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THE Australian mortgage market has come off 10 per cent in the past 12 months.

First-home buyers have disappeared and the Reserve Bank has raised the cash rate six times since last October.

No wonder some in the housing finance space have long faces.

But is it as bad as the doomsayers are making out?

Let’s start with an examination of the underlying economy. Notwithstanding predictions of a double-dip recession, the IMF recently upgraded its forecast for global GDP growth to 4.6 per cent for this year and left next year’s forecast at 4.3 per cent.

A bi-annual survey of business economists last month found GDP growth of 3.5 per cent for this financial year (with a recent Treasury update at 3 per cent), only moderate further increases in official interest rates, inflation at the upper end of the RBA target rate but not worryingly so, unemployment continuing benign and rises in the equities markets to the end of the year.

Second, housing starts continue to lag population growth to a significant degree. A recent Macquarie Bank report cites 150,000 homes being built annually since 2005, but population growing at more than double this at 350,000. This equates to a 50 per cent increase in the rate of population growth but no change in new dwelling construction.

Macquarie’s conclusions are validated by ANZ Bank research, which shows that a cumulative 600,000 new homes are required to meet demand.

At the same time, rental vacancy rates across Australian capital cities continue to be less than 2 per cent with consequent upward pressure on rent levels.

The credit growth numbers produced monthly by the Reserve Bank show housing credit growing at an annual 8.6 per cent to May, and growing in May at 0.7 per cent compared with 0.6 per cent in April.

At this level, housing credit growth is well below the double- digit levels of the 2004-07 period, but not catastrophically low. The key observation from this data is the re-emergence of property investors, with significant growth over the year of 6.6 per cent, up from 3.6 per cent a year earlier.

This data is confirmed by the monthly ABS numbers on housing finance, which show finance for property investment growing at double the rate of owner-occupied finance. The ABS numbers also reveal an interesting phenomenon — while the number of finance approvals continues to decline, the rate of decline has slowed over recent months and the value of approvals actually increased in May by 0.7 per cent.

The ABS data also shines a light on first-home-buyer activity. The percentage of first-home buyers to total approvals increased in April to 16.3 per cent, although it dipped again to 16.1 per cent in May.

While this is still well below the mid to high 20 per cent levels experienced last year when the first-home-owners grant boost was in play, it is not materially below the long-term average of about 18 per cent.

Finally, it’s worth reviewing auction clearance rates. Recent data suggests a 60-70 per cent clearance rate in Sydney and Melbourne, although some weekly data may be weaker. While not stunning, it’s a lot better than the 20-30 per cent rates of 2008.

Rates at these levels are also likely to take steam out of house price increases that created concern for policymakers late last year and early this year.

The winter of our discontent in the housing finance market?

I don’t think so. The fundamentals still look sound and the medium- to longer-term perspective remains solid.

via Don’t believe it, there’s life in bricks and mortar | The Australian.

The results of the RP Data-Rismark Home Value Index for June showed that the unit market has outperformed houses over the last 12 months and during the last five years.

Historically, houses have enjoyed a much more rapid appreciation in value than the growth recorded by units. There are a number of reasons for this more rapid level of growth: greater demand for houses, diminishing availability of development land, higher quality of stock and design available for houses rather than units and the greater Australian dream to own a house rather than a unit, amongst a number of other reasons.

Despite these factors, over the last five years units have recorded average annual value growth of 7.4% compared to 7.1% for houses. However, the results suggest that the superior performance of units compared to houses is quite a new phenomenon as over the last 10 years the average annual value growth of houses (9.9%) has well and truly outperformed units (8.0%).

The improvement in the capital growth performance of units in recent times is most likely due to affordability issues. Based on current capital city median prices, unit prices are recorded at $420,000 compared to houses at $495,000. Accordingly, units offer a much more affordable alternative housing option than houses.

Many unit developments, particularly newer units, are also in strategic locations and are where a large proportion of the market aspires to live but cannot afford to buy a detached home. In many cases, apartments provide a viable and relatively affordable option to buy into these markets. A good example of this is Bellevue Hill in Sydney. Bellevue Hill is one of the country’s most expensive housing markets with a median house price of $3.85 million, unit prices in the suburb are recorded at $620,000, -84% more affordable than a house.

