Monday, January 31, 2011

Today Tonight Perth Property Story 30th Jan 2011

Property 2011 --- Perth Today Tonight

Reporter: Mark Gibson

Down, down, down. Perth property prices are collapsing. When Dane and Joanna bought their Seville Grove home, they never dreamed its value would disappear before their eyes."You always expect to make money on an investment not to lose money." In 2006, the couple paid 370 thousand dollars for the four bedroom, two bathroom house. They spent almost 25 thousand on the backyard, a patio and a spa. Four and a half years later, it's on the market for 349 to 359 thousand - less than what they paid for it. "Probably stand to lose 40 grand plus the interest we've paid over the years." Joanna says "Definitely consider it to be a bargain especially considering how much we paid for it only four years ago."

"There are bargains, no doubt about it, if you look carefully and even not so carefully you can find some pretty good buying." Real estate agent Greg Rossen says forget trying to sell your home within weeks.. it's now taking months.

"The average time is 71 days but that belies the real truth that people have had their property on the market for 6 months and there's even some that have had a birthday, 12 months, horrible facts but true."

Figures out today have confirmed Perth as the worst performing city in the country.
In December, the median house price fell another 0.6%.
In the last 3 months of 2010 the drop was 1.9%.
Over the whole year, Perth suffered a 1.5% fall..
while nationally, prices ROSE 4.7%

Four years ago, Janine MacLeod paid 520 thousand dollars for her Mount Lawley unit. "I put it on the market almost 3 months ago at 640 which was considered to be the market price." But Janine's had to slash the price by 40 thousand dollars. "So we've put it down to 599, it's from 599, so I'm hoping that perhaps that will appeal more to more people."

Janine's made an offer on another place, so she needs to sell. "Two bedrooms, a bathroom, a powder room and also a separate study and as you can see it's got this beautiful view. -Stunning isn't it? -It is it's a beautiful view."
It's not hard to see why prices are tumbling.. there are too many for sale signs and not enough buyers. In fact, right now in Perth there are 5,000 more places on the market than this time last year.

"There's currently almost 16,000 properties for sale, equilibrium's about 12,000 properties so a lot of properties on the market." Greg Rossen says if you're selling your home you need to be realistic. "If you're not prepared to accept that the market prices are lower than they were, perhaps even going back to 2007, take your property off the market, listen to your agent's advice, possibly rent it out and find a different solution because flogging a dead horse just simply won't work if there are no buyers at the price you're hoping for."
It's a buyer's bonanza. On average, properties are being reduced by 6 per cent.. the more money you've got, the more you can save.
This Dalkeith mansion listed for 5.6 million dollars last January.
It sold for 4.15 million - almost one and a half million off the price, or 26%.
An apartment in this Crawley complex was listed for 2.28 million.
It sold last month for 1.78 million - a 22% discount.
And this Nedlands home was reduced from 2.6 million dollars, to 2.15, down 17%.
"Buyers do your homework, have a really good look around, speak with the agents who can tell you what properties have sold for, do your own research on the available data bases and shop with a sharp pencil." Since the real estate peak in October 2007 there's been no real growth. So, what's the hot tip for the rest of 2011?
Greg Rossen says "It's going to remain very much a buyer's market and we don't expect there to be any significant capital gain and we're hoping in fact the reverse doesn't happen where prices are eroded and prices decrease, time will tell. Could things get worse before they get better? -They could indeed."
That's not what our anxious sellers want to hear.. they say they can only cut the price by so much. "Definitely prepared to negotiate keen to make a sale but obviously you don't want to lose too much money in this market as well."
And if you're buying. Greg Rossen says "Be guided by the real estate agent but above all don't be afraid to put an offer in."

Sunday, January 23, 2011

High Interest Rates Are Good for the Future of the Housing Market

Why High Interest Rates Are Good for the Future of the Housing Market and for Those Buying Houses

1. Higher interest rates would lower prices
The first and most important reason that high interest rates would be good for the housing market is that it would lower the price of housing to what a normal individual can afford.
Prices of houses are not truly determined by what one is willing to pay for the house; it is determined by what one is willing to pay per month for the house. A homebuyer really doesn’t care if his house costs $100,000 or $1,000,000 – he cares whether his monthly mortgage payment is $1,200 or $1,300.
Thus, on the margin, the price of housing is determined by the cost of borrowing. If interest rates are 5%, the mortgage payment on a 30-year $100,000 loan would be about $536. If the interest rate is raised to 10%, then a mortgage payment of $536 would only be enough for a 30-year loan of about $61,100.
These lower prices would obviously make life very difficult for many people who own houses and are underwater. However, one of the key insights of the Austrian Business Cycle is the realization that the quicker liquidation of bad investments happens, the better. Trying to keep prices from falling is the worst thing that we could be doing. With a drastic fall in house prices, many who are currently paying back their mortgage with hopes of future appreciation will realize that they made a bad investment and will liquidate. Society will instead find new, better ways to use scarce resources. At this point, anything which will help break people out of their paralysis will be beneficial. 

