Mirror, mirror on the wall….

Mirror, mirror on the wall….

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Please tell the Australian voting public that we made the correct call. The Emperor (Kevin Rudd) is a worried man, given that when interest rates start rising the Government of the day (historically) receives all the blame. Monash University political analyst Nick Economou was more succinct “The Reserve Bank of Australia (RBA) is a game – changer” (where this time around nobody will be able to keep them low). “With the indicators being that the bank is starting to ratchet up the rates, the Labor Party would be thinking ‘we ought to go to a poll sooner rather than later, because if we go as scheduled in November next year, there might be three or four interest rises by then’,” Mr Economou said.

It needs to be immediately recognised that the Global Financial Crisis (GFC) was a direct result of failed business/consumer transactions that occurred outside of Australia which furthermore, explains why Australia was first country out of the crisis. Other than Australia, ( thus far) no other Central bank has raised its cash rate – which begs the question, just what makes Australia different from the rest of the world? Is it a direct result of the Federal and State/Territories artificial insemination of our property markets when they introduced the (combined) First Home Buyers Grant Scheme (FHBGS)?

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Were the property debutantes advised that there remains a strong possibility that the RBA cash rate will move from 3.00 per cent to 5.00 per cent over the course of the next two years? The RBA described last week’s cash rate of 3.00 per cent as its “emergency rate” so what then becomes the first home buyers’ emergency exit rate? Were they simply pawns to keep property transactions ticking over during the GFC? Fort Fumble (federal government) did extend the FHBGS . It has happened before – and it is set to happen again, although this time around the consequences will be dire especially for those debutantes now caught in an interest rate upward spiral.

Cast you mind back to when the cash rate hit 4.25 per cent on December 5, 2001 where South/West Sydney went into a property boom. Then the unimaginable happened two +0.25 per cent rate increases in 2002, another two +0.25 per cent rate increases in 2003 (a property boom year), no increases in 2004, one +0.25 per cent increase in 2005, three + 0.25 per cent increases in 2006 and another two +0.25 increases in 2007. In 2007 South/West Sydney property prices fell by as much as 40 per cent, otherwise known as bank sales (10 +0.25 per cent rate increases). Here are the interest rate movements from July 31, 1996 – October 7, 2009 Cash Rate Target.

 

Macquarie Economics Research went a step further by predicting (and they are usually spot – on with interest rate predictions) that it expects the cash rate to rise by a further 25bp (basis points) before the end of the year, and to reach 4.00 per cent by 2010. In this week’s edition of Australian Economics Interest Rate Outlook “The RBA decided to raise rates sooner rather than later, and the 25bp increase in October was the first step “towards more normal levels.” With the economic data consistently stronger than expected and downside risks dissipating, the RBA now expects growth to be at trend levels in 2010. Consequently, the “basis for such a low interest rate setting has now passed.” No doubt Australia’s weekly clearance rates are being closely monitored on the RBA radar where our recession if you want to call it that was mild when compared to other advanced economies. From September 3, 2008 to April 8, 2009 (seven months) the RBA slashed the cash rate target by 4.25 per cent which still remained the highest when compared to other advanced economies – hardly a Great Depression.

 

If you look at Sydney’s clearance rate (74.2 per cent) this is a very strong result. There were 811 public auctions conducted and many more would have subsequently sold after auction. A combination of record low interest rates, our fastest growing population explosion in forty years and grants to first home buyers – what a cocktail! A report compiled by Access Economics found that Australia’s population grew by 1.9 per cent in the past year, helped by the highest birth rate since 1971. But let’s not forget one other major initiative (if I can call it that) that was introduced by The Emperor in December 2008.

Adam Schwab wrote in Crikey Foreign buyers blow out the housing bubble “ The causes of Australia’s ever-inflating housing bubble are many – artificially low interest rates, government stimulus and a real estate industry devoted to an ever – increasing house price to name a few. However, a less well – publicised factor may also be at play, that is the influence of foreign buyers.”

“In December 2008, the federal government, whose primary goal appears to be maintaining property prices at unsustainably high levels, introduced legislation relaxing rules for foreign buyers of Australian property. The rules were especially helpful for property developers, who coincidently happen to be large donors to the Labor party.”

In search of anecdotal sales evidence I went ran an article on News ”Million – dollar sales force up property prices” Forget the “for sale” sign, the new catch – cry in Melbourne’s leafy suburbs is “duoshao qian”. Victoria’s top real estate agents have begun hiring Mandarin – speaking salesmen to cash in on the property boom. Translated, “duoshao qian” means “how much” And it’s a question being asked more than ever before, The Herald Sun reports. Leading agents say more than 30 per cent of their stock is bought by families from mainland China.

Back to Adam Schwab in “Such is the federal government’s fear that a residential property slump will be a negative at the polls, they have introduced a policy that exacerbates Australia’s housing shortage and prolongs an asset bubble. According to Foreign Investment Review Board (FIRB) data released last month, foreign investment in Australian real estate shot up by more than 30 per cent this year to $20.4 billion.” Wonder when the mirror on the wall will speak about or even repeal this legislation – especially when you look at this.

 

Again, on CrikeyNSW the epicentre of our housing crisis Bernard Keane wrote “NSW is the epicentre of a long – term public policy disaster in housing that will have a major impact on Australia’s recovery from recession.” Technically Fort Crumble (NSW government) has been going backwards for years technically known as government economic retreat. “This graph shows housing and other dwelling commencements in NSW over the past thirty years. Despite wide variations, in the ‘80s and ‘90s housing commencements essentially moved around a band of 6 – 7,000 a quarter. The GST caused a spike and then a sudden drop across the country, and NSW recovered like other states, but then, inexorably, began to decline. Non – house dwellings, which had been growing as a proportion of the total NSW housing stock, similarly peaked and then began falling with housing commencements. The problem lies in the lack of land released by the NSW Government and NSW’s disastrous planning regulatory system, which makes life immensely difficult for developers.”

The Emperor has much to answer – however he has not been sighted since the RBA upped the cash rate this week. I wonder what he proposes with his very own legislation that sent out a universal invitation to buy up Australia. Mirror, mirror on the wall……. our real estate markets have much reflecting ahead.

Tim Mooney will be back with his weekly photograph next week – I forgot he was on assignment this week.

Cheers ^__^

For this week’s recorded Mosman real estate, Cremorne real estate, Neutral Bay real estate and Cammeray real estate sales www.rwm.com.au/news/

2 Responses to “Mirror, mirror on the wall….”

  • Mark says:

    Thanks Robert,

    I wonder with the $A so strong whether Aussies will start looking at under priced and distressed real estate in the US. Given their economy will not likely rebound until 2011 or later, there must be some prized assets.

    Have a great weekend

  • Gordon says:

    Good point, Mark, and a large part of Europe could likewise offer opportunities for us at the moment.

    Re the houses/other dwellings graph, it would be interesting to see the other states’ figures superimposed on Fort Crumbled.

    Well, maybe not; we wouldn’t want to get too depressed going into the weekend.

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