Sure 30% of the market can have an effect but 70% of the market has a bigger effect in my opinion. Data is published by the ABS and other data collectors and reporting agencies.

  Asked and answered; Kris should buy in my opinion.

How many guesses do you want? Property obviously – this is a property forum isn't it?.

Property in Australia has doubled every 7 – 12 years for the last 140 years. But it does not do that in a linear fashion. It booms, it goes flat or slightly neg or slightly pos for a few years (plateaus) and then goes ups quickly again. The last 2 years of a 10 year cycle can see 40% of the growth.

So what? doom & gloomers can be found in every part of the cycle – irrelevant

recessions are part of the cycle – read my previous posts. recessions are irrelevant to investing, they are part of the economic cycle.

Yes that is what happens in the recession part of the economic cycle – irrelevant.

  Yes, which is why I suggested that if you are investing that you mitigate that risk, by fixing the interest rate on all or part of your loans.

I was expecting that to be the case from the tone of your last posts – you seem to have made up your mind already. BUt at least you have an opinion.

No. What I said was the frenzy had "died down a bit". If you are of the view that the ONLY thing holding up prices in the lower end is the FHBG/B then Yes – hold off. But FHBs only represent up to 27% of the buyers in the market (in a frenzy) and only 22% in a normal market. That still leaves over 70% of purchases being made by non-FHB. My suspicions are that when the Boost is removed there will be enough normal buyers and a good number of investors (who I know have stood off on the sidelines waiting for the Boost to go away) buying and supporting prices. The holding costs for many of these properties are virtually zero which is why I see investors back in now.

  Who would have thought? Well lots of people, like me, who have seen a number of cycles I suppose. Prices always overshoot in a boom, then come off, then flatten out, then rise again – pretty normal for the cycle as far as I can see.

I agree, that is always good advice. One thing you can do to protect yourself against future rate rises is to lock in a fixed rate for 10 – 12 years now. Especially if you have no plans to sell and are a long term buy & holder.

I'm going to answer this point only, because it was the subject of the thread to start with (and I am having difficulty understanding what point/s you are trying to make).

Should Kris buy now?
If in the $1M+ stuff – sure Kris can pick up a bargain – a good property at a 20% discount from distressed sellers.
In the $600K – $900K bracket – sure. Plenty to pick from, plenty of time to make a choice, time to negotiate hard, not much competition.
In the sub-$500K bracket where FHBs are? I think the big rush to buy & the frenzy has died down a bit. The Feds are offering free money – take it. I don't see the price of a $350K property coming down. As per my previous posts, rent is the same as buying for a property in this price range. Investors are back in propping up prices also. If Kris waits for the market in this price range to crash, I think it will end in tears. Hoping for a market crash is not a wealth creation strategy in my opinion.

Correct – agreed

We are in a GFC – yes agreed. I don't know what a "CREDIT recession" is – but we are likely heading into a recession – yes. Even though we are not "technically" in a recession yet. BTW, banks are not running out of money, they are just getting fussy about who they lend it out to. At the end of the day, the banks make profits from interest. If they don't lend it out then they cannot make a margin on it.

Sorry I can't agree. People with steady jobs, cash or equity for deposits are borrowing just the same as they always did. Developers are finding it harder to get funds – yes. If they stopped going broke they might have a better show of getting finance. (Yes – Catch 22 I know)

Well No actually. As you say a little later in your posts, it is only the lower end that is really booming. Most of our clients are not FHBs. They do not want to pay us fees to find property for them out of their meagre savings – fair enough – I have no problem with that – especially if they have plenty of free-time to look for themselves.
We do have some FHBs though as clients and these are generally busy professionals who appreciate how to leverage their time. Overall though I would like the market as an investor to rise (increasing the value of my properties) but as a BA I'd like it to be flat – so I can cherry pick the best properties for my clients and get the best properties for the lowest possible price.

Yes, if they HAVE to sell they are taking a 20% hit

Staying flatish here in NSW – this will vary from state to state

Yes – I've seen rises of 5 -10%

I'm open to suggestions

Believe it or not, I have actually advised some of our investor clients to hold off buying while the FHB frenzy was on. You just can't compete with FHBs throwing the Feds money at vendors and pay over list price…..or don't want to compete, to be more accurate.

I'm sorry I do not subscribe to the "it is all going to be different this time" theory. I'm too old – I've seen too many recessions come and go. They're all the same – I don't care to participate.

I have looked it up. We get 7 -10 year economic cycles that go RE cycle, share market cycle, cash cycle (recession if you like), RE cycle etc etc. same old, same old. Learn to see it and profit from it. On top of this cycle you have an 80 year deep recession (depression) cycle. Last one was 1930's and surprise, surprise just about 80 years on – here we are again. Its more of the same – no surprises.

Which is why – as I started at the beginning of my posts, that I think it is a good time to buy RE. If the conservative old banks are happy to lend to good borrowers for RE (and they are). I'm happy to take their cheap money and invest. Simple as that.