2. Lower prices lower the amount you need for a traditional down payment
One of the most difficult steps for a new home buyer is finding or saving enough money for the initial down payment. It always has been. The recent goal of the government has been to reduce the percentage one needs to get a mortgage, which is how many people have managed to qualify for 3% down payments.
As any recent student of history knows, these low down payments have led to many people buying houses they couldn’t really afford. True, most could at least make the monthly payments when everything went right… but as soon as anything went wrong, they had no safety net of saved money to tide them through. Further, with so little initial equity, it was very easy for many people to have a depreciating house which led to negative equity. In fact, it was possible to roll many of the costs of the loan into the mortgage and to start off with negative equity. When houses didn’t appreciate, and they ran into any financial hardship, borrowers were trapped.
Lower prices, however, reduce the amount of a traditional down payment without leading to little or no equity. A $100,000 dollar house would need a $20,000 down payment to be at 20%. Some banks and regulators are now even talking about the need for 30% down payments. But what if the price of houses fell 40%? Then, even with a 30% down payment, you would only need $12,000 to buy the same house. Further, you would still have an $80,000 mortgage in the first case and only a $48,000 mortgage for the second ($52,000 if 20% remains the "standard" and your down payment was $8,000).
True, $12,000 is a lot more than the $3,000 you might need now for a down payment… but that means it will help weed out many of those who are incapable of paying off a mortgage because they cannot or will not save for the future. Proof of ability to save may be the most important indicator of ability to pay back a loan.

3. Higher interest rates will make it easier to build up that down payment
Not only will the amount needed for a traditional down payment drop, but higher interest rates will make it easier to save up for the down payment. Clearly, with higher interest rates, the incentive for people to save rises. Today, you might get between .5% and .75% saving money in the bank. It would take a very long time for any interest from that to help you towards your goal of a down payment.
If, however, interest rates from banks were 5% or so, the interest you would be earning would be enough to actually make a dent.
For example, let’s say you need to save $20,000 for a down payment, and your budget will allow you to save $4,000.00 a year. With 5% compounding interest, it would take slightly less than 3.5 years to save up $20,000. With .5% interest, it might as well take you a full 5 years.

4. Lower prices make repayment of the mortgage easier
When I was growing up, it was not unusual for people to pay extra towards their mortgage so as to pay it off faster. However, lower prices with higher interest rates makes this process much more economical.
Imagine you are in a situation where you are making the minimum mortgage payment of $536 a month for one of the two mortgages in section one, but you bought less house than your maximum budget. You have, instead, $636 a month to spend.
In the $100,000 mortgage situation, you would pay off your home in 21 years and 5 months, and would spend about $62,675 in interest.
In the $61,100 mortgage situation, you would pay off your home in 16 years and 4 months, and would spend about $62,257 in interest.
Given these numbers, you could pay off your house over 5 years faster with the higher interest rate, and you’d even pay less in interest during that time.

5. Lower prices reduce taxes and insurance payments
As most home buyers know, there are more costs in owning a home than the mortgage payments. The two biggest ones which are regular are insurance and taxes.
Many states charge taxes based on some calculated percentage of the value of the home. Thus, a 40% drop in prices would result in a 40% drop in taxes in many areas as well.Similarly, some states use housing values to determine insurance rates. Those states would see a reduction in insurance rates as well.
Thus not only would the cost of the mortgage go down, many of the other costs will fall as well, which will lead to even smaller mortgage payments. 

6. Higher interest rates will eventually lead to more buyers.
As shown above, the more interest rates go up, the more prices will fall, both for the mortgage and for other costs associated with house payments. As every economist knows, when the cost of something falls, the quantity demanded will rise, all else being equal. This will bring new buyers into the market, and new buyers will help us move through this housing glut.
For the current homeowner, this may hurt financially, obviously. They will lose everything they have put into their houses and, depending on their contracts, still be saddled with some debt. Bringing more buyers into the market and teaching current home owners that they made poor decisions will, however, help bring an end to the stagnation of housing market. Ending this stagnation is in the long-term interest of every person.
For any potential home buyer, higher interest rates are actually much more helpful than the current low interest rates which artificially raise the interest rates, as high interest rates will lower prices, make it easier to pay down payments, and make it easier to pay off a mortgage at an accelerated rate.
Thus, the great fear of many politicians of "rising interest rates" is not the horror story they imply, but the best thing that could happen to the housing market.

