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Here we go again – Mad Monday wiped $40 billion from our shock – markets and once again, hedge funds ran amok with an  insatiable desire to short stocks. Throw in the calamities of Europe, a highly sensitive super tax on mining and  a federal election and we see emotions running high.  What is abundantly clear is, that financial markets now, more than ever before, will dictate property markets results for quite a few years to come.  As they say “money makes the world go around” and it would be fair to suggest that currently, it is spinning much slower.

With world economies delicately poised and many drowning with self induced sovereign debt,  parts of Europe are crawling on the banking bridge of bankruptcy. Greece laid low by its decadence it was quick to blame US banks for debt woes. Brace for China’s heavy breaking was concerning also given the revelation that Germany still fears a meltdown.

What we are presently seeing from China will play a dominant role on the Australian economy, since China is trimming its commodity shopping list – hence a weaning off Aussie minerals. This suggests that Fort Fumble’s (federal government) resources super profit tax will be revoked due to international circumstances. Not exactly a great week for The Emperor (Kevin Rudd) when shares hit a nine – month low then our Aussie dollar nosedives as Europe worries bite. It should be noted that plenty of investors are actively buying up US dollars (USD) – the CCC – Current Calamity Currency.

BUY PRINT

Not a great week for Fort Grumble (federal opposition) Abbott put to the sword over ‘gospel truth’ gaffe which I thought was best summed up with even the honest ones find it hard to lie straight in bed. Whichever way you look at it the next federal election will be a brutal contest, won or lost in Queensland which I don’t necessarily agree with as this election is about money – Rudd’s budget trick: pie in the sky when you die.

Much is being said about what is happening in the Australian property markets so let’s attempt to clear the picture. The Reserve Bank of Australia (RBA) released Recent Developments in the Housing Market and its Financing by Luci Ellis Head of Financial Stability Department – now that would be one tough job. “Housing is a big deal. It’s the biggest purchase most of us will make. It’s an asset class worth almost $4 trillion, accounting for around 60 per cent of household assets in Australia. Loans to buy property account for nearly 90 per cent of all household debt and around 40 per cent of the assets of Australian banks and other deposit – takers.”

Now it gets interesting as “housing prices in Australia have more than recovered from their small decline in 2008. In the first three months of 2010, prices were growing quite smartly.”

Demand – side Drivers

Unprecedented low interest rates marinated with Government policies of First Home Buyer Grants where the RBA has raised the cash rate by +0.25 per cent from six of its last seven meetings. The HIA/Commonwealth Bank survey of first – home buyer affordability dropped four per cent in the March quarter to its lowest since the September quarter of 2008. HIA senior economist Ben Phillips predicted that the RBA’s  interest rate rises in April and May would probably see housing affordability sink to the record lows of 2007 when mortgage rates rose above 9 per cent.

The First Home Owners Grant was introduced in July 2000; the Australian quarterly weighted average median house price was $220,443. The Australian weighted average median house price in the most recent quarter for which data is available, December 2009, was $514,599.

With interest I read this week in the Macquarie Economics Research Report

• The RBA recently upgraded its medium – term inflation forecasts to three per cent, which suggests that there is certainly more work to do regarding the tightening of monetary policy in this cycle.
• As a result, we expect that the RBA will recommence tightening later in the year, taking the cash rate to 5.00 per cent by the end of 2010 and 6.00 per cent by the end of 2011.

That  said, I would  like to hear its views given that Wayne Swan predicted (in current budget papers) that it would remain around 2.5 per cent in 2011. I will make a prediction of 3.5 per cent for the June 2010 quarter, 4.2 per cent for the September quarter 2010 and 5.0 per cent for December quarter 2010. Who would have thought double – digit inflation a possibility?

The Role of the Supply Side

“Together with these demand – side drivers, the supply side is important. The supply of housing is always going to be quite sluggish: most of it is already there. The additional amount of new supply is inherently small relative to the stock.”

Bear in mind banks on global hunt for $ 125 billion where pre global financial crisis long – term funding used by the major banks to finance mortgages, personal loans and business credit will have to be replaced at much higher prices between now and September next year. This signals that the cost of money is getting more expensive, rents will go through the roof and we expect vacancy rates to hit all time lows. Brace yourself for some financial turbulence ahead.

Property market clues are RBA warns lenders and borrowers to be prudent combined with top homes take double time to sell a natural response given the economic environment. With the Aussie dollar in freefall as our share market smashed down to lowest in nine months which is certainly not helped as European and Japanese investors are selling down due to Fort Fumble’s new mining tax which is significantly affecting the sovereign risk of Australia – the huge bear raid on Australia.