The banks might be independant from the RBA but they are operating in an environment where the Govt guarantees their business. Banks also cop political pressure for not passing on rate cuts. So this particular current environment is a bit different from 'normal'.

  Tighter credit criteria means less mortgage defaults because no credit impaired or people pushing the envelope will get funds to buy housing. This will stop a sub-prime USA style scenario. This I think is a good thing.

Yes they might be biased or they might be right or both.

Not ALL certainly but I see a lot of overseas parents buying property for their University attending, fee-paying kids. And why wouldn't they? It is cheaper to buy a 3 brm house for $300K near Newcastle Uni than to rent 3 rooms @ $150pw per room per kid in the private market. I see plenty of kiwis buying our stuff too – and we buy theirs – so its only fair.

  That is what the economist from Westpac bank said. I am merely defering to someone who should know – as I pointed out.

The #1 question we get asked all the time: “Is it is a good time to buy now?”

From our Autumn 2009 newsletter:

Low Interest Rates:

Interest rates had been cut again in April by the RBA. Admittedly, only by 0.25%, with less than half that (0.1%) passed on by 3 of the big 4, with the hold-out being NAB which passed none of it on. We believe variable rates will continue to come down. With Westpac saying in their Market Insights Report of April 2009, “We continue to expect the cash rate to fall to 2.0% by year’s end”.

On the flip side, some fixed rates are on the rise because, according to our money market contact, “Interbank swap rate for the 3 and 5 yr products had a bounce and were looking to stay up. This increases the cost of funding to the lender, thus for the lenders to maintain their % margins they must raise by at least the same as the increased cost of funds, or in fact slightly higher”. This of course may just be a bounce.

Credit getting tighter:

The major lenders are now requiring evidence of genuine savings and most have pulled back from 100%, 97% and 95% lends that were around a few months ago. 90% LVR’s are still available but it looks to be scaled back to the standard 80% lends for most of us soon. Some investors see this as a good thing, as only those with the ability to save or draw on other equity (and not actually rely on the FHOG & boost for their entire deposit, as per many First Home Buyers) will qualify for finance.

Short Supply:

The HIA, Australia’s largest building industry association forecasts a shortfall of over 46,000 dwellings in 2008/9 and this is predicted to continue into 2009/10 and 2010/11. According to John Edwards of Residex, NSW has 63% of Australia's unmet demand, Victoria has 16% and WA has 14%.

So this must point to NSW being one of the best places to invest in residential property and goes some way to answering the #2 question we get asked : “Where should I be buying?” But you can’t just buy anywhere in NSW and expect to do well.

Huge Demand:

Demand: The Federal Government did announce a cut in immigration in March: The 14% cut in skilled migrant arrivals is around 18,500 people, or an overall cut of 8.7%, as there were 213,000 permanent overseas migrant arrivals in 2007/08. (according to John Edwards of Residex). However, we believe this will have almost no impact on demand. Why? It is interesting to see what the official figures for immigration do not contain. For example, the official figures do not include arrivals from NZ (as we have a pretty much open border policy with NZ) nor do they include foreign student arrivals (many of the wealthy parents of whom, buy property here for their kids to live in while attending university). We are advised the real immigration figure is something more like 300,000! So a cut of 18,500 is just a drop in the bucket.

Unemployment expected to have no effect on the Housing Recovery:

In our last newsletter we indicated that unemployment was “possibly the only dark cloud on the horizon”. Since then Westpac has published its Market Insights Report of April 2009, which states (in part):

The housing recovery arguably is already on track and the last two recessions confirm that the housing recovery will not be derailed by rising unemployment.

We are happy to defer to the Westpac economists’ view in this instance.

Our View of the Market, in Summary:

We are active in the marketplace every day and we observe 3 distinct markets in 1 at present. The lower end, where First Home Buyers (FHBs) are very, very active has experienced price rises of up to 10% in the last few months. Mid-priced properties are holding steady – no falls or rises but sales being achieved. Top end properties $1M+ are taking a hit of 10 – 20% in some instances. Therefore, all things considered, we believe now to be possibly one of the best times to be buying.

That's one of the good things about property. There is no "suddenly" – it is a very slow moving beast. Lots of ppl sit on negative equity without having their loans called in. What is a bank going to do with a house? It just wants your interest payments – which if you are paying – they will probably leave you alone to do just that. Now maybe if you had borrowings over $1M with the same bank or applied for more loans as the others have said, it might be a different story.

If you read your mortgage docs you will see they can call in any loan you have for any reason they like whether it is in good stead or not. The borrower really is at the mercy of the lender.

Cheers.

lstreet,

If it were me (and it isn't) I'd by myself a PPOR and use the FHOG & boost available to you now. I'd do an interest only loan and pay down NONE of the principal. Once you have either saved a bit more or the property has increased sufficiently, I'd draw down some of the equity to use as a deposit on an IP.

Paying off none of your own home's principal, gives you options down the track to convert your PPOR into an IP and still claim the max. of tax deductions on the loan interest.