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Australian economic indicators & the housing market – June 2012

June 4th, 2012 · Greg Atkinson · 113 Comments

Over the last few months it has been quite remarkable to witness how the believers in Ken Henry’s ‘Golden Age’ have started to sound a little downbeat as the economic slowdown in China can no longer be ignored.  Therefore it seems like an appropriate time to try and assess what impact this slowdown is having (and may have) on the Australian economy and review the charts for a few important economic indicators.

Firstly let me clarify why I am including the residential housing market into into this review of economic indicators since many people would argue that the residential real estate market in Australia and the global economy are not related.

However I would argue that the housing market is a very good indicator of household financial confidence which in turn is impacted by economic events in China or Europe for example.  So for that reason I am going to include house prices into my list of economic indicators that I will review on a regular basis.

At the start of the year I suggested that there would be a scramble to downgrade forecasts for economic growth in Australia (and elsewhere) as the year progressed.  Well that scramble is now in  progress.

Recently even the number crunchers at Treasury seem to have finally checked the water cooler and have admitted that their past forecasts may been been a overly optimistic.  According to a recent article in The Australian:

“TREASURY is establishing a formal review of its forecasting performance following a period in which its growth and budget balance forecasts have proven excessively optimistic.”

As regular readers of my articles will know, I haven’t put much faith in Treasury’s forecasting skills and I suspect one reason for the review is to give them some scope to revise down much of the data they included in the recent budget papers.  This will also give the Treasurer scope to defend his latest work of fiction (the 2012 Federal Budget) since he will be to tweak everything to reflect the “new numbers” Treasury will come up with.

I think it is also safe to assume that there will be a revision downwards of the economic forecasts made by the RBA.  (In early May the RBA already started doing this)

Having said that, the Australian economy has held up over the past few years better than I thought it would, but that’s largely to do with the massive economic stimulus package released by China in response to the GFC.  Since it doesn’t look like the Chinese are inclined to do this again, the Australian economy will have withstand any external economic shocks largely by itself.

At this point let’s have a look at a few economic indicators and try and get a feel for how the Australian economy is faring at the moment.

Australian ASX All Ordinaries Index 2002 – 2012

asx_allords_10_year_chart_jun_12

Shown above is the 10 year chart of the Australian ASX All Ordinaries Index.  The bull market run from 2003 to the end of 2007 is quite easy to see as is the rapid fall back down towards 3000 points during the dark days of the financial crisis in 2008 & early 2009.

It’s important to keep this long term view of the stock market in mind as it helps keep the current movements regarding stock prices in perspective.  As I have mentioned many times, the Australian share market is already trading at recession like levels and has not experienced the sort of rally enjoyed by the U.S. Dow Jones or S&P 500 for example.

In short, the  ASX All Ords is currently trading back where it was in 2005 and around 2,500 points below its bull market high reached in  late 2007.  The ‘boom’ premium therefore, has effectively been erased from the market.

Another indicator well worth looking at (and not often covered) is the ABS data covering Australian company profits.

Australian Company Profits 1991 – 2011

australian_company_profits_1991_2011

Source: Austrlaian Bureau of Statistic (ABS)

Unsurprisingly this chart looks similar to the chart of the ASX All Ordinaries Index. As we would expect as the stock market was rising so were company profits, which hit a peak largely due to high commodities prices in late 2007. Company profits then  slumped during the GFC but recovered quite strongly supported by the miners & banks many of which delivered record high profits.

Now that the Chinese economy is slowing and commodities prices falling, it seems likely that the total of company profits in Australia will trend downwards in 2012 and so I expect the next update of this chart will reflect this.

rba_-index-of-commodity-prices-may-2012

Another good economic indicator is the Reserve Bank of Australia’s (RBA) Index of Commodity Prices.  I reviewed this chart back in October 2011 (see The ASX All Ordinaries and the Commodities Bubble) and discussed what a fall in hard commodities prices would mean for the stock market.  So far what I discussed back then seems to be playing out now.

Clearly commodity prices have fallen as shown by the RBA’s Index along with the prices for shares in the major miners such as BHP Billiton & RIO Tinto.  How much further these will fall will depend on how much further the Chinese economy slows.

Finally in regards to the housing market let me quote from a media release issued by RP Data on the 1st June.

“Residential property values have continued to slide across the capital cities, with the RP Data-Rismark Home Value Index recording a -1.4 per cent fall in dwelling values over the month of May. The latest drop brings the cumulative decline to -2.2 per cent over the first five months of 2012 and overall values are down -5.3 per cent over the past twelve months.”

Also from the media release:

  • Best performing capital city: Adelaide +1.0 per cent over the three months to 31 May 2012
  • Weakest performing capital city: Melbourne, -4.6 per cent over the three months to 31 May 2012
  • Highest rental yields: Darwin houses with gross rental yield of 6.0 per cent and Darwin Units at 5.9 per cent
  • Lowest rental yields: Melbourne houses with gross rental yields of 3.7 per cent and Melbourne & Adelaide units at 4.5 per cent

Source: rpdata.com

If we accept that this Index is accurately reflecting the state of the housing market then it would appear that house prices are under some pressure.

One positive however for the housing sector is that the RBA is likely to cut rates again, but I doubt this will have much of an impact on the property market this year since concerns about the Australian & global economy will must likely offset this move in interest rates.

My reading of the economic indicators discussed above is that the Australian economy has clearly passed it’s peak for now and that the commodities boom (for now at least) is over.  My guess is that all these indicators will show weakness again in six months time apart from perhaps the stock market, which may be in the midst of a run towards 5000.

Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp


113 responses so far ↓

  • 1 Ross T // Jun 5, 2012 at 11:14 pm

    The RBA will continue to cut rates as the last thing they want is bonds that promise decent returns from our economy, seems the RBA and the gosse have given up, (dont tell the punters).
    The problem with Ken Henry is that his forecasts never worked post Rudd. so much so that we now we have the Goose “complaining” about the $150bn of tax revenue he should have got over the last 4 years. Given that represents about 50% of the annual fed tax take and the voters have their baseball bats ready for the coming election, Kens team are about to be consigned to the dustbin along with their political masters 17,000 regulations. It will take many years to undo all the clamps on our economy to get it back to 2007 levels, and there is no longer a housing and finance credit boom to fuel the growth, so it hard to see where the economic growth will come from.
    The economy will continue to drift sideways until business can see enough return to invest, Cant see that happening for another 12 months.
    We also have the people with money retiring big time – already we hear that people are retiring overseas to preserve their wealth instead of investing, so unless the age industry wakes up that growth will go as well.

  • 2 Greg Atkinson // Jun 6, 2012 at 6:51 am

    Ross the opportunity over the last few years to prepare the economy for the economic downturn in China has been wasted. Instead of cleaning up the tax system, reducing the corporate tax rate & trying to diversify the economy almost the exact opposite has happened.

    The Henry Taxation Review was effectively placed in the too-hard basket, the corporate tax rates cuts cancelled, plus new taxes were introduced i.e. the MRRT and Carbon Tax.

    In addition we have had desk bound number-crunchers in Canberra basically saying that the mining boom would last for decades so the decline in the manufacturing sector was not a major problem.

    As for the RBA I can’t make up my mind if they are just slow to pick up obvious global trends (the slowdown in China started last year) or blinded by faith in the mining boom.

  • 3 Ross T // Jun 10, 2012 at 9:21 pm

    The RBA waited for the govt to do something about productivity, but in the end they were forced to do something to stop the business slumps in the eastern states. The RBA has forgotten their mission statement and allowed the Dollar to continue to stay at high levels to benefit the overseas investors. They should have been printing like the US to offset QE and keep our terms of trade, as far I am concerned the RBA has never done their actual job.
    Mining will continue to remain productive and the MRT will deliver stuff all revenue to the goose, as costs go up mines will close – it has all happened before and governments will cry when the revenue dries up. Mining is not like the rest of the economy, but we already knew this govt is run by idiots, so we cannot expect any different.

  • 4 BP // Jun 10, 2012 at 11:01 pm

    As Cliff Bennett so wisely corrected Glen Stevens’ analogy this morning: “It isn’t a case of a glass half full… . There are two glasses…”

  • 5 Greg Atkinson // Jun 12, 2012 at 9:44 pm

    Maybe there are three glasses with one glass just for the RBA, Treasury and the government? 😉

  • 6 Lachlan // Jun 13, 2012 at 12:19 pm

    Does RBA rate setting really do anything or is it an almost meaningless charade? Is a question people including myself are asking.

  • 7 Greg Atkinson // Jun 13, 2012 at 2:36 pm

    Lachlan well it may have an impact on exchange rates plus lowers the cost of borrowing for companies & households. But as many people say; interest rate changes are a very blunt weapon and often don’t have the impact central banks would like.