The inner city and well established residential areas enjoy high demand for units because in most instances they are: well catered to by local amenity including shops and restaurants, well located close to working nodes and are serviced by existing public transport amenity which is often not available in outer suburbs of the capital cities.

Over the 12 months to June 2010, unit values have increased by 11.4% compared to growth of 10.2% for houses. On a month-to-month basis, annual value growth for units has been outstripping that of houses fairly consistently since April 2008.

via House market outpaced by units.

AUSTRALIAN businesses face a shortage of up to 500,000 workers within a decade, according to a new report.Social demographer Mark McCrindle says the country will next year hit “peak employment” – the point at which more people leave full-time jobs than enter them.

The looming phenomenon is the result of a perfect storm: record numbers of baby boomers retiring from the workforce, Generation Y studying for longer and a major shift in employment patterns that means one in three workers are now in part-time jobs.While politicians talk about limiting migration, employers are staring at an unprecedented shortfall in skilled labour. And the more quickly the economy fully recovers from the global financial crisis, the sooner the effects will be felt.Wage costs are set to go through the roof over the next decade as companies engage in “a bidding war for the best talent”. That’s the good news for the workers of tomorrow.

Generation Y and Generation Z will be able to name their price as companies vie for their skills.The bad news is they will also face a raft of higher, and new, taxes to pay for the health and care costs of supporting an army of baby boomers living longer than any generation before.”We’ll see inter-generational warfare with younger workers asking ‘why should we have to find money from taxes to support a group – the baby boomers – which has the highest net wealth of any generation we’ve had?’ ”

Australia has 5.5 million baby boomers, born between 1946 and 1964. The first of them will reach the official pension age of 65 next year.”Three million Australians will be at the traditional retirement age within a decade – that’s about a quarter of the current workforce,” Mr McCrindle said.”The majority of those are full-time workers. But the 4.65 million Generation Yers coming in to replace them are often working part-time jobs.”

via Wages to hit new highs in Australia with skills shortages | Courier Mail.

KEVIN Rudd has warned of economic disaster from a looming wave of retirees unless Australia embraces a decade of nation building and workforce reforms.The Prime Minister yesterday foreshadowed a shake-up to remove workforce barriers and lift workforce participation – themes likely to be central to a planned overhaul of the taxation system.

Revealing findings of the third Intergenerational Report, Mr Rudd said that, by 2050, there would be only 2.7 people of working age for each person aged 65 years and older, compared with 7.5 people in 1970 and five-to-one this year. Within 40 years, the proportion of the population aged 65 years and older would almost double to 23 per cent.”Unless we make big changes, we will either generate large, unsustainable budget deficits into the second quarter of the century or else we will need to reduce government services – including health services – as the needs of an ageing population become greater,” Mr Rudd said.”At a national level, public finances will be burdened with the increased costs of looking after the needs of older Australians in health, aged care and age pensions. But with a smaller proportion of Australians in the workforce, tax revenues wont keep pace with those rising costs.”

The Prime Minister warned that working families would feel the impact, with slower economic growth holding back increases in wages.”Average family incomes will grow at a slower rate than weve become accustomed to.”The Prime Minister said that removing work barriers for women, getting the unemployed into work and introducing paid parental leave would help minimise the impact of the nations ageing population, but it would not be enough to reverse an economic crisis.”Even with all these measures, workforce participation will fall over the next 40 years, from its peak of around 65 per cent now to around 60 per cent by 2050,” he said.Despite Australias resilience to the global financial crisis, Mr Rudd said Australias productivity growth could not match the 2 per cent recorded during the Hawke-Keating governments.

Last decade, it fell to 1.4 per cent.”If we let this trend of lower productivity growth continue, Australia will struggle to meet the major challenges facing our economy in decades ahead,” Mr Rudd said.He said raising productivity growth to 2 per cent would mean every Australian would be $16,000 a year better off.Mr Rudd, speaking at an Australia Day function, did not give specific examples of new policy, but said productivity would be boosted by current programs, including pumping $18 billion in roads, rail and ports; doubling investments in schools over five years; building a national broadband network and cutting red tape for business.

via Nation building plan to offset ageing population – Kevin Rudd | The Courier-Mail.

