Thursday, December 3, 2009

Latest Property News from Ted Hanson

Friday 04 December 2009
Quote of the Week

"The difference between a Flower and a Weed is a Judgment."

~Author Unknown~

House prices on the rise

Australia's housing market bounced back strongly in October after a relatively flat September, according to a report released this week.

The RP Data-Rismark National Capital City Hedonic Index shows that Australian home values rose by an indicative 1.4 per cent in the month of October after just 0.4 per cent growth in September.

Over the first ten months of 2009, Australian home values have now risen by 10 per cent following on from their 3.8 per cent peak-to-trough falls in 2008.'s Senior Research Analyst, Cameron Kusher, remarked that the strong growth figures show that the market is very resilient and that the 25 basis point interest rate increase during the month has not immediately impacted the market.

Rismark International Managing Director Christopher Joye added that while a resilient recovery had been forecast for 2009, it was good to see such a strong growth, which reflects Australia's better-than-expected employment and growth outcomes.

"We project that as mortgage rates normalise, capital growth rates will fall back to more subdued levels", Joye said.

Cameron Kusher said the likeliness of further interest rate rises over the next 12 to 18 months is likely to result in more normal growth conditions over 2010.

"The removal of the First Home Buyers Grant Boost and higher loan costs will also result in greater pressure on the rental market," he said.

"According to our analysis of all home sales in Australia, which we have privately shared with
the RBA, the median Australian home value is only four times average disposable household incomes", Joye commented.

"This is inconsistent with claims that Australian dwelling prices are 6-8 times household incomes.

"People forget that 40 per cent of the housing stock is not located in the capital cities.

"This data implies that Australian housing is not expensive by overseas standards, and also helps explain our internationally high rates of home ownership combined with very low mortgage default rates."

Joye remarked that one question exercising people's minds is the impact of higher interest rates, yet the Reserve Bank (RBA) has pointed out that when they cut mortgage rates by 40 per cent in the second half of 2008 most borrowers did not actually reduce their repayments.

In the RBA's October Board Minutes, the Bank noted:

"[M]any households with home loans had not sought to lower their monthly payments when mortgage rates had fallen and had instead paid down their loan balances ahead of schedule. This would reduce the vulnerability of that part of the household sector to rising mortgage rates."

"The RBA suggested that this means that borrowers should be able to absorb future rate hikes as mortgage costs normalise," Joye concluded.


The Reserve Bank of Australia again raised the official cash rate by one quarter of a percentage point this week, bringing it back to 3.75 per cent.

This is the third consecutive monthly increase since rates bottomed at 3 per cent earlier in the year in response to the Global Financial Crisis.

Announcing the decision, Reserve Bank Governor Glenn Stevens said that with the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker.

"These material adjustments to the stance of monetary policy will, in the Board's view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead", Governor Stevens said.

Protect your position

This week's announcement by the Reserve Bank of another successive rate rise will lead more borrowers to move to protect their financial position and prepare accordingly for the new rate cycle ahead, according to Resi Mortgage Corporation.

Resi's Head of Consumer Advocacy, Lisa Montgomery says although this rate rise may only add around $46 to monthly repayments on an average $300,000 loan*, which in isolation seems a manageable figure, the effect of these rate rises will compound as more occur.

"During the decade prior to the GFC, even when interest rates were rising, Australians were spending like never before - but thankfully there now seems to have been a shift to borrowers being more aware of the implications of their spending and the options available to them", she says.

"However, despite this trend, it is inevitable that there will still be some who will be caught short as more rate increases occur and as with planning for anything - protecting your position is the key."

Montgomery says for many mortgage holders, now is a good time to do an audit of their home loan and its features and determine whether it is still providing them with the flexibility they may need in the future.

"See if you can negotiate a better rate with your lender and if that's not possible, consider shopping around for a lender with a more valuable service proposition", she suggests.

In the current climate of rising rates there are several things that each category of borrower might take into consideration:


  • Always allocate more funds for your current mortgage repayments which will give you breathing space for rate rises, as well as providing a slush fund for any necessary works you may have to carry out on your property.
  • Limit discretionary spending, particularly during the festive period when budgets can blow out.


  • Hold off on purchasing everything new to go with the new house and instead acquire household items as you can afford to pay for them - preferably in cash. Don't rack up additional debt if you don't need to.
  • With rental demand still high and provided your living circumstances allow for it, consider taking in someone to rent a room and help you pay your mortgage.


  • Don't take it for granted you will always have tenants to help you pay the mortgage - have a plan B ready in case the property is untenanted for any period such as having funds set aside to continue paying the mortgage or moving in yourself if your situation allows
  • Remind yourself that repairs and maintenance costs are a necessary part of owning an investment property so allow for them in your annual budget and remember they are tax deductible and will over the long term add value to your property.
  • Monthly repayment figures based on an average $300,000 principal and interest standard variable loan taken out over 25 years.

* Monthly repayment figures based on an average $300,000 principal and interest standard variable loan taken out over 25 years.

Apartments bring down approvals

October saw a large drop in the number of building approvals for units and townhouses, causing an overall drop for the month, according to figures released this week by the Australian Bureau of Statistics.

Total seasonally adjusted building approvals eased by 0.7 per cent in October, driven by a 17.9 per cent drop in multi-unit approvals.

On the other hand, detached house approvals increased by 5.7 per cent following an upwardly revised 1.1 per cent gain in September.

Building approvals increased in three states and fell in three states in October.

The number of seasonally adjusted residential dwelling approvals increased in October by 10.5 per cent in Tasmania, 9.7 per cent in Western Australia, and 4.2 per cent in Queensland.

Approvals dropped by 10.2 per cent in New South Wales and were down by 4.5 per cent in South Australia and 0.3 per cent in Victoria.

The trend number of approvals increased by 2 per cent in the Northern Territory and by 1 per cent in the Australian Capital Territory.

Commenting on the data, Master Builders Australia Chief Economist Peter Jones said that the negative headline figure masks encouraging strength in the growth of new house approvals, but cannot hide the extreme volatility occurring around a disastrously low base in `other dwellings' approvals.

"Investor-driven building of units and apartments continues to be affected by the credit crunch with approvals running at an annualised 35,000 - still 40 per cent below the peak", Jones said.

"The concern is that the fragile housing recovery is still very one-dimensional, and remains hamstrung by tight lending requirements affecting investor-driven unit and apartment builders", he added.

Housing Industry Association Chief Economist, Dr Harley Dale said that building approvals levels currently implied around 145,000 housing starts per year, well short of the new homes required to meet Australia's rapidly growing population.

Breaking the bank

As we watch the four major banks rush to increase interest rates this week, one establishment on the other side of the world has been hit hard for not looking after the little guy.

According to the New York Post, a US couple has received a blue-moon-style Christmas present after a judge - outraged at OneWest bank for what he called harsh, repugnant, shocking and repulsive behavior - cancelled their half-million dollar mortgage debt.

The decision saw over AU$315,000 erased on the principal and $255,000 in interest and penalties cancelled from the bank which had received over $887.3M in the Federal bailout, yet still had a record of cold-bloodedly foreclosing on any homeowner owing money.

The bank is reportedly involved in a similar case in California, where it's trying to foreclose on an 89-year-old woman, despite two court orders telling it to stop.

The lighter side of clouds

Every cloud may have a silver lining, though seeing it isn't always so simple as flicking a switch.

At least it wasn't, until Silver Lining in a Box - a lamp that uses light to paint your walls with the silver lining of cloud shapes. Hand-assembled with a production process that minimises the environmental impact, it's an easy way to keep the brighter side in sight.

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