Latest Property News from Ted Hanson

Friday 19 November 2010 The sound and the fury Few things divide neighbours like noise. So what can we do about it? Chances are you entered this world screaming your head off, and your poor mum was likely doing the same: birth is seldom a quiet event. From that rowdy start, life requires us to navigate a complex love-hate relationship with noise -- to strike a balance between the sounds we hear, and those we make. Read the full article 1. Consumer sentiment surprisingly resilient Consumer sentiment remained reasonably buoyant in the first week of November, surprising analysts after the hike in interest rates by both the Reserve Bank and subsequently the Commonwealth Bank. The Westpac Melbourne Institute Index of Consumer Sentiment fell by just 5.3 per cent to 110.7 in November. Westpac's Chief Economist, Bill Evans, commented that it is a surprisingly resilient result, as the average monthly fall in the Index in response to previous rate hikes above the average variable mortgage rate was 9.3 per cent. "As we saw in the 2005 - 2008 period, increases moving rates above that "normal" level (7.4 per cent) are usually deeply disturbing for consumers", Mr Evans said. Prior to January 2008, these rate increases were not accompanied by banks increasing their variable mortgage rates by more than the RBA cash rate rise. At the time of the November survey only one bank had announced its new variable mortgage rate in response to the RBA's rate hike. It is expected that the response could be quite different once the other major banks clarified their policies. The report shows that the rate hikes resulted in a 6.8 per cent fall in the confidence of those respondents holding a mortgage compared to a 3.1 per cent fall from those who are tenants. Other factors will have partially offset the negative impact of the rate hike, including the strength of the Australian dollar, the labour market and the share market. "Somewhat surprisingly, respondents remain constructive on their finances over the next 12 months (up 0.5 per cent)", Mr Evans said. "Even more surprising, but certainly welcome, is the very modest fall in opinions on "whether it is a good time to buy a major household item" which after surging by 9.9 per cent last month only fell by 1.9 per cent. "Along with October, this component is printing its highest levels since the consumer boom periods of 2005 and 2007." Mr Evans concluded the report by predicting that it is unlikely that there will be any further rate hikes by the Reserve Bank until the June quarter 2011. 2. Housing finance lifts Home loans rose slightly in September, according to figures released this week by the Australian Bureau of Statistics (ABS). In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions rose 1.0 per cent in the month of September 2010. The value of loans for owner-occupied housing rose 0.6 per cent, while loans for investment housing rose 1.7 per cent. The number of loans for the purchase of established dwellings rose 1.6 per cent to 41,369 in September. The number of loans (seasonally adjusted) for construction rose by 0.5 per cent in September 2010, however loans for the purchase of new dwellings fell by 3.2 per cent, to be down by 33.5 per cent on September 2009. Over the three months to September 2010 total housing loans dropped by 24.3 per cent compared to the same period in 2009. In seasonally adjusted terms, the total number of owner-occupier loans increased by 0.4 per cent in New South Wales, 1.1 per cent in South Australia, 4.9 per cent in Western Australia, 1.7 per cent in Tasmania, 2.2 per cent in the Northern Territory and 1.1 per cent in the ACT Total owner-occupier loans fell by 1.4 per cent in Victoria and by 0.5 per cent in Queensland. The number of first home buyers, as a percentage of total owner occupied housing commitments, increased slightly from 15.5 per cent in August to 15.9 per cent in September - a modest increase but still well below the long-run national average of 20.1 per cent and dramatically down from the 27.1 per cent level a little more than a year ago. 3. Buying money still costly - or is it? The debate over the true cost of offshore wholesale money continues to rage, as borrowers backed by both sides of government lob shots at the big banks for daring to even consider raising interest rates above the Reserve Bank's 0.25 per cent increase, let alone making enormous profits for share holders. The banks claim their cost of funding has increased sharply and insist they have to pass that cost on to customers while the Reserve Bank and the government counter by saying there is no justification for rate rises above the official cash rate increase. Who is telling the truth? According to financial services research company Canstar Cannex, the real cost of funds to the banks is a very complicated and convoluted thing to unravel. "It's all very well to speculate but very few outsiders are privy to the real figures of each monetary deal done by the individual banks, however, our research does show one very interesting piece of the bank funding puzzle," Cannex research manager Chris Groth said. "Our interest rate tracking over the last four years has identified a trend which might just support some of what