of people have already lost their jobs as commercial development has stopped.

 

[Taltan]

http://www.rebuildca.org/shortage.html

Housing shortage

 

[MrBurns]

http://www.rebuildca.org/shortage.html

Housing shortage

ROFL in California ???? I doubt it

 

[Beej]

From Crikey -

I don't see any of that as a bad thing. People I know who are keenly looking to buy their first home are people who feel they have been priced out of the market for many years, but see now as a good time to buy because prices have been flat for quite a few years now (in Sydney) + they get the FHOG (ie pent up demand). As a result they have large savings to use as a deposit - more like $100k++ rather than only $10k and certainly not zero! So they won't have any problem. I think this applies especially to those buying in the $500k-$600k suburbs, as they also tend to have above average incomes. The "battler" FHBs who are more likely to have little savings would be looking at buying more in the $250k-$350k range I reckon, which means they only need to have maybe $7.5k-$10k in the bank to satisfy the CBA criteria - I think *most* should meet that.

I think the bears really under-estimate the level of pent up demand that is out there, and how much cash many potential FHBs actually have squirreled away. That's a reason why the FHOG has provided such a boost to the market, as it has provided that little extra incentive along with all the other market factors to encourage people to take that first step.

I also notice in the article posted the following little gem of information:

And real estate agents and conveyancers say there's a slow rise in the level of second and third home buyers now in the market.

This is exactly what I have been expecting to occur and have said as much in several posts here over the past few months. If the FHB numbers keep up for a few more months along with low interest rates, that will keep the wind in the sails for the whole market for another 1-2 years, after which we will have economic and stock market recovery to kick things along again. Remember FHBs only represent between 15% and 25% of the market at any one time, the real action that pushes prices are the upgraders - 2nd/3rd home buyers etc - watch that space from here.

Cheers,

Beej

 

[gav]

Further signs of an increased level of activity in the secondary housing market were significant rises in auction clearance rates in both Sydney and Melbourne in February, and a component of the Westpac-Melbourne Institute consumer sentiment survey indicated that current conditions were conducive to buying a dwelling.

Interesting article Mr Burns. However the portion above seems to be misleading. The reason for the significant rises in auction clearance rates is because a significantly lower number of houses are being put up for auction.

See here:
http://www.news.com.au/business/money/story/0,28323,25191709-5013951,00.html

Taken from above link:

"In Sydney the auction clearance rate was 63 per cent, up from 47 per cent the same weekend last year. But the number of properties sold slumped from 229 last year to just 127 at the weekend.

In Melbourne the auction clearance rate remained steady - at 66 per cent - but the number of properties listed for sale crashed from 1265 the same weekend last year to just 396.

In Brisbane and Adelaide, markets dominated by private-treaty sales, the cupboard had almost been stripped bare, with clearance rates and property volumes both taking a dive.

In Adelaide only 25 properties were put up for auction compared with 108 for the corresponding weekend in 2008, and with eight auction results yet to be reported, 17 properties had already been passed in.

Only 38 properties were placed on the market in Brisbane compared with 115 for the same weekend last year.

Real Estate Institute of Victoria head Enzo Raimondo said it was the decline in properties available for sale that had driven the recovery in clearance rates. "We've seen a decrease in transactions right across the board," Mr Raimondo said."

 

[MrBurns]

I just really take notice of this - if the first home buyers walk away watch the figures then.

We'll see in the next few weeks.

The Australian banks, led by the Commonwealth, are about to end the first home buyers' party, in a move that could also kick the chocks away from the only support for the weakening Australian economy.

From next Monday, the CBA will not recognise the first home buyers grant of $14,000 for an existing home and $21,9000 for a new home as proof of savings.

 

[Aussiejeff]

Interesting article Mr Burns. However the portion above seems to be misleading. The reason for the significant rises in auction clearance rates is because a significantly lower number of houses are being put up for auction.

See here:
http://www.news.com.au/business/money/story/0,28323,25191709-5013951,00.html

Taken from above link:

"In Sydney the auction clearance rate was 63 per cent, up from 47 per cent the same weekend last year. But the number of properties sold slumped from 229 last year to just 127 at the weekend.

In Melbourne the auction clearance rate remained steady - at 66 per cent - but the number of properties listed for sale crashed from 1265 the same weekend last year to just 396.

In Brisbane and Adelaide, markets dominated by private-treaty sales, the cupboard had almost been stripped bare, with clearance rates and property volumes both taking a dive.

In Adelaide only 25 properties were put up for auction compared with 108 for the corresponding weekend in 2008, and with eight auction results yet to be reported, 17 properties had already been passed in.

Only 38 properties were placed on the market in Brisbane compared with 115 for the same weekend last year.

Real Estate Institute of Victoria head Enzo Raimondo said [size=+1]it was the decline in properties available for sale that had driven the recovery in clearance rates[/size]. "We've seen a decrease in transactions right across the board," Mr Raimondo said."

Even Enzo can see that is the reason for the "higher" clearance rates.

It's rather mis-leading to simply compare last year's "auction clearance rates" with this year's, without taking into account the relative number of homes listed!

 

[gfresh]

It is a certainly a good thing, but it will push out a few borrowers.. especially those marginal ones. In some areas this will be quite effective at cutting off demand from over-eager FHB, but will probably just drive them to less discerning lenders.

$250-350k doesn't buy much in SEQ - basic units or apartments really... lots of cars for sale at the moment I notice with "selling due to first property purchase". That is how many will get their required "savings".