Here is a classic example of why our property markets performed so differently during the global financial crisis. With subprime, the banks in America could not chase on default.  In Australia they can – with vigour and dire consequences, otherwise  known as bankruptcy.

The Financial Stability Perspective

“Even if household balance sheets were to become overstretched to some extent, historical experience suggests that this, on its own, is unlikely to pose significant risk to Australia’s financial system.

“If we focus on the group of households with debt that have higher repayment burdens and high loan – to – valuation ratios, we can see that their numbers have risen over time. But overall percentage has remained very low. This was true even in late 2008, the latest available data, when mortgage interest rates, and thus repayments, were at their peak.”

The Key Role of Lending Standards

“Only a minority of recent home loan borrowers started with a loan – to – valuation ratio above 90 per cent. First home buyers have long faced greater risk than more established home owners who have more equity in their home.” This was clearly evidenced in Mosman during the global financial crisis where ‘mortgagee in possession’ sales could be counted on just two hands (with spare fingers).

This is definitely not a time to be carrying high debt ratios given all that is happening globally and yes, the cost of money is going up due to unprecedented sovereign debt collapses.

Memo to: The Emperor

Subject: Resource Super Profit Tax (RSPT)

We are faced with market suicide – “mining tax ‘contagion’ set to spread globally your resources tax was not designed to frighten, but investors may be scared anyway.  Just take a look at what is happening to the Aussie dollar whacked as debt crisis bites. The global financial crisis not over yet, just delayed so stop upsetting the mining companies and let them – (not you) lead this great nation back down the road to recovery. We need them in Australia – not out of it!

Welcome home – Jessica Watson.  Can you tell The Emperor, that no other Prime Minister has ever sailed solo around the world (clue) and a Pink Lady awaits him for his voyage.

The Real Estate Institute of NSW has just announced that it has secured an undertaking from Barry O’Farrell that he will repeal the ad valorem tax should the NSW Liberals and Nationals be elected in the upcoming state election.

Cheers ^__^

This week’s sales Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Cremorne real estate, Cremorne Point real estate, Neutral Bay real estate, Cammeray real estate Click Here

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21.05.10Robert Simeon17 Comments »

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The only problem with writing a weekly blog in the present environment is finding a place to start, because of the constant bungling at both Fort Crumble (NSW Government) and Fort Fumble (Federal Government).

Let’s start with our consistently high performing Fort Crumble where dumping the Metro cost $500 million according to Premier Pristine (Kristina Keneally) “The CBD Metro was a nearly $5 billion project we wanted to be sure as a government it represented value for money.” So we have a $200 million compensation plan from builder Lend Lease and another $300 million had already been spent on the doomed rail wreck. Fort Crumble’s greatest tax payer debacle?

Premier Pristine had her defining plumage ruffled further when she was advised Rudd wants $80 million back as metro bill grows so the train wreck bill has apparently now climbed to $5.3 billion. The Infrastructure Australia money was among dozens of grants shelled out to projects across Australia. The submission by NSW was considered the worst of any of the states. Consequently, only money for scoping studies was handed out. A $5.3 billion tax payer Yes Minister – no brainer!

The Emperor (Kevin Rudd) then took time out from his Doctorate of Medicine studies and if his radical diagnosis proceeds, based on his elective political surgery for our ailing health systems, our States and Territories will need a second opinion. Reductions in Government Spending Tax (GST) appear to be thwarting The Emperor’s prognosis and the diagnosis is a referendum for Dr. Krudd. A bummer for The Emperor as his economic mind sadly lacks the “Midas Touch”.

Buy Print

What a brilliant capture this is. It appears that everything in Australia is climbing. We asked Tim Mooney to make sure that everything was colour coordinated so he had to wait for an aqua car. Each and every business faces a climb back from the GFC and how appropriate is this picture. We have had a number of subscribers contacting us to purchase photos (see our Buy Print above).

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Big Bazza O’Barrell launched his election slogan for next year’s NSW election One year out, O’Farrell picks election slogan “Make NSW Number 1 Again”. Fixing NSW’s economy is the management challenge of our time, wrote Jeff Kennett NSW should look south of the border for the way forward. Jeff Kennett said “I have been asked what I think is necessary and essential for NSW to start rebuilding. It is simple enough, in theory.”

“A new government must be elected, if for no other reason than to end – once and for all – the poisonous culture of self interest that exists among the majority who make up the current government.”

