It’s not the economy having a realty check!

It’s not the economy having a realty check!

It is true that currently, we have fewer properties available for sale at the top end of the market. Does this scarcity of available properties mean that consumers have lost their insatiable appetite and prices are on a significant decline? Definitely not! However it is true, that in many markets, merchant bankers have had their pocket money reduced and this has led to the market price consolidation in our economy today.

The three market determinants are economic growth (which is what we all have enjoyed for the past thirteen years), economic consolidation and economic recession. With the economy slowing, we find ourselves in economic consolidation which requires the implementation of cleansing and reforms. These include reductions in overheads, cost cutting and business realignment, all aimed at prevention of the third component, economic recession. I don’t believe we will go into economic recession. It all depends on economic market psychology.

The Westpac – Melbourne Institute consumer sentiment index increased seven per cent (six points) to 92.2 per cent in September, on top of a 9.1 per cent rise in August. If this sentiment continues we won’t see the Reserve Bank of Australia (RBA) decrease interest rates further because economic markets need to remain in consolidation mode for a while yet. Better to formulate a psychology of survival in the turbulent financial markets of 2008. The head teller at the RBA, Glenn Stephens, said in his address to the House of Representatives economics committee “we’ve got to try to navigate through some pretty tricky areas and accept some slowing in our economy for a while. That’s my message.” Otherwise known as economic consolidation. So let’s take a closer look at how our Sydney residential markets are performing.

These Sydney property auction clearance rates identify an exact market positioning where in economic growth, property clearance rates sit from 75 per cent to 85 percent. Otherwise known as a boom market. In economic consolidation, clearance rates (historically) sit at 45 per cent to 55 per cent. In economic recession, they struggle between 10 and 20 per cent and can drop to 0 to 5 per cent. All things considered, Sydney property markets are performing much better than expected and market price psychology needs confirmation, not consolation. Although last week, one Mosman real estate agency posted an economic recession auction result – they are still valuing in economic growth mode.

New Zealand Treasury and economists confirmed this week that their economy was now in economic recession , its first since 1998. On the back of this announcement, the New Zealand central bank slashed its key interest rate 0.50 per cent from 8.00 per cent to 7.50 per cent.

The United States government this week seized control of mortgage finance companies Fannie Mae and Freddie Mac (with names like that, it’s no wonder they failed – Fannie and Freddie). These two institutions own or guarantee half of the country’s $US 12 trillion outstanding home mortgage debt. Australian housing markets currently sit around $3.2 trillion and that is valuation not mortgage. What further insulates our residential property markets is that in Mosman (for example) from 2000 to 2007, houses posted capital growth averaging six to ten per cent. This equates respectively, to 42 per cent and seventy per cent which is well above the Australian average. In the US, the average price over this period rose by 69 per cent and in the United Kingdom the average price rose by 127 per cent. These are property markets in economic recession.

When Michael “Cost –ya Plenty” was sacked as Treasurer last week, he then revealed that NSW is the State of Disgrace. Morrie “Dilemma” also sacked, with revelations that NSW finances now face a $1 billion hole. Newly elected Premier Nathan Rees (pronounced Reece) told reporters “I don’t have time, nor the inclination, to examine why we got those estimates wrong.”

The question now, is that after thirteen years of economic growth (with taxes), and a little thing called the Olympics, where has all the money gone? The NSW Labor government has over this painful period of time, collected the greatest amount of taxes in Australia’s history.

A code of silence exists between Kevin Rudd and Wayne Swan over the NSW bankruptcy dilemma with the government of the day now being referred to as the “Fannie and Freddie” government. Not true that “it could only happen in America!” Businesses in NSW are in economic consolidation and the NSW government “Fannie and Freddie” is in economic recession. If you want an excellent read, grab a copy of Alan Greenspan’s book “The age of turbulence”. It has just been updated and the second edition was released this week with a new chapter on the current credit crisis.

Individual psychology always overrides political psychology – because they don’t make any money until you do – a taxing question? Just like Fannie and Freddie – our elected NSW government has failed miserably and to such an extent, that it could be the worst performing government in Australia’s history.

Quite a number of politicians headed to where their CV’s will make riveting reading and perhaps they should consider using the spell check function. Cheers ^__^

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