  • 8 Stillgotshoeson // Jun 13, 2012 at 3:53 pm

    I view the RBA rate as almost meaningless. It has some bearing on the AUD but I disagree with Greg in it lowering the cost of borrowing for companies and households, well in any significant terms anyway.
    20 year cash rate has averaged around 5.4% and the mortgage rate (SVR) has averaged around 7.8% over the same period. 2007 mortgage rates were at or just above 9%, cash rate was 6% to 6.5% Houses were still selling at excellent turnover rates, circa 80% clearance rates, rates are 3.5% (RBA) and 6% to low 6’s and the clearance rate has dropped to the 50% to 60% region. The economy is influenced by overseas factors, these are too bgig for the RBA to have any real control over, the economy will always swing from too hot to too cold over a time. Despite the RBA’s best intentions we are now in a cooling economy. No setting of the cash rate is going to prevent this from coming to pass. Northern Hemisphere reserve banks have rates at zero or near zero percent and their economies are still in decline. Same could well happen here (zero rates like Keen suggested? I do not know, but even if they do go that low mortgage rates are still going to be around 5% at best) Honeymoon rates may become available under the 5% region as they were coming out of the 1991 recession. The market will do what the market must despite interest rate settings, possible to delay the inevitable but not to stop it. Cash rate is going to continue to reduce, (as predicted by Keen), house prices are going to continue to decline (as predicted by Keen) and the unemplyment rate is going to continue to rise (as predicted by Keen) no amount of RBA intervention is going to prevent this. As pointed out over on DRA, Northern Hemisphere is going from crisis to crisis with out anything being solved. The blow out point will arrive and funding will be even more expensive likely leading to, as I have pointed out before, the situation whereby the RBA will be lowering rates to try and stimulate the economy and the banks raising rates on deposits and loans.

  • 9 Lachlan // Jun 13, 2012 at 7:44 pm

    Thanks fellas. I suppose my view is a mixture.
    My opinion is that the target rate set by the RBA is at least somewhat important because it implies interventions in debt markets however it is in a sense a beat up because it may not mean that Joe “Mortgage” Sixpack and the economy (as it stands) is going to get a better deal. That imo would be more likely to originate from real competition between commercial banks (and I am not assuming any particular degree of such exists).
    Also for arguments sake I think the target rate could have quite an effect on the AUD if you think of extremes of low targets (I am not saying Glenn is likely to do that)…which would make Joe unhappy about expensive imported goods.

    If we have indeed created a private credit bubble threatening bank viability in it’s wake then spreads between cash rates and mortgage/commercial rates would likely stay wide imo.
    Theoretically I think that if the target rate is kept high there are better chances of Joe getting higher yields on deposits regardless of what is happening between commercial banks. Will have to wait and see about that.
    I think the AUD is going to remain a favourite if the housing market does not become too volatile.

  • 10 Greg Atkinson // Jun 13, 2012 at 8:10 pm

    Stillgotshoeson I agree that the RBA’s actions are not going to be able to offset a fall in demand/prices for commodities but then again, what else can they do? Can they really leave them untouched during a slowdown?

    In theory the lower rates should give mortgage holders some extra cash in their pockets but like I said, interest rates moves are a very blunt tool.

    Actually I am in Shanghai at the moment and it seems that even intra-Asian shipping has slowed so far in 2012 compared to 2011. Also the scrap rates paid for steel from old ships has fallen as well so it looks like 2012 might be a lot tougher than Swanny’s budget predicted.

  • 11 BP // Jun 13, 2012 at 10:19 pm

    Greg: “In theory the lower rates should give mortgage holders some extra cash (in their pockets)…”

    One of the cornerstones of the property bears’ crash theory was that _rising_ interest rates would force home sales. Yes, there are many links to demonstrate _that_ hope!~ It follows then that lower rates allow more families to keep their homes.

    Those who keep ‘…that extra cash in their pockets’… or spend it on consumer goods… may deserve to lose their homes. Far better to ‘pay down debt’ as even BFI Boy suggests they should. Recent surveys suggest that’s what’s happening.

    It’s probably just a little too early to rub our collective hands with glee, salivating at the thought of half-price homes… . 😉

  • 12 Lachlan // Jun 14, 2012 at 7:25 am

    I had a 50% crash type opinion until somewhere in 2010. I believe we (the banks and those who chose to excessively leverage) created a credit bubble no doubt but I also believe that inflation can resolve it… in some circumstances. Australia may fit the bill there.

  • 13 BP // Jun 14, 2012 at 8:06 am

    Lachlan: “…but I also believe that inflation can resolve it… ”

    Yes.

  • 14 Greg Atkinson // Jun 14, 2012 at 9:45 am

    One major shift over the last 12 months is that more policy makers & market watches etc are talking about commodities prices having peaked. This is quite a change when you consider that when I was first talking about this a couple of years ago that the prevailing wisdom was the boom would last for decades.

    For sure the mining sector will be a big export dollar earner (as it has been for a long time) but where are the productivity gains going to come from to keep pushing home prices up?

    Perhaps rather than a “crash” perhaps home prices may simply move sideways for a decade?

  • 15 Lachlan // Jun 14, 2012 at 10:28 am

    “Perhaps rather than a “crash” perhaps home prices may simply move sideways for a decade?”
    That would be what I mean Greg as inflationary pressures prevent a 50% crash fall in nominal terms… and the last three years have turned out that way with softening of prices after a spike up in late 09 early 10 (thereabouts, since my property bull sister in law saw gains on her Melbourne houses which later fell away)). There will no doubt be some better areas and some worse. If I could describe my view in chartist terms it would be like a sideways flag formation with prices +/- 10% to 20% inside the flag. So far the prices did actually go higher before they went lower again albeit due to Rudds interventions. I’m just betting on outcomes here regardless of the causes.

  • 16 BP // Jun 14, 2012 at 11:46 am

    Lachlan: “There will no doubt be some better areas and some worse.”

    It’s interesting that Beefy Boy has come around to that way-of-thinking. You’ll recall that many years ago, Greg Atkinson proposed that Australia has many property ‘market(s)’. The BFI put a bet four years ago, which he recently amended (in much the same way as Keen has changed his… ) BFI’s amendment recognises Greg’s position… and the one you describe, above.

    It’s likely that areas with high employment, or those where people _want_ to live, will rise in value (and rocket in rental returns); and those with high unemployment (or less desirable lifestyle) will fall in value. We’ve already seen the latter occur in some eastern regions.

    Bottom line? The cost of _holding_ has fallen appreciably… around 17% inflation-wise, since Keen first commented… and interest rates have fallen 39% since we financed the last five homes we built*. Meanwhile cost of construction has risen as much as 6.3% pa. Australia’s new taxes may push that to 10% pa, or more. Housing going sideways? Not for those clever FHBs who bought wisely, or for those already _in_ the market.

    * Academic, since we paid ’em off… .

  • 17 Lachlan // Jun 14, 2012 at 1:55 pm

    I see quality rural areas holding up fairly well and yet as I have said before there are some rural blocks which maybe should never have been developed which just can’t be sold and I assume they are only going to receive very low bids if any..yes low unemployment/too far from anywhere and high fuel costs killing of the weekender dream.

  • 18 Ned S // Jun 14, 2012 at 5:42 pm

    BP: ” It follows then that lower rates allow more families to keep their homes” – True Biker. But house prices themselves are determined by those who do actually have to sell (those “on the margin” so to speak) – In a declining market.

    Such as that can be tempered by the ability of their banks to keep their homes off the market by absorbing the losses it appears?

    So in a worse case scenario it simply comes back to just how many really crazy loans the banks made I’d guess? (Providing there has been no overbuilding.)

    And yep, there’ll be regional differences as we’ve all agreed previously.

  • 19 BP // Jun 14, 2012 at 8:42 pm

    G’day, Ned. See ya point. Mine is simply that fewer Aussies are on-the-brink, as a result of a.) inflation reducing debt; and b.) lower rates. Ultimately there will always be doofi who put themselves at risk, in any asset class. And there will always be less-than-creative souls who can only see the ‘sell’ option, when other options exist.

    All the stats indicate that Aussies were marginally-exposed to low-doc, no doc loans. Happy to put up the figures. Figures on over-building pale-by-comparison to those two delightful extremes cited by bears: Ireland and the US. Again, happy to post the data… .

    Four of our homes cyclone affected. No drama, thanks to our insurance. Our total cost, (excesses) $400, all tax claimable, of course.

    Contrast that with the $1K I left in Super, now worth just $820.00… an 18% loss; as opposed to immense gains on rental properties whose tenancy (not leases) have expired… up around 20% from 2011… . The glass is full!~ 😀

  • 20 Ned S // Jun 16, 2012 at 12:01 pm

    The Brisbane situation Biker:

    Prices on established houses here are around March 2008 levels so no growth over 4 years. And down about 7% from their June 2010 peak according to RBA stats. (That’s talking nominal figures with inflation adjusted drops being higher of course.)

    And rents failing to keep pace with inflation. Plus costs (apart from mortgage costs which don’t affect me as I’m debt free) increasing more than inflation.

    ‘Course we had a bunch of right proper wallies in charge of the state economy here for many years and I guess that’s not helped.

    Re “inflation reducing debt” – The inflation expectation is a significant part of my reasoning in holding. As I’ve said before I’m about 50% housing and 50% cash. With the housing representing a hard asset/inflation hedge – Maybe? 🙂 And the cash (presumably) representing a deflation hedge.

