Many thought prices would fall significantly due to the global economic crisis, and they didn’t.

Then we expected prices would ease when government grants to first-home buyers dropped, but that does not seem to be happening either. 

So where do we sit at the beginning for 2010?

With Australia’s population tipped to be heading towards 35 million, and a shortage of new accommodation being built, the pressure on residential property prices is likely to continue for quite a while.

Of course there will be dips in some markets from time to time but, if you try to time the very bottom of markets it’s likely you will never invest.

Conditions are ripe for a sustained recovery in residential property prices, economic forecaster BIS Shrapnel says in its Residential Property Prospects, 2009-2012 report.

“Low interest rates, solid growth in rents and housing shortages evident in most markets” are the factors that will drive prices, the report says.

And although interest rates are on the rise, they are still very low. Interest rate rises will widen opportunities for investors to get into prime residential markets.

First-home buyers have dominated the market but rising interest rates and falling grants will curtail their activity.

Rising interest rates are not nearly as big a problem for investors. This is because, for an investor, the interest on borrowings is a tax-deductible expense, which is not the case with a home buyer. Investors on the top marginal tax rate only have to wear about half the increase in mortgage payments arising from interest rate hikes.

Negatively geared real-estate investments are also expected to become more attractive to high-income earners who have had the amount they can tax-effectively contribute to superannuation drastically reduced. This will increase competition for suitable properties, which will also help to underpin prices.

So what’s your predication for 2010?

The start of a year brings about new resolutions, so how about making 2010 the year you took control of your financial future. The year you establish your property investing goals and went about making them happen.

Keen rose to national attention in 2008 after predicting that housing prices in Australia were on the verge of a collapse. Unsurprisingly, the tabloid media leapt onto the sensational story, generally failing to mention that Keen’s views were not shared by any other mainstream economist.

Rory Robertson was himself quite pessimistic about Australia’s economic outlook at the outset of the Global Financial Crisis. However, after a public email debate on the Australian housing market, Robertson challenged Keen to a bet on Keen’s views that housing prices would collapse by the end of 2009.

Keen has now been forced to concede defeat, following the release last week of data showing that house prices had increased by 6.2% in the year ending 30 September 2009 and were at a new peak.

Keen will have to make a 200km trek from Canberra to the top of Australia’s highest mountain, Mt Kosciuszko wearing a t-shirt saying “I was hopelessly wrong on house prices! Ask me how.”

The Business Spectator’s Christopher Joye wrote that Robertson had delivered a public good by holding “extreme views to account“. Joye was also critical of the print and electronic media, who had reported Keen’s views without mentioning that they were not shared by any other recognised authority in Australia. Joye wrote that Keen’s “dire prognostications” were simply “manna from heaven for journalists looking to shock their audiences.”

Since the win, Robertson has been enjoying his victory. He reiterated his confidence in the fundamentals of the property market by saying:

“For fun, if Australian house prices ever fall by 40 per cent from any peak in my lifetime, I will follow in Dr Keen’s footsteps. Similarly, if Dr Keen proves the existence of the Loch Ness Monster, I will take the walk.”

One thing that we can learn from all of this is to be wary of relying on market predictions that we encounter in the tabloid media. Anyone who had sold a property in reliance on Keen’s predictions could have suffered significant losses.

Further, all of the levity surrounding the bet skirts the issue of what actually has been happening with Australian house prices since the beginning of the Global Financial Crisis. Certainly, the data shows that the market ‘cooled’ by 3.8% from its peak in February 2008 to its trough in December 2008. But the results for 2009 are clear – despite (or perhaps because of) the uncertainties surrounding the world economy, Australian house prices continue to grow robustly.

Posted by La Trobe Financial 12 November 2009

Access to your credit bureau file will remain limited by the law, with lenders only accessing with permission at the time of a credit application. The greatest fears surrounding this proposed change is that by allowing lenders increased investigative powers into borrower’s credit history  this will cause greater financial exclusion.

In a credit market that has seen severe tightening of credit policies to the point where many borrowers who once had easy access to credit are now being scrutinized over minute details, the proposed change will again exclude even more borrowers from lending.

