News

The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.


Category Archives For: Economy

A reason why upper end property has been so largely affected

Many vendors that have upper end property are involved in the money markets: Big risks, big rewards. With all the volatility and large losses of recent times: this has resulted in forced property sales.

For instance, we’ve been aware of a number of fire sales result due to vendors getting caught up in margin calls from the stock market.

Buyers in the upper price ranges have been few and far apart meaning more choice, and dropping property prices.

It’s not uncommon to see a property that was selling for $3 Million last year being only worth $2 Million in this current market.

Many of those who have jobs in the financial world have been paid heavily in the past few years in bonuses. This year, those aren’t happening and combined with dwindling share/ super portfolios, the losses are too large to manage.

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Consumer Sentiment

Consumer sentiments play a big part in terms of the health of a property market.

Looking at the graph below it would be fair to say, we’ve not seen levels like this for some time. The decline from late 2007 has been dramatic, many nervous people are about.

Naturally this in when the market starts to favour the property buyer who is prepared to act. Prices settle and start to drop back.

This will be an interesting graph to follow over the coming few months and to see what impact the latest rate cuts have to help stimulate consumer sentiment.

ConsumerSentiment1

 

 

 

 

 

 

 

 

 

 

 

 

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Shaky America gets new spark

A rather big news day yesterday for the world with Barack Obama getting up to win the presidential election.

America as we all know has some major financial problems, which has stemmed from their struggling housing market.

Take for example this struggling sale in Pontiac . It’s currently for sale for $150!

Hopefully some confidence is restored in their property market, however time will tell.

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The share market continues its bad run.

I keep bumping into people who late last year invested into the share market only to see more than half of the value injected lost.
It must be a hurtful experience.

As many people are getting out of the share market, we could see a number of investors convert to property in the coming months. This is providing the property market remains stable.

The market is pricing in a 50% probability of a further rate cut when the RBA next meets.

In fact I was listening to an interview with Gerri Harvey (Harvey Norman Founder) who feels interest rates could drop by as much as 2% moving forward.

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The wealthy are still buying

When it comes to the really big home sales, we must turn our attention to the Sydney property market.

We’ve seen the share market fall apart and many investors losing out. However the super wealthy are still buying property, and big.

A record $47 Million plus price has been paid for a harbour front house just recently. The sales address has been keep secret, but it’s believed to be a beachfront house in the suburb of Vaucluse.

The previous record was $32.4 Million.

Over the past four weeks, 4 sales have been reported in Sydney above the $20 Million mark.

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Peer to Peer lending

Possibly the future in money lending. Can you imagine obtaining a home loan from ordinary folk rather than the banks?

It’s a hard concept to grasp however this is exactly what’s happening in America right now. Also helping the situation is the great difficulty in which capital can be borrowed due to the credit crunch.

A number of web services exist in which put this direct transaction together. Word is also about that Google might start a similar process by playing ‘middleman’ between borrower and lender, remember that we’re talking about everyday people. Bill the gardener may be the lender while Jane the baker might be the borrower.

I think many complications exist for this type of structure and it’s hard to imagine myself personally ever using this. However if rates can be dropped back, money remains hard to get and security is in place for the lender, then it might just have a real chance.

This however I would have thought might take a decade to develop. People like the big organization; it gives comfort and security to the process. However we know this is not always the case. Many banks in the USA (See Fannie Mac etc) are possibly going bust. Australian banks are very profitable however recent times haven’t been good.  

Everyday people could be a big part of the future when it comes to money lending and home loans.

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A new type of super fund

Babcock and Brown (One of Australia’s largest property trusts and 2nd largest investment bank) are suffering big time from the financial downturn happening at the moment across the globe.

Recently they’ve announced a profit downgrade of 40% for its 2008 profit figures. Many investment banks are in similar positions and while many of us might not necessary own direct shares, there’s a good chance some of our super funds consist of many of these types of companies.

Superfund’s have taken a big hit recently and the opportunity for do it yourself super looks awfully tempting right now. Companies that have flourished for the last 50 years are expected by many experts to just roll through these bad times and get back on their feet like they’ve done previously.

But the world is changing and changing in an expediential fashion. You can’t just look to past growth rates and expect the same to occur in the future.

Now with more flexibility on how one manages their super fund, wouldn’t it be great if people entertained more ‘boutique style’ options.

A boutique type of super fund such as a group syndicate of 10 people having a $400,000 share each in a total fund of $4,000,000 and having a selection of quality property purchased by the right people. Wouldn’t that just make more sense….

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How bank losses may affect home owners

The big banks have lost a lot of money recently.

If you look at the National Australia Bank and ANZ bank, their share price has taken an absolute hammering. ANZ is almost half what it was late last year.

The key question is, will the banks offset some of these loses by raising interest rates even without any move from the Reserve bank? Or if rates start to decrease which is a real possibility later in the year or early into 2009, will the lenders also decrease rates to match that downward movement?

Unlike America were the banks are actually making a loss, Australia’s banks are still making big profits. ANZ is still predicted to post a $3 Billion dollar profit, however in the world of shareholders expectations. A good profit is simply not enough…

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Troubles in the UK

A quick look into the UK property market shows some interesting observations.

It’s expected that 15,000 estate agent jobs will be lost this year as the UK continues its slowdown.

Registered prospective buyers have fallen by 32% from a year earlier and the average percentage between listing price (a vendor’s asking price) and the actual sale price has doubled to 4.7% from 2.7% 12 months prior.

Australia and the UK are very separate markets; however it’s interesting information to note.
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Wages rocketing in property and construction

Salaries in property and construction have risen by 10-15% over the past year and are expected to increase by a similar amount for the upcoming year. This is due to a shortage of skilled workers in the industry.

In the past 5 years building costs have doubled and more.

For those who are looking to renovate or build a new home……

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