    Greek elections this weekend. It’ll be interesting to see what comes of that. One thing I can’t get my head around is how the media says the Greeks might vote against austerity … Can’t actually see why the Greeks voting against austerity will make any diff. They can vote against it all they like but if no-one puts up the loot to bail them out they are going to get to do very extreme austerity regardless I’d say? (I’ve yet to hear of a democracy voting itself to prosperity??? :))

  • 21 Ned S // Jun 16, 2012 at 1:16 pm

    “I’ve yet to hear of a democracy voting itself to prosperity???” – Though they seem to be pretty damn good at voting themselves into poverty …

    Anyway, I’m inclined to believe Gail Kelly is on the money with her expectation that the huge house prices increases of maybe 1996 thru 2007 are a thing of the past:

    http://www.heraldsun.com.au/news/westpac-managing-director-gail-kelly-says-years-of-compound-growth-in-house-prices-are-over-for-good/story-e6frf7jo-1226394981135

    And to believe Glenn Stevens when he indicates returns on asset classes generally can be expected to be much lower going forward:

    “… wealth will surely resume an upward track, sooner or later.

    When it does, however, it is unlikely to be at 6 or 7 per cent per year in real, per capita terms. I would guess that over the long term, something more like 3 per cent would be nearer the mark.

    I think this is a profoundly important point and worth emphasising. The decade or more up to about 2007 was unusual. It would be quite surprising, really, if the same trends – persistent strong increases in asset values, very strong growth in per capita consumption, increasing leverage, little or no saving from current income – were to re-emerge any time soon.”

    http://www.macrobusiness.com.au/2012/06/glenn-stevens-the-glass-is-half-full/

  • 22 Lachlan // Jun 16, 2012 at 3:03 pm

    In an inflationary melt up you would have increasing asset values in nominal terms with consumption and savings going down the drain. There is capital destruction and transfer. The destruction comes from the fact that capital is transferred to ideological types who limit or guide wealth creation through regulation.

    Apart from that scenario playing out I see merit in the financial repression theory but even that has to come to an end some time and more likely via a melt up imo…at the end of a monetary paradigm….whenever that will be.
    Oz seems to have a financial repression scenario last few years with cost push inflation and wages staying put.

  • 23 Ned S // Jun 16, 2012 at 5:02 pm

    The long and the short of it would seem to be that anyone contemplating retirement over the next 20 years or so is maybe looking down the barrel of 3% pa real returns – Though less after tax. And that’s if Stevens is correct and Oz continues to do rather well (comparatively).

    So I can’t say I blame Aussies for being a bit “grumpy”.

    And the nation’s business people are seriously touched in the head if they expect us to go out and spend up big when this is our own RBA’s best case scenario …

    ‘Course the country continues to have many excellent opportunities – Reason you’ve not heard much from me over the last few months is I’ve been working … In the mines. So yep, there is still good loot to be earned and saved here by those who are both willing and able. (Plus even by the likes of me it seems? :D)

  • 24 Lachlan // Jun 16, 2012 at 6:52 pm

    Good on you Ned. Coal, gas? what are you doing out there?

  • 25 Stillgotshoeson // Jun 16, 2012 at 6:53 pm

    Back in Melbourne…. When I first “joined” the discussion on house prices, my view was and still is that we have 3 options that property could take, Crash, No crash but a long period of no growth or a combination of the 2. I still think, as then that this is the most likely case. Melbourne especially. Further falls in the region of 10% to 15% are not out of the realms of the possible in Melbourne then a period of low to stagnant price rises.

    If a (now under $500k) average home in Melbourne is still under $500k in 10 years (to 2020)* despite any falls and small growth then true, house prices have not fallen but inflation has left you behind.

    Price to income would then be down from the 7 to 8 times average wage to around the 5 to 6. Much more affordable, and in real terms a loss for anyone that has bought since the peak of the Melbourne boom (2010)

    These (current) lower rates are making the weekly budget a little easier on stretched family finances but will do little to alleviate the continued decline in house sales and rising stock on market. The switching rules from bank to bank have been made easier but many can not take advantage even if they wished to due to the LMI and not having sufficient equity to avoid said.

    Read an article in the age today that said that around 5 million people have less than 4 weeks savings to rely on in an emergency…

  • 26 BP // Jun 16, 2012 at 7:10 pm

    Good to hear about ‘the loot’, Ned.

    I don’t understand your comment: “…looking down the barrel of 3% pa real returns… less after tax…” Yes, I imagine that’s the best case scenario for cash, but cash has always had a wildly fluctuating return and it’s very highly taxed. Do you believe you’ll pay tax once retired, other than CGT?

    Check out API for their current rate of returns on rentals. While their figures are _far_ better than the 3% you cite, API’s numbers are well below our actual returns… and those of close friends.

    Most of our ‘BB’ friends and colleagues aren’t at all grumpy. Yes, there’s one lass who figured her hubby was wrong… and left her Super in Balanced, losing the equivalent of a half-dozen new cars… but the rest are laughing. One couple just raised the rent on a nicely-located rental home by 38%… and leased it in less than 24 hours. They’ve recently added yet another property to their holdings.

    I recall past plateaus during which friends and rellies let nice properties go for what they paid… while others who held scored major wins. We _may_ see this happen again… and I may live long enough to see the cycle repeat all over _again_…

    There’s no sense in Aussies being grumpy about their choices. No guts, no glory… and if we don’t learn from a mistake, we’re likely to repeat it… . 😀

  • 27 Ned S // Jun 16, 2012 at 7:18 pm

    Lachlan: “Good on you Ned. Coal, gas?” – Gold Lachlan.

    Shoes: “Read an article in the age today that said that around 5 million people have less than 4 weeks savings to rely on in an emergency” – Yes, there are lots of desperadoes in our economy I’m afraid Shoes – In a lot of ways my bro (who is a house cleaner) is an even bigger capitalist pig than me … He reckons the poor are poor because they simply don’t know how to save.

  • 28 Ned S // Jun 16, 2012 at 7:42 pm

    Biker: “We _may_ see this happen again… and I may live long enough to see the cycle repeat all over _again_…”

    “Only the good die young” my old granny used to say Biker – So you and me should BOTH be alive to see our assets at least quadruple! 😀

    But seriously mate, I do think it’s likely we are in for a very extended period of significantly lower growth in asset prices – Though accept I could be wrong too … (Which is why I’m hedged – 50% housing/50% cash.)

    Re “I don’t understand your comment: “…looking down the barrel of 3% pa real returns… less after tax…” – That was Stevens’ basic comment Biker. (As I interpreted it anyway.) And while he could certainly be wrong (very wrong even?), I guess my gut feel at this time is that sounds quite believable.

  • 29 Stillgotshoeson // Jun 16, 2012 at 8:43 pm

    Rental rate increases are impacted by capacity to pay just like mortgages, supply is another factor.

    Check out realestate.com.au and search Point Cook to see what new/near new homes are going for pw. Surrounding suburbs are similiar

    A friend has just moved to Perth to take up a FIFO position. Found a house to rent at a reasonable rate (under $400) without any hassles at all, no line up of 20 couples anxious to secure anything at any cost. He had a look at it Thursday and had it Thursday afternoon. 3BDR 2 BTH DBL GGE. Port Kennedy he said, I do not know if it is a good area or not.

  • 30 Ned S // Jun 16, 2012 at 9:21 pm

    Think we’ve got to bear in mind the degree to which Biker has been unequivocally correct in the past – The Oz economy is driven by housing. Not mining; Not tourism; Not education; Not agriculture; Not manufacturing; Not even the banks/financials – But housing.

  • 31 Ned S // Jun 16, 2012 at 9:42 pm

    But just on the off chance you DON’T think the economy is driven by mining (though it’s NOT!):

    http://www.youtube.com/watch?v=JSt0NEESrUA

    PS: I’ve been in the mining game for 20 yrs now – (apart from the 4.5 yrs I was retired from it) – So it’s a bit of a sentimental favourite … 🙂

  • 32 Stillgotshoeson // Jun 16, 2012 at 10:13 pm

    This is exactly what we have been trying to explain, the economy built on housing has been an economy built on debt, not wealth. The debt fueled binge has given the perception of wealth but for the better part the wealth is a mirage. Yes some are rich and low to zero gearing, many are not in such a good position.

    These mum and dad investors work in hospitality, tourism, manufacturing, banking and finance and retail so the the interconnection is great. There is no way that the housing “economy” alone can support the economy. It is the various economic sectors that support housing. This is proven now, these sectors were/are in decline and now so is housing. Lower interest rates are not helping to stem the flow of decline either.

  • 33 BP // Jun 17, 2012 at 12:23 am

    Shoes: “Lower interest rates are not helping to stem the flow of decline either.”

    Ah, that decline.

    Comment by Stillgotshoeson on 28 December 2010:
    “….technical recession is a distinct possibility late 2011 early 2012.”

    The years pass. A list of prophecies unfulfilled. Just as well your portfolio is accelerating that retirement-at-50 plan… .

    Shoes: “…for the better part the wealth is a mirage.”

    Couldn’t have put it better myself.