“The alternative government will, over the next 12 months complete (I assume they have well and truly started)– the work needed to immediately commence the reform programme, once in office.”

“This will require a once – in – a generation programme, similar to what we put in place over two terms in office in Victoria.”

A scathing review – “The cost of this entrenched period of failure to NSW and Australia has been monumental. Not only has NSW failed to keep abreast with the advances in thinking and technology, but all basic services that should be provided by government have deteriorated compared with those in other states.”

Charlie Aitken wrote in his Under the Southern Cross – “The political waters are clouded by secret agendas and the political landscape is generally a minefield of broken promises and policy failures. In addition, with a few exceptions, it often appears that the main aim of a politician is to gain re-election rather than pursue genuine political reform.”

The report identifies “Bad Policies” – so look at the failed Emissions Trading System, Pink Batts $2.400 billion debacle (which now requires another $200 million for stuff – up corrections) Fuel Watch and Grocery Watch, just to name a few. Throw in the now growing school halls bungled programme – which will gain greater momentum over time as Ray Hadley at 2GB keeps probing. Julia Gillard says schools building programme saved nation from recession and NSW scraps Hastings Public School project in back flip after critical audit of proposed COLA where a covered outdoor learning area would cost $954,000. A similar structure cost $78,000 back in 2003. Little wonder everything is blocked in the Senate. Government incompetence does resonate throughout the business community – which impacts economic sentiment, growth and confidence.

Bright economic outlook for Australia – Reserve Bank Assistant Governor Philip Lowe at the Reserve Bank of Australia (RBA) said underlying inflation had “moderated significantly” and was expected to decline from 3.25 per cent to 2.5 per cent during 2010. This means that interest rates will move back to normal levels so the 49 – year low of three per cent won’t (in our lifetime) be seen again. Get set for a bank gouging bonanza given Westpac chief warns of need to raise rates although GFC not over, says ANZ chief. Get set for a roller coaster ride in 2010.

Australia’s property bubble: it’s here” it’s official: 60 per cent of investors believe Australia has a property bubble. A confluence of housing shortages, low interest rates, speculative fervour and last year’s move by the Rudd Government to relax the rule of foreign ownership on real estate, has turbo – charged house prices.” I assume they are comparing the property markets to quarter 4 – 2008 although it should be noted that during the global financial crisis (GFC) it was speculated that half of Mosman houses were for sale (2,450) homes and it peaked at 195 homes. I did like this piece in the article “But as John Maynard Keynes famously said: “A market can stay irrational longer than you can stay solvent.” So true – the Mosman market is presently skittish and we are seeing a dramatic increase of foreign buyers moving into our markets.

I have absolutely no idea why The Emperor decided to make the Australian property markets international over local? “The increase in foreign purchasers cannot be underestimated. This abolished mandatory reporting of such acquisitions in a bid to “enhance flexibility in the market”. Absolute rubbish and bulls&%#!

Richardson & Wrench Mosman & Neutral Bay (RWM) are proud to offer “Glen Osmond” to the market place – C 1901 an iconic Mosman home set on a grand estate – “Glen Osmond“.

Is the lifting of foreign ownership a sound decision? We look forward to reading your thoughts on our blog. I tag the politicians so Media Monitors pass on to them, all the comments on our blog.

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Our Australian population hit 22,000,000 this week according to the Australian Bureau of Statistics (ABS) – so what does that do to this supposed bubble?

Cheers, ^__^

This week’s sales Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Cremorne real estate, Cremorne Point real estate, Neutral Bay real estate, Cammeray real estate Click Here

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26.03.10Robert Simeon20 Comments »

We transacted $61,238,200 in sales (houses and apartments) last month. Fantastic, but we are still aware of the caution that needs to be exercised in the current financial and property markets. Certainly a strong contributing factor was the announcement that in the March quarter 2009, the economy grew 0.4 per cent which saw Australia avoid a technical recession. Economic growth forecasts from the Reserve Bank of Australia (RBA) May Statement of Monetary Policy, predicted that the March quarter would contract by 0.4 per cent and this would then be mirrored in the June quarter 2009. Our subscriber sales broke a new barrier last week and now sit on $909,716,219.

All eyes will obviously be on the June quarter economic growth figures which (if positive) will lead to stronger market sentiment. The Irish economy shrank by 8.5 per cent in the March quarter 2009. The road to recovery will be re- built on small steps, not leaps and bounds.

