The road to recovery is still under construction!

The road to recovery is still under construction!

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/

5 Responses to “The road to recovery is still under construction!”

  • MFM says:

    The financial system is crashing and action must be taken by the US government to convert debt into equity to produce a more stable environment, Nassim Taleb, author of “The Black Swan,” told CNBC Thursday.

    “You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that’s breaking,” Taleb said on “Squawk Box.”

    Anything that’s fragile like the financial system will eventually crash, he said.

    “We’re in the middle of a crash,” Taleb said. “So if I’m going to forecast something, it is that it’s going to get worse, not better.”

    The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said.

    “What makes me very pessimistic in not seeing any leadership or awareness on parts of government on what has to be done, which is deleverage $40-to-$70 trillion,” Taleb said.

    “The monkey on our back is debt,” he added.

    As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.

    “People would be able to start from scratch on a healthy basis. You don’t want to wait for foreclosure,” he said.

    The “recovery” everyone keeps talking about may in fact be the eye in the storm.

  • Amanda says:

    Congratulations on an outstanding month. It comes as little surprise given your professionalism and hard work where you have positioned your business way ahead of your competitors and you have the results to show.

  • Andrew says:

    Dear Robert,

    I always look forward to your insightful, expansive and informative commentary, just a little note with reference to the inclusion that the Irish economy shrank by 8.5% in the March 09 quarter – that is an annualised rate and not a quarterly one, thus it fell by 8.5% over the past year up to the end March ’09 – this may not be clear to some readers. Love the site and keep up the good work.

  • Nicholas says:

    Robert,

    Agree with you on Google. We use Google adwords advertising and since we started website traffic has gone up 20 x. Its takes a few months but we are now page 1 on Google and Yahoo and use to be page 1 on Bing, until their robot probably detected the Google Translator and dropped us to page 4. Deleted the translator now!!! Lets see what happens.

    Google is very cost effective and it works. Google Analytics tells you everything about who is on the site, from where and how they get there, what they do and where they leave from.

    Keep up the good work. Your report is the second best thing on Fridays, after 5pm of course!!!

  • Nicholas,

    Google AdWords is a marvellous tool especially for businesses will low search engine optimisation (SEO). Obviously I have been working on ours for years now so we have huge SEO where on average we are adding approximately 50 pages per week to our http://www.rwm.com.au website which is then fed to the relevant search engines.

    Gee 5.00 pm you are working back 🙂

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