  • 34 Lachlan // Jun 17, 2012 at 6:51 am

    Ned I can’t find it but I was studying mining in SE QLD recently and noted that there were approximately 2000 people employed. I don’t know what the average wage would be but say we use 100K that would mean 200M supporting the economy. So it’s not the main driver but we wouldn’t want to pull the money out of the system either. I agree Oz is a credit driven economy.
    Anyhow I didn’t know you were a dirt digger. I do know a few miners who sock their savings into houses or vacant land… and you can shout me a beer one day with all your loot 😉

  • 35 Greg Atkinson // Jun 17, 2012 at 10:26 am

    Ned I would suggest that the Australian economy is not driven by housing. Sure it’s a driver but an over-rated one in my view. GDP growth certainly gets a big lift from housing activity and it is a major driver of the economy but if we look at taxation revenues the big three earners for the government are: income tax, company tax & the GST.

    Company profits have a far bigger impact on the economy than housing and actually influence house prices more so than the other way around.

  • 36 BP // Jun 17, 2012 at 1:49 pm

    Interesting debate. A little bit of history indicates that two years ago the ACT led in the economic stakes:

    http://www.abc.net.au/news/2010-04-19/act-leads-economic-growth-nsw-lags/401144

    “The CommSec survey shows the ACT has the best-performing economy in Australia, with solid housing and broader construction activity driving growth.”

    It’s therefore relevant that the ACT also has had the lowest unemployment rate. Note that NSW was the worst performer. Clearly, NSW has now realised the importance of residential construction in its recent doubling of FHOGs.

    I recall reading that construction was our third most important industry after mining and agriculture. I doubt that tourism or education have displaced construction, given the Aussie dollar.

  • 37 Ned S // Jun 17, 2012 at 4:39 pm

    Greg: “Company profits have a far bigger impact on the economy than housing and actually influence house prices more so than the other way around”

    Perhaps Greg? Must admit I still personally suspect that the perception of increased wealth that has come from the major house price increases over the last 15 years has been a very significant factor. Pull that out of the equation and we are going to see a lot more of the “grumpy” Australians Stevens mentions. With resulting negative implications for the profits of many companies?

  • 38 BP // Jun 17, 2012 at 7:31 pm

    The rising or falling ‘value’ of one’s domicile is no cause for grumpiness, Ned. Anyone who borrows against the value of their home for a car or holiday is just asking for trouble… .

    Likewise with rental properties. The ‘value’ of rentals is in the return they attract. Again, anyone investing solely for capital gain may be disappointed… .

    There is just one scenario in which a family might really have cause for complaint. In this hypothetical… a.) The family buys a block after a valuer and bank have agreed on a ‘value’; b.) They then approach the bank to build, expecting their equity in the block will suffice; c.) The bank reviews the block’s value, subsequently advising the couple they no longer have sufficient equity to build the home they’d planned.

    Now _that_ could lead to some grumpiness, I imagine. We’ve heard of this actually happening… and heard that a valuer was subsequently sued, leading to the claimed current practice of deliberately undervaluing properties, to minimise that risk.

    Surprised there has been no mention here of Gail Kelly’s recent statements regarding Australian property…! 😀

  • 39 Ned S // Jun 17, 2012 at 7:44 pm

    Biker: “Surprised there has been no mention here of Gail Kelly’s recent statements regarding Australian property”

    You must have blinked and missed it Biker 🙂 – Comment #21:

    “Anyway, I’m inclined to believe Gail Kelly is on the money with her expectation that the huge house prices increases of maybe 1996 thru 2007 are a thing of the past:

    http://www.heraldsun.com.au/news/westpac-managing-director-gail-kelly-says-years-of-compound-growth-in-house-prices-are-over-for-good/story-e6frf7jo-1226394981135

  • 40 BP // Jun 17, 2012 at 10:19 pm

    Ah so, Ned. Ta for that!~

    Is this the same Kelly who recently sold her $1.73 mil house to purchase an $8.95 mil one? 😉

  • 41 Ned S // Jun 18, 2012 at 6:18 am

    Biker: “Is this the same Kelly who recently sold her $1.73 mil house to purchase an $8.95 mil one?”

    Maybe she didn’t trust leaving all her savings in a Westpac bank account Biker? 😀

  • 42 Greg Atkinson // Jun 18, 2012 at 8:55 am

    Ned I agree with you regarding the perception of wealth and house prices. Since the family home is usually the biggest asset people have then of course people do use it as a gauge of how wealthy they are.

    Politicians also use our attachment to housing to ride the rise in property prices so they can tell us what a great job they have done in making us wealthier. Banks also use to encourage people to remain in debt and draw on the ‘equity’ in their homes to go shopping.

    It’s certainly true that if we feel wealthier then we tend to spend more and therefore this will help company profits. But isn’t this increase in wealth largely being driven by debt?

    So when politicians compliment themselves on how well the housing market is doing doesn’t this basically just mean debt levels have risen?

  • 43 BP // Jun 18, 2012 at 11:01 am

    GA: “…when politicians compliment themselves on how well the housing market is doing doesn’t this basically just mean debt levels have risen?”

    Fascinating logic. Run that one past me again… (?) 😀

  • 44 BP // Jun 18, 2012 at 11:43 am

    Ned: “Maybe she didn’t trust leaving all her savings in a Westpac bank account Biker?”

    Well, here’s Gail thinking it all through:

    1.) Put that $7mil into WestPac and pull 6%…

    2.) Buy WestPac shares…

    3.) Place it in Super… and pay 30% tax going in…

    3.) Buy precious metals…

    4.) Buy energy stocks… etc, etc…

    Nah, I’ll spend it on a bigger MacMansion… No CGT when I sell… . Then maybe some bank CEO somewhere will talk the property market down… and I’ll buy a Mega-Mansion… and then… 😉

  • 45 Greg Atkinson // Jun 18, 2012 at 12:24 pm

    BP have a look at the ABS and RBA data which show a correlation between household debt and house prices. The RBA covered this subject not long ago in one of their reports. (still available on their website I believe)

  • 46 BP // Jun 18, 2012 at 12:37 pm

    GA: “…when politicians compliment themselves on how well the housing market is doing doesn’t this basically just mean debt levels have risen?”

    I’m sure we’d need to know the percentage of Aussies who own homes outright (ie., debtless) before we could make such a claim, Greg. The claim is tenuous, at best.

    Are you now, seriously, claiming the RBA is always right?
    You addressed this doubtful claim yourself, recently… .

  • 47 Stillgotshoeson // Jun 18, 2012 at 4:03 pm

    BP // Jun 17, 2012 at 1:49 pm

    Interesting debate.

    Funny how my comment got your hooks and daggers out, Greg* makes a similiar one and it becomes an interesting debate.
    *Owner of site and has the power to edit, remove and BAN posters and their posts…

    Too much wine me thinks Biker, showing your true colour.. Yellow or is that jaundice? Usually indicates problems with the liver 😉

    Any way enough about Biker and his health issues/character and on to the debate.

    ABS figures give the home ownership rate (paid off) at around 42%, by 2009 this had declined to around 33%. Obvious reasons would be immigration, more houses were built but very few new arrivals had the resources to buy outright when they arrived.
    I remember reading an article (when I have time I will try to google for it) sayint that home ownership (outright again) had slipped to below 30%. Further immigration and the much lauded (by Biker)FHBG since 2009 would be major contributors to the further fall in percentage. Another reason is reverse mortgages, a lot of owned outright homes were purchased in the 60’s and 70’s. Many of these owners are asset rich but cash poor and have looked to unlock some of the equity in their homes to give them cash for living expenses. The last one is interesting here in Victoria (more specifically Melbourne). Our state premier has been looking at making the older folks sell this homes and move into residential facilities or by smaller units and frr this inner city treasure trove of property for the next generation. The idea has not been well received as you can imagine.

    As for GK, I see nowhere in her comments that people should not buy houses, the “don’t expect compounding growth” part is more the 6 and 7 percent growth rates are finished. This only reinforces the view Biker himself puts forward so I find it odd that he mocks and derides her. A house is to live in and provide security, spending that amount also puts it in a lifestyle choice. As for the statement in context of investors it puts forth the very same message that Biker preaches, treat capital gains as a bonus and buy for consistent fortnightly returns. re Biker Comment 38.

  • 48 Greg Atkinson // Jun 18, 2012 at 4:48 pm

    BP I have questioned the forecasts & actions of the RBA but I don’t have a problem with the data they have collected or the data they have on their website. I actually use many of their charts and link to much of their material.

    Regarding household debt, here is a quote from an ABS paper in 2009:

    “Based on information from the Reserve Bank of Australia, over the last 18 years the total amount of debt owed by Australian households rose almost six-fold. At September 1990 the level of household debt was almost $190 billion, increasing to around $1.1 trillion by September 2008 in real terms (i.e. adjusted to remove the effect of inflation).

    Most debt was incurred to buy houses. Between 1990 and 2008, debt for investor housing increased from 11% to 27% of all household debt. Debt for owner occupier housing was consistently the largest component, ranging from 56% to 67% of debt (59% in September 2008). Other personal debt (for example credit card debt) halved as a proportion of all debt.”

    Source: http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features60March%202009

  • 49 BP // Jun 18, 2012 at 6:18 pm

    Still hoping for that Old Irish Curse has some potency, Shoes?
    Did you ever run that weird stuff by your counsellor, son?
    Can we have a recent update on your ‘portfolio’ prowess?
    Haven’t seen an update since the last post was deleted… .

    Thanks for the stats, Greg. Still not convinced by your claim: “It’s certainly true that if we feel wealthier then we tend to spend more and therefore this will help company profits.”