Now more than ever it’s important that you keep your financial records clean. Ensure sufficient funds in your accounts for direct debits and cheques. Watch your credit defaults. At the time of weighing up the worth of fighting a telecommunication company or the like, consider the cost of the long term effect if you end up with a default.

If you know that you are looking to take advantage of the rising property market, get your finances in order. Don’t wait for the lenders to put on the breaks even further before you take action.

Westpac, St George and RAMS are the latest lenders to follow in the footsteps of CBA, ANZ and NAB who tightened up on their policy for self employed borrowers six months ago. The change will greatly impact the low document loan segment of the market where borrowers are now required to provide the past 12 months Business Activity Statements and in many instances business transaction account statements. This dramatic policy change does not leave a great differentiation between full doc and low doc loans.

When low doc loans first became available they were not brought to the market by these major lenders but by the non major lenders, so it is no real surprise that our major banks have never been fully comfortable with this style of lending, particularly in a market where they are more than ever picking and choosing their new customers.

Good news for those customers still dealing through these major lenders and battling with their less than satisfactory servicing issues, this will reduce the volume of applications to the lender and therefore hopefully bring us back to a time where purchase settlements are once again taking place on time.

But where do you now sit if you are a self employed applicant who does not fit within the lenders strict new guidelines? It’s back to the non major lenders for you, and when we say non major this thankfully does not always suggest non competitive. There are many lenders in our market today that have chosen the low document segment of the market to specialise in and therefore offer great competitively priced products. And the add bonus, you too will no longer have to deal with less than satisfactory servicing issues.

However, like many thing in our current economy this is subject to change without prior warning. Unfortunately no one has a crystal ball to see when things will return to the ‘good old days’. As much as Australia is in a very positive position compared to the rest of the world, with the impact on our economy being so much less than anticipated we still are not able to anticipate what changes will still need to be made before we once again return to full strength.

So the biggest piece of advice we can give you in the lending industry is – do all you can today, because tomorrow is another day. If you’re considering investing further in property, buying your first home or renovating the family home, even if you’re not ready to spend the money now, put those things in place that will ensure you’re not limited when you are. Unlock your equity, get a preapproval, whatever it is to increase your chances now of not being affected by any further changes.

Remember tomorrow will see the end of the Governments increased FHOG offering, this will inevitably bring about more changes within the property market. Are you ready to seize the opportunities?!

 The housing gain meant prices have now recovered most of the ground lost since the start of last year and have gone a long way towards dispelling any lingering concerns that local housing markets could be headed for the sort of double-digit declines seen abroad said Westpac senior economist Matthew Hassan. The 4.2 per cent increase in house prices during the June quarter had helped drive the positive consumer mood.

 The Westpac-Melbourne Institute Consumer Sentiment Index increased by 3.7 per cent in August. According to Mr Hassan, the index has risen 27.8 per cent since May, the biggest three month gain since the survey began in 1975.

 The other major positive was the surprisingly strong July labour market result which showed an unexpected rise in employment, as well as the unemployment rate stabilising at 5.8 per cent.

 “These two pieces of news [have] helped alleviate two of the biggest sources of consumer anxiety over the last year: fear of losing money on their biggest single asset – the family home – and fear of losing their jobs,” Mr Hassan said.

 Notably, the Index showed that comments by the Reserve Bank of Australia regarding the official cash rate had no impact on consumer sentiment. Even in the ‘hyper-interest-rate sensitive’ mortgage belt, sentiment still posted a robust 6 per cent gain in August, according to the Index.

 So I guess it is to be expected that confidence will return to the market now more rapidly than over the last number of months.

 It has been said “the first step towards knowledge is to know that we are ignorant”. We don’t know what we don’t know, that’s why it’s so important to surround yourself with likeminded people that will help you gain the knowledge you need to discover you’re investment goals. Those in the know are saying that times are right to take advantage of the opportunities in this market. What are you going to do with that knowledge?