Thursday, January 6, 2011

Home ownership getting tougher

Please take the time to browse other articles I have put up.

Forward links to this site so that a counter message to Property Spruikers Hype gets out! 

(Comments & Feedback always welcome Good or Bad)

A 7% home loan interest rates in 2010 is equal to over 22.5% interest rate in 1990 .... 

In 1975 only 24% of average income was needed to service a typical Australian mortgage. 

This was with a prevailing interest rate of 10.38%---------

By 1985 it was still steady at 24% of average income needed to service despite interest rates soaring to 13.5%--------

By 1990 Interest rates went to 16% plus but you still only had to use 34% of average income to service a mortgage.-------- 

By 1995 you needed to use 29% of average income to service a mortgage (10.5% Interest rate)--------By 2005 it had soared to 40% (7.3% Interest Rate)-------

Now in 2010 it takes a staggering 50% of average income to service a typical Australian mortgage despite HISTORICALLY LOW interest rates of 7.79% (Norm 10.11%)- Despite this REALTORS continue to say Australian property prices will double every 7-10 years??? --------

How will anyone pay for it? ----- 

Historically interest rates have averaged 10.11% over the past 30% ---- 

Just 3 years ago in 2008 it was 9.5% ---- a 7% interest rate is equal to paying a 22.5% rate in 1990 in comparative terms.Think about that when house hunting. 

In Jan 1990 interest rates hit a record high of 17% & people managed to keep their homes then so how would this compare in todays housing market?...

The 1990 Median house price was $100K with a 20% deposit & a loan of $80K payments @17% interest over 30 yrs would be $1140 pm or 32% of wages with average family wage of $42K in 1990 @ 17% the worst interest rates in Aust history payments only ever got to 32% of average family income...

Fast Fwd to 2010 Median price is $500K less 20% deposit & a loan of $400K payments @ 7% interest over 30 years are $2661 pm or 43% of wages with average family wage of $75K...

In 2008 interest rates were 9.5% this would work out to payments of $3365 or 54% of current wages .... Now historically for the last 30 years interest rates have averaged 10.11% this would works out to payments of $3545 pm or 57% of wages going to mortgage payments ....

So summing up current housing mortgage payments @ 7% is still worse than when rates were at 17% but just imagine what will happen when rates rise? AFFORDABILITY will not allow future CAPITAL GROWTH & investors will D*U*M*P __ P*R*O*P*E*R*T*Y because without MASSIVE CAPITAL GAINS Property investment WONT WORK!
Note: Although My Figures & Figures from the image extracted from the West Aust 6/01/2011 
Vary slightly but concur the same general information 
If home ownership is twice as hard now than it was for the last generation, what chance will home buyers have in 2020?

It is an issue many fear as they watch current entrants to the property ladder mortgaging themselves to the hilt for the chance at the Great Australian Dream.The previous generation of first-homebuyers certainly had no expectations of the drastic slide in housing affordability that would meet their children.

About 35 years ago, loan repayments consumed only a quarter of a full-time income.

According to the Australian Bureau of Statistics, in 1975 local home loans averaged a paltry $17,800, which was about three-quarters of the value of a median-priced home at the time.This was enough to buy a home in the suburbs, complete with exposed beams, clinker bricks and a sunken lounge.

The interest rate in those days was a hefty 10.38 per cent and most families relied on a single gross income of $690 a month or $8,280 a year.

While single-incomes and double-digit interest rates seem harsh by today's standards, families starting out in the 70s had it much easier when it came to buying their own homes.These days, repayments for the average-sized home loan currently eat into half an average full-time wage in WA.

The average loan is now $389,000, according to Australia's biggest mortgage broker AFG.
Just as in 1975, this is equal to about three-quarters of the value of a median-priced home.Interest rates are lower these days at only 7.8 per cent, and the average gross monthly income for a full-time worker in WA appears generous at $5844, or $70,000 a year.

But the monthly mortgage repayments are $2948, which is half a full-time average wage. As the cost of homes continues to rise more quickly than incomes, there is little wonder that single-income families are fast becoming a relic of the past. 

The problem raises questions about how affordable - or unaffordable - homes will be in 10 years.

Will repayments on the average home come to consume three-quarters of the average income?

Where will it end?

Housing groups believe smaller blocks and homes will come to the rescue, halting the slide of affordability with an array of cheaper options on smaller blocks.

In 1975, Perth blocks were typically 750sqm, but homes were much smaller, with about 150sqm of floor space.

WA's biggest land developer, Nigel Satterley,  has forecast that block sizes would drop to as little as 100sqm in 10 years, though these small blocks would be part of a specialised sub-market, with the average plot size settling at 350sqm.