    Despite a _flat_ property market, new car sales are at record highs. As this is the second-most expensive item a family is likely to buy, your theory seems doubtful… .

  • 50 Ross T // Jun 18, 2012 at 8:06 pm

    I am not surprised that Port Kennedy houses are easily available in Perth.
    The huge new apartment developments in Perth are selling like hotcakes as those who can move in because they are sick of the continually worsening transport costs and times. They are renting or selling their old large houses in the burbs, but the prices they are getting are nowhere near what they used to value the houses.
    Houses close to Perth city are still increasing in value and the rentals are going up as the demand continues to increase.

    The rural areas where we have purchased have been quiet, but vacancy rates have reduced. Given the season our farmers are enjoying I think there will be a small boom in rural areas.

    Still waiting for housing construction costs to reduce and councils to get their heads out the sand. Meanwhile the small renovating builder is the way to go.

    It would be interesting if others see the same trends in other Oz Cities.

  • 51 BP // Jun 19, 2012 at 6:03 pm

    I’d have to agree, Ross.

    Remember too, that the PK description is three-bedroom:

    “3BDR 2 BTH DBL GGE”

    A while ago we described the last rental we built in similar terms here. My missus had taken a four-bedroom home design and rejigged it to three much larger bedrooms, each with built in robes and ensuites. This design pleased us… and the builder was pretty chuffed too, entering it for two design awards.

    We had reasoned that it would be ideal for an older couple; or a couple with one or two kids. Put it on the rental market and were _totally_ underwhelmed, despite it being 10 km from the CBD. (Port Kennedy is around 55 km from the Perth centre,
    but probably OK for FIFO. )

    It was a mistake to redesign that home. It’s now fetching $65 – $95 pw less than similar (4 BR) rentals we own. Despite the fact that the m2 hasn’t changed, it will probably always earn less. Brilliant location and the tenant, a divorcee with two kids, loves it… but we agree with our rental agent that 4BRs or 5BRs are the way-to-go, simply because tenants demand them!

    Good luck with reduced construction costs. The last seven we’ve built have all been up to 6.3% higher within twelve months or so. Carbon taxes may take that up to ten percent…

  • 52 BP // Jun 20, 2012 at 2:20 pm

    RT: “The huge new apartment developments in Perth are selling like hotcakes as those who can move in because they are sick of the continually worsening transport costs and times.”

    This report appears to confirm your statement, Ross:

    http://www.perthnow.com.au/business/perth-city-apartment-sales-boost-finbar/story-e6frg2ru-1226402914173?from=public_rss

  • 53 Stillgotshoeson // Jun 20, 2012 at 7:29 pm

    Todays Age newspaper…

    http://www.theage.com.au/business/housing-starts-plunge-despite-rate-cuts-20120620-20n7u.html

  • 54 Greg Atkinson // Jun 21, 2012 at 11:21 am

    Stillgotshoeson the overall view appears to be that house prices are weak at best and on a national level they appear to be trending downwards. Of course there are regional differences with some areas remaining strong but commodities futures are still trending downwards, the BDI is weak & if more mining projects are put on ice then I suspect some of regional hot spots will cool as well.

    The RBA interest rate cuts don’t seem to have has much impact yet either.

    All in all it would appear the the 3rd Qtr is unlikely to deliver much of improvement in any of the economic indicators I mentioned above.

  • 55 Stillgotshoeson // Jun 21, 2012 at 1:30 pm

    Economic forecast for 2nd 1/2 2012 seems to be negative for GDP, House prices (Generally) and commodities.

    The economic arterial bleed that is Europe has had another bandaid put on it.

    I will keep my economic guesstimate forecast for 2012 as is.

  • 56 Stillgotshoeson // Jun 22, 2012 at 5:31 pm

    http://www.theage.com.au/business/housing-shortage-all-smoke-and-mirrors-20120622-20szh.html

    Big difference…

  • 57 BP // Jun 22, 2012 at 7:05 pm

    http://www.perthnow.com.au/business/home-owners-staying-put-in-slow-market/story-e6frg2ru-1226404208969

    Not selling… holding… 😉

  • 58 Stillgotshoeson // Jul 21, 2012 at 4:05 pm

    Ex wifes boyfriend and his sister have finally sold the unit they purchased together just prior to he and the ex meeting.

    Purchased a little over 2 years ago for $357k
    Sold for $353k
    Add in interest payments, Stamp Duty, Council Rates, Insurance, Water Rates etc and they are down $50k

  • 59 Stillgotshoeosn // Oct 9, 2012 at 7:25 am

    http://www.theage.com.au/business/imf-downgrades-australian-growth-outlook-20121009-27a03.html

    IMF think things are not going to improve too much in the near future.

  • 60 BP // Oct 9, 2012 at 8:44 am

    We haven’t seen too many of your auction clearance reports lately, Shoes… . 😉

  • 61 BP // Oct 11, 2012 at 8:41 am

    Cheers up, folks. It’s a new day, the sun is shining and you need to face each new sunrise with a smile.

    If all you see is dark clouds, look for the silver lining:
    http://www.watoday.com.au/wa-news/perth-rents-smash-major-capital-cities-20121010-27dtk.html

  • 62 Stillgotshoeson // Oct 11, 2012 at 11:55 am

    This new day tells us unemployment rose to 5.4% and rents are flat in Melbourne and a slightly higher vacancy rate (outer suburbs)

    With 2.5 times the population of Perth, this impacts far more people.

  • 63 Greg Atkinson // Oct 11, 2012 at 1:29 pm

    Interestingly the mining CEO’s are finally starting to pull-back from their bullish outlooks for China with the CEO of Rio Tinto recently finally to a drop in demand for copper.

    As far as investor cycles go we appear to be moving past the denial phase as far as mining is concerned. Standby for a touch of fear next.

    As for the housing market, I will be watching the big three markets – Melbourne – Sydney – Brisbane.

  • 64 Stillgotshoeson // Oct 11, 2012 at 1:57 pm

    Melbourne has a super Saturday (more than 1000 Auctions) on the 27th October.

    There is a house 2 streets from me that sold for $495000 about 2 years ago (just under) back on market. I am watching it with interest. I think maybe $450000 this time around.

  • 65 BP // Oct 11, 2012 at 6:43 pm

    Cheer up, Shoes. Look, if everyone had a pessimistic, negative outlook, no-one would even _create_ jobs! Unemployment would be rife, like the rest of the planet. Expert sharetraders would still be making a fortune, but what about the rest of your Aussie mates, son?

    Over in WA, we’re sitting on 4% unemployment. Maybe that’s because we’re a more optimistic mob over here. Maybe it’s because that’s where smart fellas, really smart blokes, place their bets… . 😉

    If rents in your area are as low as you claimed recently, I’d be surprised if that house near you gets anywhere near $500K. But good luck, Shoes. Hope you get to join the large majority of Aussies who appreciate the joys of home ownership!

  • 66 Lachlan // Oct 15, 2012 at 6:56 am

    I got this from your article on the LH side there Greg.

    http://www.bloomberg.com/news/2012-10-14/stevens-says-rba-has-rate-ammunition-as-swan-pushes-for-growth.html

    “On monetary policy, we have ammunition,” Stevens said at an Oct. 12 seminar at the International Monetary Fund’s annual meeting in Tokyo. “Unusually for an advanced country, we actually have materially positive interest rates, so if needed we have scope to move there as long as inflation is okay, which at present it seems to be.”

    Personally I saw this coming but I believe we can cause inflation easily here. Look at the response in AUD gold to the first puny little rate decrease. I am not a supporter of the current monetary system. It lacks credibility which will cause a rift eventually and those that are involved need to help themselves by cleaning up the show. However Mr Stevens is playing the game well so far imo. Not that I am assuming my limited perspective is worth anything. It just is what it is and I share it here. I would hope they don’t push these rates down too far or there will be big time trouble for legitimate dollar savers. Some gold for insurance would be wise. People with housing debt will get relief of course mixed with the curse of higher price inflation on necessities.

  • 67 Greg Atkinson // Oct 15, 2012 at 8:14 am

    Lachlan I sometimes wonder if the RBA and other central banks are in a Catch-22 situation where they pressured to cut rates to help the housing market but when they do this they create other problems that will actually make life tougher for home owners?

  • 68 BP // Oct 15, 2012 at 9:27 am

    GA: “I sometimes wonder if the RBA and other central banks are in a Catch-22 situation where they pressured to cut rates to help the housing market…”

    Ah, that ‘singular’ housing market is back! For a while there it enjoyed a multiple personality. 😀

    In my (very biased) view, the RBA and other central banks see increased residential construction activity as highly beneficial. That’s a specific market, which includes developers (and others) selling blocks, governments reefing in taxes, companies supplying building materials (governments reefing in taxes); builders constructing homes and creating jobs (governments reefing in taxes); and the resultant ‘flowdown’ effects.*

    For years the ACT has been our most ‘economically successful’ state/territory, based on residential construction alone. Yes, I know that domestic economy criterion for ‘economic success’ will be attacked here, but it’s a valid perception nonetheless.