How it works

A mortgage offset account is simply a savings account linked to your loan account. Unlike an all-in-one loan that combines your credit card with your transaction accounts, an offset account works like a regular savings account. The big difference is that the balance in the savings account is offset against that owing on the mortgage. You are therefore earning interest on your savings at the same rate as the linked loan.

Over time, savings in your offset account can help to reduce the loan principal, allowing you to pay off your loan sooner or build up equity so you can invest in that next property.

The best thing is your money is still sitting in a savings account so its fully transactional, you can go to the ATM and withdraw $20 or write a cheque for $100, so there is no reason for this to become your everyday account.

Types of offset accounts

There are two different types of offset accounts – a 100 per cent offset and a partial offset account. As the benefits of offset accounts have become more widely understood, most lenders and borrowers opt for a 100 per cent offset facility.

Example:

Bill and Mary have a $100,000 mortgage and $10,000 in a linked 100 per cent offset account.

• The principal on a $100,000 loan is reduced by the $10,000 offset account to $90,000.
• As a result interest only accumulates on the $90,000 balance of the loan.
• Repayments continue to be made on the entire $100,000 principal and applicable interest.
• While savings in the offset account are actively working to reduce the loan, repayments are working more effectively to reduce both the principal and interest it attracts
• Over a number of years, both the principal and interest on your loan are repaid faster.

Westpac announced on the weekend that on Tuesday it will lift its one-year fixed home loan rates by 10 basis points to 5.59%, its three-year fixed rate by 40 basis points to 6.99% and its five-year rate by 45 basis points to 7.64%.

The bank blamed a rise in its funding costs for the increases. Frank Lopez, and analyst with research firm Canstar Cannex, says the average three and five year fixed mortgage rates have jumped 1% since May and again started edging up again last week after a speech by Reserve Bank Governor Glenn Stevens led many commentators to predict the next RBA rate movement will be up, rather than down.

“We don’t see any reason for rates to start coming down anytime soon,” Lopex says. “The best fixed rates are gone.”

So have those mortgagees wanting to fix their mortgage officially missed the boat?

Lopez points out that the gap between fixed mortgage rate and the average standard variable rate, currently sitting at around 5.78%, is now looking very wide. And while fixed rates are creeping higher, most economists are not expecting the RBA to increase its cash rate (which would likely trigger a rise in variable rates) until at least the middle of 2010.

He says those who fix rates now need to understand just how far their variable rate needs to rise before they will actually be saving money.

“Assume the five-year fixed rate is sitting at 7% and the variable rate is sitting at 6%; the variable rate really needs to hit 8% before you are actually making a saving with that fixed mortgage rate,” says Lopez.

“That is quite a lot of rates rises, particularly when most economists are not excepting the economy to exactly boom in the next few years.”

Bruce Brammall, owner of Castellan Financial Consulting and author of Debt Man Walking – A 10-Step Investment and Gearing Guide for Generation X says there is a very small chance that the RBA will cut rates again, but it is diminishing.

“The time to fix, with the benefit of hindsight was about four or five months ago.”

That said, he points out that fixed rates still remain low by historical standards and certainly lower than 12 months ago, when five year fixed rates were sitting at around 10%. He says that if you are still keen to lock in rates, you can still get a reasonable deal by historical standards, particularly if you do a bit of shopping around.

“To say that the boat has left the shore is probably right, but if you run and jump you can still get on.”

He sees fixed rates as insurance policy against big rises in the variable rates and says that some mortgagees love the certainty that fixed rates offer.

Adir Shiffman, chief executive of financial research site HelpMeChoose.com.au agrees and says the decision on whether or not to fix comes down to personal psychology.

But while he is unwilling to make a call on whether or not to fix, he points out that the banks consistently report that those who stick with variable rates are typically better off than those who fix.

But he says that for some people, the certainty of knowing your rate five years in advance is very important.

“Consistently, people that have left rates variable have done better than those who have fixed rates, but they’ve probably had a few more sleepless nights,” Shiffman says.

“But if you can wear that uncertainty from standard variable rate then, according the banks, you will be better off in the long-term.”