 

[Beej]

Even Enzo can see that is the reason for the mis-leading "higher" clearance rates.

It's like chalk 'n cheese to simply compare last year's "ausction clearance rates" with this year's, without taking into account the relative number of homes listed!

Well of course volume and clearance rates are important to understand the level of activity, however, clearance rates are very important in indicating the level of UPWARD or DOWNWARD price pressure in the market at any time. Regardless of volume, high auction clearance rates = sellers market, and conversely of course low rates = buyers market.

That's why anybody who knows anything about the resi property market plays close attention to auction clearance rates.

Cheers,

Beej

 

[grace]

Here is some news for you all....on Business Spectator today

Housing market could tumble: report

The Australian housing market faces a "perfect storm" of financial pressures which could push prices down as much as 30 per cent, according to a report by BCA Research in Canada.

According to Fairfax, the research says Australia's property market has held up well compared to the US and Europe, but the local impacts of the global financial crisis could begin to hinder home values.

Australian house prices have fallen a "mere" four per cent, while US house prices have tumbled 25 per cent and Britain's market has shed 18 per cent.

Falling house prices have contributed to the severity of recessions in the US and Britain, while Australia is yet to dip into an official recession.

But high mortgage debt, overvalued homes and rising unemployment could begin to push local house prices down as the Australian economy slows, according to the report.

"The housing market is looking particularly vulnerable, with overinflated prices, deteriorating affordability and slowing household income growth," the report said.

"There is an increasing possibility of a major housing bust in Australia."

Earlier this month, housing finance figures indicated that the local housing sector is being partially propped up by first-home buyers, who are taking advantage of the federal government's inflated first-home buyer grant.

 

[Beej]

Here is some news for you all....on Business Spectator today

It would be good if everyone read the other posts on the thread for the last couple of days before jumping in - same article (from different source though) already posted and been discussed for most of today, starting with Mr Burns post here: https://www.aussiestockforums.com/forums/showpost.php?p=410216&postcount=4275

Of course further comment/opinion/analysis of said article is welcome!

Beej

 

[kincella]

oh ye of little faith...and the wheels keep turning.....
some people are still making money on property...and have been for the last year or more...nothing too much changes for them

regarding flipping....
in the burb I watch, an electician bought 3 houses last June...all rundown, and sold by a govt dept...surplus to their needs...he bought them really really cheap...apparently spent 60,000 on each and has them on the market, reasonable price and a nice profit...he is planning on buying another 2 that should come on the market soon...

now in hindsight...because I watch that market.....he could have left them just sitting there and not spent any money on them....and they would have still sold for a handsome profit by Oct....4 months.

I missed out on a couple of terrific props....owners freaking, scaredy cats, sold for about 80,000 below value, must admit there was an agent who advised them to mark them down.....he had triple the number of sales to normal, wonder how those sellers are feeling now ????
...and I had my attention on something else...distracted
grrrrrrrrrrrrrrrrrrrrrrr

 

[Taltan]

Mr Burns - the article regarding California was from three yrs ago, that was the point. Housing shortage is a myth always brought up when house prices rise.

Having said that I read two interesting articles today. One is the news that CBA will freeze mortgage payments for 6 months for the newly unemployed and secondly that in the height of the Japanese property bubble prices in central Tokyo reached $500,000 per sq metre. Along with FHOB, media spruiking & govt politicking these articles just go to show just how high and how long a bubble like the current one could last

Of course the unfortunate thing is that the larger the bubble the bigger it pops

 

[prawn_86]

Dont post much in here, but my partner and I have set ourselves a goal to have a property (house, unit, anything) completely paid off by the time we are 35, preferabbly 30 (both 21 now).

Will prob look at buying in a few years once we have a big 10-20% deposit saved, and when housing prices have come back in double digits by then...

 

[MrBurns]

Dont post much in here, but my partner and I have set ourselves a goal to have a property (house, unit, anything) completely paid off by the time we are 35, preferabbly 30 (both 21 now).

Will prob look at buying in a few years once we have a big 10-20% deposit saved, and when housing prices have come back in double digits by then...

I'd say your timing is about right

 

[prawn_86]

I'd say your timing is about right

Thats the plan...

I gotta get something right, the economy went to **** just when i was about to graduate with a finance degree, so hopefully there is a benefit to the downside...

 

[gav]

Best of luck prawn_86. I actually have the same goal! (paid off by 35, earlier if possible) However I've already found a place, settlement is next month

 

[sinner]

in the height of the Japanese property bubble prices in central Tokyo reached $500,000 per sq metre.

Errr you mean 500,000 JPY/sqm...

 

[IFocus]

Thats the plan...

I gotta get something right, the economy went to **** just when i was about to graduate with a finance degree, so hopefully there is a benefit to the downside...

You will be fine Prawn, its not a race plenty of time just make sure you enjoy the time now, life's short and youth is soon gone.

I didn't buy my 1st property until I was 35, doubled in two years bought the next one same result. Both were bought as investments but with an eye on life style i.e. acres.

Like I said you will be fine property will always be there but you will only ever be young once.

 

[MrBurns]

Thats the plan...

I gotta get something right, the economy went to **** just when i was about to graduate with a finance degree, so hopefully there is a benefit to the downside...

Good friend of mine who has a brother who knows people at the highest level, I mean smart business people . sold his house and wont buy back in for 2 years, his brother said 2 or 3 years.

My knowledge of the real estate industry and his smarts come to the same conclusion so there's a fair chance we're right.

I'm busting to buy more real estate but will have to sit on my hands for a while yet.

Good luck.