    What astounds me is that there’s always an element of surprise expressed here whenever governments intervene to affect their economies. Sure, there are some major stuff-ups at times (chief among them insulation dramas and school building SNAFUs) but, regardless of whether they get it right or utterly wrong, it’s gonna happen, folks! Governments will intervene. It’s called _politics_. 😉

    * Not ‘trickledown’… ‘flowdown’… and yes, inflation is part of that flow, too…

  • 69 Lachlan // Oct 15, 2012 at 10:25 am

    “Lachlan I sometimes wonder if the RBA and other central banks are in a Catch-22 situation where they pressured to cut rates to help the housing market but when they do this they create other problems that will actually make life tougher for home owners?”

    Yes imo Greg. No doubt. No such thing as a free lunch. I would say though that this subject is really very large. I might have another comment later.

  • 70 Stillgotshoeson // Oct 15, 2012 at 3:10 pm

    Housing markets…

    Tasmania: http://www.themercury.com.au/article/2012/10/14/363784_tasmania-news.html

    http://www.canberratimes.com.au/act-news/renters-face-softer-market-20121005-27503.html

    It is a bit of a catch 22 for government and the RBA on any intervention they try.

    Pulling of levers only does so much, once market forces take over like we have seen in the Northern Hemisphere, market forces rule.

    A lower AUD will add to cost of living pressures for most Australians.

  • 71 Leigh // Oct 15, 2012 at 3:23 pm

    Do cuts in interest rates actually help the housing market? I suspect they have far less effect than we are told. If people are planning to buy and then decide to put their decision on hold because of a 1/4 per cent move in official rates then they really haven’t got enough margin to take the risk. Add to that, that banks are now not passing on the full cut and the fact that a great many home and investment loan rates now are at least partly fixed I think the small shifts make very little difference in the overall buy in or sell out of housing. It is the lack of confidence that is holding back the world right now. Those of us who saw rates over 17 per cent in the late eighties think today’s rates are nirvana.

  • 72 Frank // Oct 15, 2012 at 5:35 pm

    Shoes look at the 2 markets:

    1) Owner Occupier market
    2) Investor Market

    In both cases the principle is the same for smart people (rule NFBPSH out here) – Buy and hold for the long term to see a positive result.

    If you look at 2 examples from my own life – 1) I purchased my current South Perth residence in 1994 for $350k. I purchased it with the knowledge that I could afford to meet the repayments from my current income (not allowing for wage growth) if rates rose to 10%. I now own that house outright, and the land value is probably $3m.

    I own a rental in East Victoria Park that I purchased for $160k in 1994. I rented this porperty out initially at $120 per week to a final total of $350 per week in 2006. My repayments did not move materially in those 12 years, but my rental income tripled.

    In 2006 I subdivided the block, sold the back half for $190,000 and built a new home costing $130,000. This debt free investment now generates $725 per week as a fully furnished privately leased income stream.

    See in both instances I could afford to hold my purchases for the long term, and was rewarded accordingly with solid capital growth in both cases.

    Pick any starting point in property, and hold it for 10 years and history shows you will be ahead 8% year on year. If you can not afford to do that in either case, then you probably should not dip your toe in to begin with.

    Like shares, property is not a get rich quick scheme. As Warren Buffet said a person sitting in the shade planted a tree a long time ago.

  • 73 BP // Oct 15, 2012 at 5:41 pm

    Leigh: “I think the small shifts make very little difference in the overall buy in or sell out of housing.”

    You may be right, Leigh. I’d certainly have said the same just over a week or so ago, but we’ve just experienced one of our _best_ periods since March last year… and it’s tempting to give falling interest rates some of the credit. (Small sample, I know! 🙂 )

    Broke two records, one for a block sale… and one for a two-year lease at a record (for us) rent. I could list the immediate and future flowdown effects, but modesty forbids. 😉

  • 74 BP // Oct 16, 2012 at 10:43 am

    Larger sample:

    http://www.perthnow.com.au/realestate/news/home-loan-approval-rates-at-highest-level-this-year/story-fncziqz3-1226496301684

  • 75 Leigh // Oct 16, 2012 at 3:05 pm

    Hey, I am not anti-real estate in any way, shape, size or form. I just think the interest rate cuts or rises don’t really spark or subdue the market as much as we are told they do.

    It is interesting however that we are now only a 1/4 of a per cent off what was considered and emergency rate following the GFC. The best time to buy real estate is now, as long as, as Frank points out (72) you have a bit of margin in the deal so that you don’t become pressured to sell if it doesn’t work out the way you expected.
    Journalist tend to link a rise in home loan approvals story with the cut in rates simply because it seems to fit without having to go into any analysis. If interest rates are rising, it is still a good time to buy because it means inflation is also moving up and that pushes up rents and values.

  • 76 BP // Oct 16, 2012 at 5:42 pm

    Completely agree with the points you make, Leigh. Frank’s quote “Warren Buffet said a person sitting in the shade planted a tree a long time ago… ” is also relevant.

    And “If interest rates are rising, it is still a good time to buy because it means inflation is also moving up and that pushes up rents and values.” I’m going to go out on a limb (on Buffett’s tree) when I propose that it’s always a good time to buy (and sell) property, if you take that long-term view. Just _where_ you plant that tree does make a difference.

    We just experienced a very strange bidding war for a seaside property my missus insisted we buy a few years back. It really put into perspective just how frantic and emotionally-charged the rental scene is right now… .

  • 77 Leigh // Oct 17, 2012 at 10:49 am

    Position,position,position. Turns out those old dudes like Buffett and Hilton knew what they were talking about. An agent once told me a property is worth a thousand dollars more for every metre it is closer to the ocean. Rough science I know, but it is where people prefer to live. Buy for position , buy for the long term, don’t over commit and buy when ever you can.

  • 78 BP // Oct 17, 2012 at 1:25 pm

    A realtor once congratulated me on his sale of an absolute beachfront block for a record price.

    I reminded him that _he’d_ sold it to us just a few years earlier. 😀

    At one time we knew the purchase and resale price of every block on that entire beach. Lazier these daze…

  • 79 Lachlan // Oct 18, 2012 at 6:30 pm

    I suspect people here would not think too hard about half or quarter percent rate decreases. How about if the commercial banks were able to get rates down to 4%. What would happen next? Would wages and employment be affected? Would loan approvals speed up? This is part of Mr Stevens argument projecting out a little and has been one of my chief considerations.

  • 80 Lachlan // Oct 18, 2012 at 6:47 pm

    As for inflation I was going to add the other day that it is very hard maybe impossible to project the knock on effects with short term time parameters and esp. since we have many outside influences from a globalised economy. It is easier to make right judgements on inflation then when viewing over longer terms. I value my intuitions. It seems to me there is going to be a bias towards inflation more so than ever in the next five years as a result of the political imperative to both avoid deflation and also to restructure/patch up and progress the system as it stands. The property market has gone up a little since 2008 and now down a little…netting to sideways imo. I think this will be the game for a good while.

  • 81 BP // Oct 18, 2012 at 7:01 pm

    Hard to gauge what is happening on the east coast, Lachlan. Things are trending up in WA.

    In the past we’ve had bidding wars between tenants for a property… and bidding wars between buyers for a property… but never before have we experienced competition between a tenant who badly wanted to lease a home… and a buyer who wanted to buy it. Crazy!~

    As for rates, we believe that this trending-down-pattern is starting to have an effect; possibly because it’s occurring as rents are trending up.

    As I say, I’ve no idea what will happen on the east coast (although auction clearances may provide some clues) but I think we’re starting to see a real lift here in the West. The recent sale of our very last beach block, for an upset price, may be one indication of rising confidence here (or just a Lotto win! 😀 )

  • 82 Lachlan // Oct 18, 2012 at 7:02 pm

    I am not saying rates will go anywhere in particular but just echoing Stevens comment about rates here providing latitude for blunt tool users.
    I know free market/mean reversion considerations are ultimately important but time considerations are difficult to calculate. And nominal prices only reflect the quality/quantity of debt which can be jigged whenever there is political will to do so. Market distortions can exist for varying periods according to underlying fundamentals.

  • 83 Greg Atkinson // Oct 18, 2012 at 8:00 pm

    Lachlan the decision on rates I guess is basically out of the RBA’s hands now & has been for a while. If the Chinese economy keeps slowing and prices for commodities like iron ore, coal & copper drop further then the RBA will be forced to cut rates again.

    I don’t see much evidence of the Chinese economy rebounding at the moment despite the well managed GDP data that is released. It’s also interesting that that big mining company CEO’s have become somewhat bearish which suggests they don’t see commodity prices rebounding quickly either. I believe the CEO of BHP even commented recently that the resources boom days are over.

    I hope the RBA is also worried about the continued decline in the manufacturing sector. I reckon that sector would like more rate cuts and a weaker Australian dollar.

  • 84 BP // Oct 18, 2012 at 9:09 pm

    “…the RBA will be forced to cut rates again…”

    While the RBA watches inflation closely, this was always the way it would go. It has always been a ‘blunt interestment’… 😀

    Even Keen knew that hard(er) economic times would result in falling rates. Frankly, I don’t think we’re in for hard economic times. The ASX is edging up, as GA predicted it would, unemployment rates are still very low, housing is (more) affordable due to low(er) rates and every man and his dog (including me) has a new car. Tenants are willing to pay astronomically high rents… and apparently have the wherewithal to do so. If this is a recession, as some claim, it sure beats the eighties… .