(Article taken from smartcompany.com.au)

Australia’s population rose by 390,000, the equivalent of a city the size of Canberra, to reach 21.5 million people last year. Until two years ago, the annual population growth had never exceeded 300,000.

• Queensland remains the fastest growing state, followed closely by Victoria and New South Wales. Over 85% of our growth takes place in our capital cities and immediate surrounds with Melbourne showing the largest increase in population in recent years.

• First home buyers hold a 20% market share of total new Australian housing loans, close to 30% when looking at loans to owner occupiers in isolation. They mostly buy established homes and contrary to popular belief first home buyers do little to stimulate new housing starts.

• Housing finance for new dwellings has been on the slide since the mid 1990’s and the real death knock was the introduction of the GST. One in three housing loans were to new property twenty years ago. Today it is less than half of that. It is little wonder that the new housing market is undersupplied.

Queensland faces the worst undersupply of new housing with new starts down 50% of last year’s supply. Misdirected government policy and planning doctrine has artificially restricted new dwelling supply across much of the Sunshine state and in particular across the south east corner of the state.

New supply is likely to remain too tight, leading to a rapid increase in the price of housing, which when interest rates return to more normal levels could create an affordability crisis. In due course and unless new supply is forthcoming Queensland is likely to see a slowing in population growth and real falls in housing prices.

Investors whilst growing in confidence have yet to enter the market. When they do and given the tightness of new and existing supply, end prices are likely to leap. This is particularly the case in the sub $500,000 established market and for new properties priced under $750,000.

Statistics taken from the RBA, ABS, HIA and RP Data.

“Interest rates take between six and twelve months to stimulate the market and especially new housing starts. The economic conditions, given the rapid easing in interest rates to date and the large fiscal stimuli, should be much better during financial 2009/2010.

Unemployment lags, whilst confidence anticipates. Confidence in residential property as an investment, has improved dramatically over recent months. New dwelling sales are now starting to lift. New housing starts will follow in due course.

Looking forward, Australia (and most of the western world for that matter) cannot hope to pay back debt with low interest rates. Eventually interest rates will rise back to more neutral levels. Our cash rate is currently 3.00%. History suggests that a cash rate of between 6.00% and 7.00% is neutral.

Interest rates are likely to fall further, but not as fast nor anywhere near as much as in recent months. Jobs, and especially casual work, are still being created across much of Australia. Yet unemployment is on the rise due to a growing workforce, fuelled mainly by a lift in the participation rate. Fulltime work, however, is starting to slide, placing a lid, at present at least, on new housing starts. Hence interest rates are likely to fall a bit more.”

So what does this mean in a nut shell to us investors? Well, we are set to enjoy some low interest rates for a while yet. Perhaps start to consider fixing some debt in next year if the lenders bring back fixed rates in line with the variable, before we head back to more neutral levels.

Confidence is definitely returning in residential property investment so our window of opportunity in sourcing those bargains will begin to reduce.

We don’t have a crystal ball to see what lies around the bend however current indicators definitely show that things will bounce back. So why not take advantage of what so many others are yet to see.

A few weeks ago, we posted an article relating to the last 20 blocks available in a major estate in a fast growing suburb in Queensland’s Sunshine Coast… offered up by the developer with massive discounts of $20,000 – $50,000!

Global financial crisis or not, we knew they’d go quick but to see these 20 blocks move in less than 2 weeks even surprised us and told us that a great deal is a great deal, no matter the economy.

We’ve talked a lot in the past about opportunities that sometimes come up either early or late in an estate (When do you buy?) and this was certainly one of those opportunities. Its not an unusual scenario… the land developer had been promoting an estate for several years, had 20 blocks left, it’s fast nearing end of the financial half year (large public companies have to report to the market every 6 months and for as long as we can remember they usually throw discounted property out around 60 days prior to the end of that 6 months to get it off their books) … that’s the time opportunity knocks for those who are ready. (Be Ready).

To those who snapped up the discounted property, great work and congratulations… meantime, if you liked the sound of it, stay tuned because we’ve just heard rumour of another estate who are ready to talk turkey so… are you ready to seize the day?