Property and Investing, is it anyone’s Guess?

Buying and investing in real estate.

It was once the conversation of choice for latte sipping Sydneysiders a decade ago, comparing notes on which suburbs were the next to “take off,” and in Queensland the same thing. Which next waterfront tower to buy an investment apartment? Likewise in Melbourne’s Southbank, and especially in the mining boom times of WA where house prices were escalating in value threefold per annum.

All this has changed in the space of the last ten years.

Two or three years ago, those that we may consider to be reasonably well-off, such as home-owners with an investment property, were being encouraged to use the equity in their primary dwelling, as well as any equity in their investment property, to use as funds for further investments.

In 2005 to 2007, when the stock market was growing at a staggering rate, it seemed like a no-brainer. Who would want to miss out on such incredible returns?

Investors that used their equity to invest in shares were then encouraged to borrow against the value of those shares, to wait for it, buy more shares.

Of course, the rest is history and it all turned to custard.

Now we are seeing properties in once affluent suburbs being significantly discounted as the once “well-off” are now having to sell-up to meet repayments on loans for share portfolios that are now worth a fraction of their original market value.

Prior to 30 June 2007, the Howard government also relaxed Superannuation contribution limits – effectively allowing people to contribute up to one million dollars to superannuation before this date.

This strategy was actively promoted by the Howard Govt and financial advisers as a way to pay less tax and save for future retirement. I wouldn’t like to be one of those people now.

Funny how Peter Costello, the World’s Greatest Treasurer hasn’t been asked to comment since about this “brilliant strategy”.

Depending on who you listen to, house prices are about to collapse by some 20 – 30% as predicted by Professor Steve Keens, or now is actually a really great time to buy with interest rates at record lows at house prices pretty much stable or declining slightly.

Of course the real estate industry will always say “now is a great time to buy (or sell)” and their latest survey touts this once again.

“House Prices to Drop to 2002 Levels!”

It’s the best time in seven years for first home buyers to get into the property market, the survey says.

A combination of static house prices and low interest rates have improved housing prices, according to the Housing Industry Association-Commonwealth Bank housing affordability index.

The index for first home buyers rose 22.3 index points in the March quarter to 175.8 points.

“This took housing affordability to levels not seen since 2002,” said the report, published today.
The index was 69.9 points higher than in the March quarter of 2008, an improvement of 66 per cent.

‘Never a better time to own’

HIA chief executive Chris Lamont said despite the current economic conditions, “there has never been a better time to enter home ownership”.

Mr Lamont said the boost to the first home owner grant, when combined with significant builder discounts on house and land packages, had increased the number of people entering the new home market.

“The grant has been highly successful in creating and securing jobs in the residential construction sector,” Mr Lamont said.

“It is also assisting in boosting the supply of housing which we know to be grossly short of the nation’s
requirements.”

But is now really a good time to buy property? Sure low interest rates are attractive, but they will inevitably rise again. Have we seen the bottom of the housing market in terms of prices, or once the FHOG lapses will prices fall further…?

Is it just anyone’s guess??

Was Steve Keens a nutter to sell his Sydney apartment..?? (hint: yes.)

Monday by the Magazine Rack

magazine20rack

Hello,

Good afternoon and welcome to Monday by the Magazine Rack. Our beginning of the week open chat thread.

Today I brought my own lunch to work. What’s so odd about that I hear you say.

Well it’s probably the first time I’ve made my own lunch and taken it to work in about ten years.

Usually I would just trot ‘round the corner and get my usual pide roll and occasionally, if I’m feeling indulgent, add one of those decadent large size chocolate covered Florentines to the order.

So why is today any different? To be honest I don’t really know. However I suspect that it’s something to do with an increasingly pervasive sentiment that in today’s current environment – “it’s good to be frugal”.

And it’s not just me. Matt Preston, the “Oscar Wilde” type food critic that appears in the Masterchef show I discussed last week, wrote in the Weekend Age, that it’s good to eat-in rather than go out to eat. Which is out of character for one who is usually recommending nice places for people to spend their money eating out.

It seems that while shoppers are still prepared to spend money, they demand more value and more heavily discounted prices than a couple of years ago.

Last week, by way of another example, we purchased a new fridge for the home from a leading national retailer. No not Hardly Normal, I wouldn’t shop there if you held a gun to my head. Well maybe I would, if you did, and it came to that, but you get the idea.

Anyway, after comparing a few prices, the retailer we finally bought it from sold it to us at the cost price – just to get the cashflow. Some $700 below the RRP.

Is it just me, or are any other Blogocrats starting to watch the dollars and cents more closely, than say, in comparison to this time last year?

It’s weird, because our household financial circumstances haven’t changed. If anything we’re better off because we can afford to pay more into our mortgage with the lower interest rates.

It seems that retailers are having sales for the sake of having a sale as they compete for the consumer dollar, and consumers, accordingly, realise that they are in a superior bargaining power.

Take a look at the sale of new vehicles for example. They’ve taken a severe nose dive. Even in the small town of Hobart about 4 or 5 dealers have shut up shop..

It’ll be interesting to see how it all pans out..

Anyway over to youse..

Rudd’s Honeymoon Over.

The Liberals must be rejoicing with the results of the latest AC Nielson Survey! The honeymoon is finally over.

The poll, taken after the Federal Budget last week and published in The Australian, states that Prime Minister Kevin Rudd’s approval rating has slumped by 10 points.

The Nielsen poll, published in Fairfax newspapers on Monday, shows Mr Rudd’s approval rating at 64 per cent – 10 percentage points lower than the previous poll, in late March.

Mr Rudd’s disapproval rating is up 10 points to 32 per cent.

Opposition Leader Malcolm Turnbull’s approval and disapproval ratings remain steady at 43 and 47 per cent respectively.

Mr Rudd’s rating as preferred prime minister is down five points to 64 per cent while Mr Turnbull’s has risen four points to 28 per cent.

The poll shows the coalition’s primary vote has increased six points since March, while Labor’s has fallen by three points.

That result puts Labor only one point ahead of the coalition on primaries, 44 per cent to 43, the best result for the coalition in the Nielsen poll since the 2007 federal election.

Labor’s two-party-preferred vote is down five points, leaving it ahead of the coalition by 53 per cent to 47.

The national poll of 1,400 people was taken from Thursday to Saturday.

It also found 38 per cent of respondents said they will be worse off because of the budget, eight points more than for last year’s budget, while 23 per cent said they would be better off (down eight points on last year).

The Budget was seen as fair by 56 per cent, down one point on last year’s result. Sixty-two per cent were satisfied with it (down four points on last year).