  • 85 Lachlan // Oct 19, 2012 at 6:17 am

    Greg I would think Glenn is trapped on rates in a secular sense however in the short term I believe his decisions on rates could be a disaster if he got the timing wrong. This can kicking is quite an art form imo. I agree with their concern over inflation here in particular. Inflation here has not been so low as is commonly stated in the land of Oz. I perceive the opposite.
    Also I can see there are many job losses and I agree with your statement about manufacturing. I guess Glenns hands are tied there too. Do not the powers that be deem there will be such a problem by the implications of there own political desire?
    I can understand people thinking house prices will collapse due to a weak economy. There are lots of jobs going and gone (in the real world) and sales everywhere are down. A large nursery supplies place I know with about ten employees has told me they are down thirty percent. And I can sight many many other examples all the same. My ex wife is involved with a lingerie shop which she knows is constantly on the razors edge. And yet I agree with BP that it was worse a couple of decades ago and I also think there is a strong desire here by authorities to prop up the house prices which by their record in the last four years they actually have exceeded most peoples reckoning’s (inc. my own). I perceive there will possibly be an acute inflation at some stage soon which may lock in their results… albeit of market manipulation.
    I don’t condone any such thing either. I am just enough of a stoic to accept it will happen almost indefinitely on this planet. People have the choice to follow their noses around some of the traps or else to be victims of every trick in the book.

  • 86 Lachlan // Oct 19, 2012 at 6:25 am

    Excuse my philosophy. I know there is never going to be a perfect world. I think however that the general direction we are heading in what counts. If people perceive there is a turning of sorts, that as a nation or a world (I am tolerant of political beliefs if they are true convictions and presented openly for consideration) we are trying clean things up and make them more honest then they will generally stop their whinging and get with the program. We don’t have to make war. It just takes leaders to rise up from the spectrum of society. Unfortunately history is not so pretty.
    In my own life I often did not confront problems until they caused a small to large disaster. Is this not the way it works? Doing a little better these days but. Just a little 😉

  • 87 Frank // Oct 19, 2012 at 10:48 am

    The thing that amuses me is Wayne Swan continually telling the media that Liberals presided over high interest rates and proudly stating that Labor have delivered low rates like it is a badge of honor.

    I am not sure if anyone actually believes that low interest rates are the product of a well functioning economy…

    Our RBA have a bad habit of cutting once too far,or riasing once too often and I thing that after the Melbourne Cup cut that is long odds on to happen, they would be best to put the cue in the rack and only make further moves should banks go increasing out of step again which would be counter productive.

    I would see despite high wage growth in Australia and most notably WA, well above the 4% that one Property Bear states often will see the RBA raise rates, people in this country at the moment thanks to uncertainty are accumuating money and reducing debt. This will see a fairly tough time in Retail sectors, and possibly domestic tourism.

    I think that with many ASX companies undertaking buy backs and share cancellation programs, pe ratios are solid and the ASX is probably undercooked by 500 points at the moment. The thing with that is these things do seem to be mental barriers, on breaking through 5000 points it is possible that after skirting around this mark for a few months it will settle around 5,200

  • 88 Greg Atkinson // Oct 19, 2012 at 11:14 am

    My view has been for a while is that the All Ords/ASX 200 are trading at around a 10% discount due to political uncertainty & things like the carbon, mining taxes.

    Also the 5000 barrier certainly seems hard to crack as you can see from the charts I posted here: ASX All Ordinaries Index – review of 5, 10 and 25 year charts

    All the talk about inflation amuses me sometimes because much of it is an own goal. If commodities prices rise then as a nation that imports value added products we end up paying for much of that price rise anyway. Also our coal power stations don’t get “mates rates” so power prices will be under pressure when coal prices rises. Same goes for LNG which in many cases is being effectively sold back to us by the multi-national ventures that have the rights to pump the stuff out of the ground.

    You just need to look at out terms of trade to see that despite record high commodities prices for some years we still on-balance, have imported more in dollar terms than we exported over the last decade. That’s not a very impressive achievement for a period where the nation was suppose to be riding a once in a century boom.

    As for Swan and his rates rambles, well here is an overview of rates in other nations: World Key Official Interest Rates

    It’s all relative as they say.

  • 89 Frank // Oct 19, 2012 at 12:31 pm

    Greg, I am not sure who the winner would be if we had a lending rate of 3.46% for mortgages as are currently available in the US.

    For self funded retirees, it would be disasterous if you were cash heavy in your portfolio, and the property market would absolutely explode. If the average buyer maintains the age old “borrow the most that you can afford to repay” you would see a 20% plus growth rate in the coming 3 years!

    Lets face it, the uncertainty in Europe and America is going to take at least 5 years to correct itself, and that is assuming tha twe have seen the worst of it. That means that you could expect with confidence to be paying less than 7.5% between now and 2017 or so. In that time, the average person will probably accumulate 25% increase in pay.

    In my opinion, the current property and Share markets are primed for smart investors of the new generation to make large amounts of capital growth in the next decade, in the very same way I and others in my generation were able to accumulate wealth between 1990 and 2000.

    The longer people sit on the fence waiting for the market to bottom out, the more likely they are to miss that mark and buy on the up and kick themselves for listening to bears out there. Again, just my opinion

  • 90 BP // Oct 19, 2012 at 12:40 pm

    Shane Wright, ‘The West’s economic editor, summed it up well recently, when he contrasted Australia’s employment growth with the rest of the world, describing us as a ‘stand-out performer’:

    “…the total number of people in work has grown 7.1% since 2008…. the total number of Americans with a job has fallen by 2.4% over the past four years…”

    Citing the IMF, which rated Australia No. 1 in the ‘economic games’, Wright detailed all the criteria, including economic growth, debt level, etc., for our ‘Gold’ rating. No mention was made of our welfare safety net, which may also have insulated us from some of the chaos of the northern hemisphere. Nor did Wright credit governments past or present with having created our relative prosperity… .

    Fascinating article, which I can’t find online… .

  • 91 BP // Oct 19, 2012 at 12:52 pm

    Frank: “…the current property and Share markets are primed for smart investors of the new generation to make large amounts of capital growth in the next decade, in the very same way I and others in my generation were able to accumulate wealth between 1990 and 2000…”

    I know too little about the share market to make that call, Frank. My sons would probably agree with you, although their investments cover most asset classes. In retirement, we’ve a lower appetite for risk!

    As far as property, we agree that investors who exercise diligence could indeed accumulate the foundation for a very comfortable retirement. We started earlier than the nineties, buying steadily from 1976 on. We experienced flat markets from time-to-time, watching others sell out while we were buying.

    Each era has its own specific characteristics and we are now experiencing some events quite new to us. Tenant demographics are among the most interesting and unexpected of them!~

  • 92 Lachlan // Oct 19, 2012 at 1:20 pm

    “watching others sell out while we were buying.”
    BP I certainly think the longer term resolve is a correct theme. People can have a mentality to gamble (take large risks to win short term) on anything houses included. I made that mistake once. I didn’t have to do it twice to my benefit.

  • 93 Lachlan // Oct 19, 2012 at 1:42 pm

    Ooops. My mistakes were not on property though.

  • 94 BP // Oct 19, 2012 at 2:00 pm

    Nor were mine, Lachlan!~ 😀

  • 95 Leigh // Oct 19, 2012 at 2:59 pm

    BP: Shane Wright comparing Australia to the U.S. in employment growth or just about any other economic indicator is a very long piece of chewing gum indeed. We dig holes in the ground and they make things as well as digging a few holes. It is a bit like comparing Australia to China, we are very differently geared and driven. I think we will see the U.S. go to a “Buy American campaign” no matter who wins the election and they will climb out of their financial hole because they can consume so dam much internally.
    We may look good right now, but as an economy we are about as fragile as the second hand on a K-Mart clock, relying on selling dirt and buying it back at twice the price when it is bent into shape.
    Frank, on interest rates I have heard that the banks will just stop passing on official cuts if the Reserve keeps chopping because their margins will be squeezed of all their juice.
    Having said all that I still think yesterday was the time to buy.

  • 96 BP // Oct 19, 2012 at 3:31 pm

    Well, Wright used all IMF data, not his own, Leigh.

    I made the point regarding Wright not ‘credit(ing) governments past or present with having created our relative prosperity’ for the precise reason you offer: “We dig holes in the ground…”

    But I’d suggest that we have many more decades of ground to dig… and none of us contributing to this forum will see the ‘last hole emptied’. It’s quite possible too, that minerals we don’t bother to mine now will be the gold of the future.

    Now I’m not suggesting that our resource-based economy should be all we excel in. At present our digger-mentality rules and it’s a good reason for our economic resilience, high wages and incredibly high standard of living.

    “I still think yesterday was the time to buy.” I can assure you last week was the time to sell! 😉

  • 97 Greg Atkinson // Oct 19, 2012 at 4:08 pm

    Comparing percentages between the U.S in a downturn and a resource based economy (Australia)during a boom makes me wonder what point the economics editor is trying to make? Sounds like he has signed up to the Ken Henry “Golden Age” movement.