This is a hefty drop from today's average block size of 465sqm, which is down from 580sqm in 2003-04.
Even blocks in the country are shrinking, at 667sqm this year compared with 710sqm in 2003-04.
A study of aerial photographs from Landgate by _The West Australian _shows that blocks have been shrinking for many decades.

People are paying more & getting less land for their money!!!

Historical interest Rates
PROPERTY SPRUIKERS use HISTORY to support their position that PROPERTY ALWAYS DOUBLES every 7-10 years. As PROPERTY SPRUIKERS are so fond of their history here are HISTORICAL FACTS that you may wish to consider regarding Interest Rates. 

The average bank variable home loan interest rate over the past 59 years in Aus is 8.05%. Standard variable  rates were above 9% from July 1974 to August 1993 when they dropped to 8.75% for 1 year then stayed above 9% till November 1996. 

JUST THINK for 22 YEARS of the last 36 years interest rates were WELL ABOVE 9% not that long ago. 

But lets not go back all the way to 1959 lets go back only 30 years which is what the average length of a home loan  & you will find the following..... 

AVERAGE HOME LOAN INTEREST RATES FROM Feb 1980 to Feb 2010 WAS....10.11% ... 

So if you cant afford a rate above 10.11% should you be in property at the peak of an inflated market? 

Property Spruikers use history  as a guide, as you should & budget on an average interest rate of 10.11% ... Go ahead disregard history after all property always doubles HISTORY SAYS SO. 

Want proof on interest here is the Link.. 
Bankwest Property Survey said Perth median house price is too expensive for key workers (Police / Nurses / Teachers) to get a foot on the property ladder. Survey in July 2009 found Perth is unaffordable for key workers with the median house price 6.3 times the salary of a key worker. Perth was the third least affordable capital city in Australia.  In 40% of Perth’s suburbs key workers face house prices which are more than ten times their salary. These are the essential workers WE ALL rely on every day to provide important services. The unfortunate reality is many are locked permanently into the rental market and are unlikely to get the keys to their own home unless they are willing to commute for long distances. Think about this if  Police / Nurses / Teachers are being locked out of the property market by prices rising out of their reach ? So who is going to buy these houses in 5 / 10 years time when property doubles as Spruikers would have you believe??? Here is a link to the report read it for yourself  

Extracts from:

Wednesday, January 5, 2011

Property Dream or Nightmare ??

Talk about a Train Wreck in the making. 

Where were these K*I*D*S* parents 

{That's right they went Guarantor for the loan} 

 20 years of age Just left school saddled with $300K loan. 

Apprentice Hair Dresser & Builders Labourer 

He (Matt) actually  works for the Homebuyers Centre & when The Homebuyer Centre & The West  were looking for a typical "COUPLE" story to put in the paper, they found someone they could do a story on right on one of their building own sites, having to slave away for 70 hours a week to be able to afford their "DREAM" . 

Like two Deers in a Cars Headlights dazed by the housing dream?

What Matt is unaware of is that housing starts are down 30-40% in WA & there wont be the 70 hours a week available.

Love the part where they state "No Going Out" "No Shopping" they left out "NO LIFE!!" 

For what the great West Aust Debt Dream?

Just how secure is the value of your house when prices are being supported by two 20 year olds with a $300K loan.

Now read the scary bit at the end where they point out:

The centre provides no-savings, no-deposit loans to eligible homebuyers, provided that they have a guarantor.

Just think this is what is keeping WA prices from IMPLODING!!

Couple pay high price for dream

KIM MACDONALD, The West Australian January 6, 2011, 3:40
They left school only a few years ago but fears about increasingly expensive real estate has spurred one young couple into working long hours to pay off their home.
Port Kennedy pair Matt Beezley and Chloe Everington claim the constant discussion about housing affordability had scared them into early action.
Instead of partying like their peers, the pair were living with relatives and pouring every cent they earned into building a home in Lakelands.
Mr Beezley, a 21-year-old building labourer, said he was working up to 75 hours a week to pay off their $340,000 house-and-land package as quickly as possible.
It was part of a plan to upgrade to a bigger and better house in about five years time.
"I know people in their 30s who are living with their parents because they can't afford to move out," Mr Beezley said. "We don't want to be like that."
Ms Everington, 20, said there was a lot of anxiety about housing affordability among her friends.
She said many believed winning lotto was necessary to get on the property ladder.
"There's no going out, no shopping," Ms Everington, a hairdressing apprentice, said. "It sucks."
The couple are building through the Homebuyer Centre.
The centre provides no-savings, no-deposit loans to eligible homebuyers, provided that they have a guarantor.

Source: The West Australian.