News & Views
Are the good times over for property? June issue # 36
Over the past ten years Australians have experienced a residential property super cycle where values have increased considerably over this period. The main drivers of this meteoric rise have been historically low interest rates, low unemployment, government grants for first home buyers and the strongest terms of trade seen in 140 years. The only hiccup during this period was from late 2007 through 2008, during the Global Financial Crisis, when property values fell around 3.5% only to peak again in November 2010.
However, recent data released by RP Data-Rismark highlights that the Australian property market may finally be taking an overdue breather. Figures show that the median value of houses and units dropped 3% over the year to April. From their peak back in November 2010, Melbourne home values are down by 2.9% to the end of April.
It seems that it is the upper end of the market that has been the major drag. For the year ending April 2011, dwellings in the most expensive capital city suburbs recorded a -5.4% loss. In contrast, home values in the middle 60% of suburbs were down by only -0.9% and dwellings located in the cheapest 20% of suburbs were the best performers, hardly moving (-0.5%). This is hardly surprising considering that it was most expensive homes that realized the highest capital gains during the property boom.
This data is not at all surprising given that we have been continually reminded that property affordability is at an all time low and that Australian property prices are one of the most expensive in the developed world. Median house prices are currently around 6 times the average annual household income compared to 3 times in the USA and 5 times in the UK. (Refer to chart # 1)
The Organisation for Economic Co-operation and Development says Australian house prices compared with incomes are 34% above their long-term average and, compared with rents, house prices are about 50% above their long-term trend (refer to Chart # 2)
Rising interest rates and the winding down of the first home owner’s grant has applied a stranglehold on the residential housing market. Auction clearance rates have averaged just 56% since February this year, compared with 79% during the same period last year, and transaction volumes for houses and units remain about 13% below the five year average and 21% below the same time last year.
So where to for the residential property market?
It is clear that the boom times are well and truly behind us. As highlighted by the above chart, house prices would need to fall 25% to align with the long term average. There are also a number of headwinds, including possibility of further interest rate rises and a sluggish global economic recovery. However, on the plus side there continues to be a shortage of housing.
The most likely outcome is a short term reduction in house prices of around 15%, followed by a stagnant property market for an extended period of between four and five years.
Posted: 30th June 2011
Written By: Glenn Faibairn Director/Private Client Adviser
Are the good times over for property? June issue # 36
Young Australians must approach financial fitness like a gym workout, says Hewison Private Wealth
Young Australians eager to ‘get rich quick’ may be disappointed to hear that wealth creation can be as tough as achieving washboard abs, but those who attended a Young Investors Wealth Forum, hosted by Hewison Private Wealth, in Melbourne last week were in for a reality check.
Super strategies to consider for financial year end, Hewison Private Wealth.
With one month to go until the end of this financial year, wealthier investors would do well to review their superannuation strategy and maximise their super savings before changes announced in this year’s Federal Budget kick in, Melbourne financial advisory firm, Hewison Private Wealth, has warned.
New rules announced within the latest Stronger Super reforms package, banning self-managed super funds (SMSFs) against making in-specie asset transfers, will disadvantage SMSFs and exposes them to greater costs and risks, warns Hewison Private Wealth.
John Hewison, CEO of Hewison Private Wealth, said while the move to introduce MySuper and cut costs for superannuation members has been...
Market volatility continues as expected but there are some very positive signs coming out of Europe and the US. This should go a long way towards bringing some stability and confidence in global share markets which we expect would have a direct influence on our markets in Australia.
It is a question that has probably crossed the minds of many people in their mid-life years who have some spare cash. Is it better to put the money towards paying off the mortgage or into superannuation?
The kids may have finished school or one of the partners may have returned to full-time work and there is some spare cash for the first time in years. But the superannuation balance i...
More people are leaving their large superannuation funds to start self-managed super funds (SMSFs) because they want more control over how their retirement savings are invested.
•A closer look at costs
•'I was overwhelmed by paperwork'
•Cooper: 'No safety net' on SMSF losses
But SMSFs, or ''DIY'' funds, have potential pitfalls, especially for those who are not ...
Investors should aim to diversify their investment strategy to achieve strong returns in a low-interest rate environment, according to Hewison Private Wealth.
Despite low interest rates affecting the net income of cash investors, Hewison has said it is still possible for investors to achieve high returns - if they take a long-term view of their wealth management.
Scaled advice option shouldn't take focus
Self-managed super fund (SMSF) trustees should rely on holistic advice when building their retirement savings, according to Hewison Private Wealth.
While scaled advice options form a core part of upcoming industry reforms, Hewison have said the new provisions should not take the place of more comprehensive advice when it ...
What is Asset Allocation?
Asset allocation is the percentage allocation of investment funds to the various investment classes, the main ones being –
· Real estate property
· Australian shares
· International shares
· Fixed and variable interest
It has certainly been a long hard slog for investors with the Australian sharemarket remaining flat despite all the positive economic indicators. We have low unemployment, a booming resource sector, apositive GDP outlook as forecast by the International Monetary Fund and the Reserve Bank. So why isn’t our share market booming? Major global share markets have recovered despite their economies co...
Over the past ten years Australians have experienced a residential property super cycle where values have increased considerably over this period. The main drivers of this meteoric rise have been historically low interest rates, low unemployment, government grants for first home buyers and the strongest terms of trade seen in 140 years. The only hiccup during this period was from late 2007 through...
While many thought that the world markets would recover strongly over 2011 it seems we have been stuck in a rut over the past few months with most investment markets tracking sideways.
While markets are often driven by fear and greed we cannot ignore the underlying economic factors that also serve to drive investment markets on a global scale.