    What constantly amazes me is that many people in Australia don’t seem to be able to grasp a few fundamental issues:

    1. We are not the only nation digging stuff up..we are just one of the higher cost ones.

    2. A lot of the digging is being done by foreign or partially foreign owned companies. The biggest exporter of coking coal from Australia is? BMA.

    3. We dig (or more correctly we often dig for others), export and then some other nations do the value-adding and we then import the finished goods. That’s why as I mentioned above, our terms of trade over the last ten years (during the boom) are still not in our favour.

    4. The boom may be over. We will keep digging, but earn a lot less for it.

  • 98 Leigh // Oct 19, 2012 at 4:10 pm

    BP: I take your point, that our holes, or what was once in them has made us as rich as Scrooge McDuck and there is still some to dig. Mongolia has also discovered that they have a fair bit of the same dirt. However we have the fundamental difference in population from the U.S. that allows the American economy to be become almost self generating. We are almost totally reliant on what the rest of the world is doing because we can’t make anything any one else wants to buy, except food or places its grown. I am not sure what constitutes employment in the U.S. but here you are considered employed if you work one hour a week.

  • 99 BP // Oct 19, 2012 at 4:19 pm

    Leigh: “…we have the fundamental difference in population that allows an American economy to be become almost self generating…”

    Imagine then, domestic economies the size of China’s and / or India’s. Demand for (and the value of) our resources will fluctuate (it always has) but thankfully this period of Australian prosperity won’t end in my lifetime.

    I see that this year’s Doomer Ball has been cancelled. Food for thought… . 😉

  • 100 BP // Oct 19, 2012 at 5:10 pm

    GA: “…what point the economics editor is trying to make? Sounds like he has signed up to the Ken Henry “Golden Age” movement.”

    Wright is extremely conservative in his views, often highly critical of Labor… and has no axe to grind.

    It’s possible, that like me* he surveys our state of affairs and sees that ‘golden age’ all around him. We’ve never had it so good… and it’s fruitless to exhilarate on the possibility of events not in our control bringing down our lifestyle, government(s), banks, homes, jobs, longevity, and so on… . 😀

    * An apolitical stance allows the individual to acknowledge _whichever_ party gets it right, if/when they do. Too often they don’t…

  • 101 Greg Atkinson // Oct 19, 2012 at 10:53 pm

    Leigh that’s exactly right..we are not the only ones who can dig holes but we are taking the high ground in terms of being a high cost hole digger. Mongolia is one place to watch as is Africa.

    The alternative is to bury our heads in the sand and pretend the ‘golden age” will continue forever. Heck we have never had it so good so that must mean we will always have it this good right? I think not.

  • 102 BP // Oct 20, 2012 at 9:17 am

    HaHa… Cute. Gina’s right, then. We do need to dig cheaper holes… give away our resources for less… and pay Aussies less… .

    Maybe The Doomers’ Ball does have a future! 😀

  • 103 Leigh // Oct 20, 2012 at 10:23 am

    I remain an optimist about Australia’s future despite my sentiments posted above. I believe real estate is a key in any portfolio and over time it works well. I also believe the share market is finally into some sort of recovery and we may miss the the big correction many are expecting, however I think we all need to understand where we really are in the world.
    About ten years ago education was tipped to become our greatest income earner; that hasn’t happened. The mining boom is turning to mining gloom and manufacturing is being buried in those holes we dug. Somewhere along our lucky past we decided we could ditch the self reliant Australian way and rely on other countries demand for our endless supply of whatever came to hand, wool, wheat, coal and iron ore. At the same time we decided it was just too hard to make things and that changed self reliance in to dependance. Who would believe the Spanish would be building our Navy’s ships? It is ok perhaps if we have an endless supply of these things and the demand remains endless but what if they get the things they need elsewhere cheaper. Australia is a bit like a surfer, enjoying a moment in the sun but totally dependent on the whim of the great global wave to get the next ride.

  • 104 Greg Atkinson // Oct 20, 2012 at 10:47 am

    Leigh that sums things up pretty well. We also seem to have people who think that even contemplating a downturn or preparing for it is akin to treason.

    Some years ago tourism was apparently growing so much that it would transform the economy and although it is still bringing in the dollars, it appears that the biggest growth has been in outbound tourism. I recall years ago (and I wrote about this) that the authorities were told about concerns the Japanese had about the tourist sector in Australia. Of course there was no need to do much because Australia was such a great tourist destination. As years passed the Japanese started heading elsewhere, flights were reduced to Cairns and people sat around scratching their heads wondering what went wrong.

    Same thing is happening now, the manufacturing sector is sliding backwards and yet what is often the response? It’s okay, we have mining!

    As I mentioned above, “our” mining sector is increasingly “their” mining sector. So what’s the next trick up our sleeves?

    P.S. You know things are bad when they have to build ships in Spain for the navy and then float them out here so we can do the last bits. We are a maritime nation and we can’t build our own ships…goodness me.

  • 105 BP // Oct 20, 2012 at 12:26 pm

    “Australia is a bit like a surfer, enjoying a moment in the sun but totally dependent on the whim of the great global wave to get the next ride… ”

    A nice analogy.

    Education and tourism have both suffered the effects of a strong Australian dollar… and to some extent so has our mining competitiveness.

    “Somewhere along our lucky past we decided we could ditch the self reliant Australian way and rely on other countries demand for our endless supply of whatever came to hand, wool, wheat, coal and iron ore….

    Probably around 1850, with the discovery of gold, I suspect, Leigh. As the son of a water supply engineer and farmer, I’m interested in the proposition that wool and wheat suddenly ‘came to hand’. I think he’d probably reject that notion of ease your comments suggest. I also believe the great majority of Aussies are hard-working people who value what they’ve got… and will work hard to hold it. I’d certainly never begrudge miners their high wages, given the deprivation, distances and dust their work usually entails.

    We do agree on the issues of optimism, the importance of property and the need for self-reliance. In my view all three are strongly linked… .

  • 106 Lachlan // Oct 21, 2012 at 5:42 am

    I think real production will start to return to the west in the not too distant future and led by cashed up corporations. Small entrepreneurs have no excuse for throwing in the towel but.

    I have a surfboard in the shed, a relic of my youth and which I use maybe twice a year. Gotta hankering to get it out now for some reason 🙂

  • 107 Biker // Apr 23, 2013 at 9:22 am

    That old seven-year doubling proposition for housing appears to have been revised:

    http://www.heraldsun.com.au/realestate/buying/time-to-buy-property-prices-to-double/story-fndcuqbl-1226626822141

  • 108 Biker // Sep 16, 2014 at 7:21 pm

    The recent vidclip link…

    http://www.theaustralian.com.au/business/economics/rba-voices-growing-concern-over-house-prices/story-e6frg926-1227060102415

    …is worth watching, even though it talks around the increased demand by investors. It might also have considered where Keen was absolutely naive, in not considering increased demand from investors once interest rates fell (as he actually predicted they would).

    Supply is discussed in some depth, but that real boom in investor _demand_ (likely to keep growing exponentially) might have been investigated. Fascinating viewing, anyway… .

  • 109 lachlan // Sep 23, 2014 at 6:56 am

    interesting exchange there BP

    actually the Oz residential component looks like it could be strong to me also if investors continue to buy in (if that is indeed the case)…better deals to be had in the countryside though and I expect it to stay that way for a while too, the grass is much greenier out here yaknow 🙂

  • 110 Biker // Sep 24, 2014 at 6:41 pm

    Certainly green here, Lachlan! Had to cancel a day’s gardening due to persistent rain, today.

    Meanwhile Greg’s years-end punt may be on track… .

    We’ve learned a great deal recently from our new accountant (CGT issues, SMSFs, effects of currency changes on ETFs*, etc). Looking into eSuper for the missus’ cash-out at present.

    Property: We’re not seeing much in the way of substantial growth right now, although we’re getting ongoing queries about two properties, from realtors short of good stock. We’ve raised rents on three rentals recently, but we’re content to renew without any rent increase, where tenants maintain homes in great condition. Recent surprises include rising insurance costs, but we do enjoy a little leverage there.

    * I now understand how our eldest experienced a major windfall, when the Ozbuck fell. He’d never explained it, but the long list of questions we presented to the new accountant clarified this… and many other issues we were unsure about… .

  • 111 lachlan // Sep 26, 2014 at 5:58 am

    Yes BP, when I say “strong” I really just mean resistant to a crash… I should clarify that my call on property for (what it’s worth) is the same as it was and is for a continued sideways market so even the recent significant price gains could be lost and re-won again under my telling of the future. On the street that seems like a miracle because average Joes do not have and have not had increasing incomes to spend on property for a good period of time. Of course we have the lower rates to factor which lower costs and then there are foreigners with money. But you know, I am sure, there is more to this equation then many thought and nobody is likely to properly quantify it. Mr Keen tried very hard but you know the story.

  • 112 Ned S // May 23, 2015 at 5:23 pm

    Remember Senator in Sydney?

    I’m so glad that he bought.

  • 113 Biker // Aug 6, 2015 at 9:03 pm

    Crikey! Me old mate must be _spittin’_!

    http://www.watoday.com.au/wa-news/karratha-property-prices-plunge-32-per-cent-in-was-pilbara-mining-hub-20150806-git3w7.html

    Biker
    Stratford-upon-Avon

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