Prevention is better than cure!

Do you remember when the GST was introduced into Australia? It was July 2000. Since then, most working singles and couples could have managed to secure (at least) half a dozen well researched residential investment properties. If you did this; congratulations! No doubt, with falling interest rates and a seriously growing housing shortage… the global slowdown would be delivering you more benefits than challenges right now!

Reaction is all too common! Why wait for drastic times to push us to those “drastic measures” that the politicians keep spruiking?

Doesn’t it make more sense to conduct our financial affairs during the good times in preparation for those drastic times… that always find us sooner or later?

Now while we can’t change the past, it is unwise… perhaps irresponsible… not to learn from it!

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The average value of a new mortgage in Australia has risen to its highest level as property investors return to the market, the country’s biggest mortgage broker says.

The average new mortgage lodged in Australia rose to A$354,137 ($442,813) in July, eclipsing the previous record of A$353,223 in October last year, according to mortgage broker AFG. “As every week goes by we’re seeing growing signs of confidence in the property market,” general manager of sales and operations Mark Hewitt said. “Recent reports of house price increases are stimulating the market as a whole and encouraging investors.”

The data showed 30 per cent of mortgages were arranged for investors, rising from a low of 24.5 per cent in March, whereas new home buyers made up 19 per cent of the mortgage market in July, a proportion that had fallen from 28 per cent in March. Also, the proportion of fixed rate mortgages fell to 5 per cent from 8.3 per cent in June. – AAP

Peter Switzer comments on Finance @ Yahoo7

“Every time I interview Australia’s academic bear – Associate Professor Steve Keen from the University of Western Sydney (he predicted a 40% slump in real estate prices in Australia) I always need a positive booster to remind me that the Australian economy is an out-performer and looks poised to beat the global worst case scenarios put forward by other bearish or negative economists.”

The Good News

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AUSTRALIANS Love Property

Not only do we have one of the highest home ownership rates in the world but we also have one of the highest investment rates in the world.

Last year, more than 1.4 million people claimed rental deductions against their tax returns, and 200,000 firsttime property investors are expected to swell that number to 1.6 million this year.

While negative gearing, claiming your losses and cutting your costs are all allowed under our tax system, there are still a high number of mistakes made every year when it comes to property returns. The Australian Taxation Office says more than $25 billion was claimed in deductions on rental properties last year, making real estate one of the largest sources of claims.

Frank Brass, a director of tax company H&R Block, says one of the biggest expenses and often the area where the most mistakes are made is claiming interest paid on borrowings. “If you use some of the money for private expenses, then the interest amount has to be worked out pro-rata – a very expensive process to get your tax agent to do,” he says.

http://www.news.com.au/business/money/story/0,25197,25806877-14327,00.html

Martin comments – I have learnt over the past few years that having a great property is only part of a successful investment. We have seen many people with good properties “in trouble” because they did not set up their accounts and loans properly. Mixing private and investment expenses on the same account , as mentioned above, is one of the common mistakes made. As experienced investors we can show you how we manage those issues for ourselves.

Australia is experiencing a population boom not seen since the 1960s – but it is not a baby boom.

High levels of immigration are fuelling record population growth.  

Australia’s headcount increased by almost 400,000 last year to 21.5 million, fresh data from the Australian Bureau of Statistics (ABS) shows. More than half of the new arrivals, or just over 230,000 people, were immigrants. The rest were babies born in Australia. The federal government this week moved to reduce immigration, cutting the skilled migrant intake by 14 per cent in response to the economic crisis.  

The rate at which the population is growing has surged 50 per cent over the last five years. It is now growing at just under two per cent a year. “The last time Australia experienced higher growth rates was in the 50s and 60s as a result of post war migration and high birth rates,” the ABS said in a statement.  

Western Australia and Queensland attracted the most new people in the year to September 2008. Tasmania was spurned.

For people moving within Australia, Queensland was the mecca, while people from NSW appeared keen to leave their state.

Cathy Alexander, Sydney Morning Herald

March 18, 2009

Australia has about 1.6 million individual residential property investors, according to the Australian Taxation Office – and most of them would be pretty happy.

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