South Head – Sydney Harbour www.timmooneyphotography.com

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Whilst property prices dropped, it was interesting to see vendors using the cheaper, electronic form of marketing. When this happens, the real estate agencies running hi-tech online models lead the markets simply because they have stronger lines of communication and larger audiences. Just as interesting, is the ever-increasing number of subscribers to Virtual Realty News. Of course this is no surprise, given the growth of social online networking and real estate has an enormous online audience of property voyeurs – a sign of the times.

Did you notice in the aerial photograph, that the Eastern Suburbs has a red tint in its foundations? Well actually, it’s not just the East, but all markets. Australian households have lost a staggering 36 per cent of their financial wealth since the impact of the global financial crisis (GFC). We can now expect the worm to turn, (although very cautiously) based on the report from the Australian Bureau of Statistics (ABS) that the combined wealth of households at the end of March 2009, was $787 billion. In September 2007, household wealth was $1.246 billion. What remains to be seen is when and where cash and bank deposits re-emerge in financial and property markets.

The general “rule of thumb” in property is that one third rent, the second third own with a mortgage and the final third own, without a mortgage. Now it gets interesting as we attempt to track these monetary circular flows of income.

Rent

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The most dangerous demographic, which in recent times has displayed multiple personalities – to rent or become a First Home Buyer. In May 2009 – 7,300 (double 2008 levels) took advantage of government grants in NSW. Australia wide, 19,607 jumped into property and the total thus far is just over 97,000 (anyone else thinking of the subprime model?).

This is a false economy for a number of reasons given that rents continue to climb. New home sales slumped nationwide last month and sales contracted by 5.7 per cent in May. Building approvals fell 12.5 per cent to 9,953 units in May, seasonally adjusted, from a downwardly revised 11,374 units according to the ABS. In the year to May, building approvals fell 22.4 per cent.

The Real Estate Institute of NSW reported this week, that the Sydney rental vacancy rate fell to just one per cent in May 2009 (the lowest recording in twelve months). In a healthy market, the rate should sit anywhere between 2.5 to 3.5 per cent. Alarm bells should be (but are not) ringing as those in rental accommodation are buying (97,000+) which takes us now to those with mortgages.

Home owners with mortgages

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Another tight-rope market given that property prices are recovering (the market has bottomed) and interest rates are at 49 year lows. The RBA is caught between a rock and hard place. It can lower the cash rate further however this decision is based on economic outlook and unemployment – which look on the positive side. The major banks are dealing the cards as they want to increase rates citing higher borrowing costs. The RBA cash rate currently sits on 3.00 per cent which remains unchanged for the last two months. The CPI Inflation Rate year to March 2009 presently is 2.5 per cent.



With Australia’s unemployment rate at 5.7 per cent in May it is highly unlikely that the RBA would drop the cash rate below 2.5 per cent. The lowest cash rate was recorded back in January 1960 at 2.89 per cent. Should the RBA drop the cash rate further, there is no guarantee that the major banks will follow suit.

Home owners without mortgages

These are the main game players given the importance of where they invest their monies. Many moved out of the property markets simply because the incompetent NSW government taxed them out of the financial equation. Despite attractive rental returns, their cash and bank deposits will in all probability head back to the share market. Boston Consulting Group recently announced that Australian companies are some of the world’s best in creating wealth value for shareholders. Their research identified that in the five years to the end of 2008, the Top 100 companies listed on the ASX generated shareholder returns of 6 per cent. Europe (0 per cent), United States (-2 per cent) and Japan (-3 per cent).

Now think of inflation and Ruddy Fantastic’s Fort Fumble (Federal government) where inflation was ballooning way beyond the RBA’s comfort zones due to the three inflation accelerants – rent, food and petrol.

Unlike our business (RWM) Kevin Rudd and Wayne Swan have an online problem and Fuel Watch and Grocery Watch (election promises) which have failed miserably, are nothing more than embarrassing failures.

So what we have now, are banks controlling interest rates, petrol companies running amok (again), and Coles and Woolworths setting food prices! Hardly Nation Building – yet Ruddy Fantastic flagged the possibility of taking ownership of state public hospitals. This week he stated “I was absolutely clear cut about that possibility at the last election.”

No doubt he has plans to implement a Hospital Watch website too!

Australian businesses are doing well, on the road to recovery. Fort Crumble (NSW government) conducted an internal poll and concluded that the majority of its members would not be returned at the next election – shock horror!

Keep an eye out for rental vacancies, interest rates, petrol and food prices and hope that the road to recovery does not become the long and winding road.

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/

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3.07.09Robert Simeon5 Comments »