the banks are saying. "Prior to the GFC online savings accounts were tracking well below the official cash rate. However, since early 2009 the rates paid to online savings accounts start to track above the official cash rate and they have remained consistently ahead. "The banks are scrambling over themselves to attract retail deposits to fund their loan books," Mr Groth said. "While the banks, the government and the Reserve Bank argue over the real cost of funding, Canstar Cannex can confirm that retail deposits are now a more expensive source of funding than they were prior to the GFC. "This is good news for cashed-up savers but not so good for home loan borrowers." Adding to the consumer confusion is the current debate about early exit fees, exception fees and the cost to consumers of switching loans. It is little wonder home loan borrowers are nervous about what the future holds. "In a rate cycle trending upwards there is always the temptation to lock in an interest rate through a fixed-rate product to eliminate the sting of any future rate rises," Mr Groth said. "We've seen some very attractive fixed rate offers in the market over the past quarter but, by and large, most people prefer to take their chances with variable, as fixed loans account for only 3.4 per cent of borrowers." Timing is crucial when taking out a fixed rate loan, said Canstar Cannex. Their research shows that in only 9 of the past 36 months (Nov '07 - Oct '10), borrowers would be ahead on their monthly repayments by locking in an interest rate rather than taking a variable rate loan. The greatest return received would have been in April last year where, on a $300,000 loan, almost $3,000 in repayments would have been saved. "Borrowers should not be discouraged from looking to fix at least part of their loan, as fixing delivers repayment certainty, the potential to save money on repayments and an interest rate buffer should rates increase further," Mr Groth said. On the flipside, borrowers should remember that they run the risk of losing money if rates decrease and that exiting early from a fixed loan may attract high fees. "Your best bet is to shop around for the best fixed rates which currently show a 3.29 per cent range between the lowest and highest," Mr Groth said. "Don't forget that refinancing or switching may attract fees which should be considered when doing the maths on whether fixing or maintaining your current loan is the best way to go." Canstar Cannex this week released its home loan star ratings report which compared 1,600 home loans from 110 lenders. The report compares fixed and variable home loans for residential as well as investment purposes, awarding five stars to those loans offering outstanding value through a combination of rates and features. 4. Councils admit fees hit housing costs A government body has finally acknowledged what the property industry has been saying for years - that infrastructure charges are destroying housing affordability, the Property Council of Australia announced this week. The Property Council's Acting Executive Director Ken Morrison said comments made in the Courier Mail by Local Government Association of Queensland (LGAQ) President Paul Bell represented a major shift in attitude. "It is pleasing to see the local government sector recognise that high infrastructure charges cripple housing affordability, and commit to work with industry to find a solution," Mr Morrison said. "However, more radical changes will need to be made to the current regime -the situation has become so dire that tinkering around the edges is simply not enough", he added. The Property Council anticipates that a soon-to-be-released draft report by the Queensland Government's Infrastructure Charges Taskforce will result in a fairer infrastructure charging regime for that state. 5. Unreal estate Would you invest in a property you couldn't physically visit? How about one that no one else could, either? In a society where so many things can be done online, it's no surprise that virtual properties are selling - what may surprise is the price tag. One cyber-mogul recently sold off his properties in Entropia Universe (a global online gaming platform with a real cash economy) for nearly AU$345K. According to numerous Forbes bloggers, the man known in the game as Neverdie mortgaged his real home to purchase land a few years ago for $100K and proceeded to build up his online property portfolio on an exclusive asteroid around the game's first planet. One of his creations - Club Neverdie - became a must-see for users of the game, featuring over a dozen bio-domes, a nightclub, a mall, and other venues in which players could spend real money on virtual goods and services. He is said to have sold off all of his properties over the past year, amounting to around $645K. It may have been a risky move, but it did see a reasonable return on a $100K investment. 6. Sleep takes flight We may be flightless mammals, but that has never stopped us from dreaming of flying. Now Dutch design group Tjep has created a space for us to sleep like birds while our dreams take flight. Tak is essentially a large sofa made of fifty soft rubber branches entangled in the shape of a nest, which can be expanded depending on the size of the flock.