Reserve Governor glen stevens went on commercial TV the other day he gave awarning about the dangers of borrowing too much to buy property.
He said “I think it is a mistake to assume a riskless, easy, guaranteed way to prosperity is just to be leveraged up into property. You know it isn’t going to be that easy.”
I thought the RBA's chief reason for existing was to keep inflation in check??
The property market in certain states is over heating because of simple supply/demand scenario. it's not the investors driving up prices but the in action of state govts not cutting enough red tape top release more land. also the huge amount of various taxes charged allong the way.
the question of affordability – new houses(& land ) could be much more affordable if not the many snouts in the "property trough"
thoughts
I agree – there is a huge demand for housing. There is a shortage of supply. Financial institutions are making their lending criteria more difficult and this is not helped by increases in interest rates so quickly after the GFC whilst the economy is still in recovery mode (and temporarily boosted with active Government stimulus making things look better than they actually are). What this does is maintain the status-quo of limiting supply and with the demand I mentioned, pushes up the price of housing. The demand is evident in Melbourne at the moment which is seeing a rapid increase in property values because there are 10 buyers for every 3 sellers (a statistic from Steve McKnight).
Without private investment in the development of new housing and rental accommodation, there would be immense pressure on States to deliver public housing – which is already in a sorry state and there is no budget to properly accommodate substantial increases in demand.
So, in my view, leveraging property is key to the future growth of our nation, however I think what Mr Stevens is getting at, is that investors do need to take responsibility (as well as the banks) to avoid a repeat of a sub-prime like crisis occurring again. His comments is an attempt to control people by using fear of failure as the motivating factor.
No risk, no return.
I remember the recession we had to have- Prices of property can go down.
As we now have foreign investors they will have currency risk.
As the interest rates increase so to will deposit interest rates. This will make money come into Australia from foreign investors and change the exchange rate. This could affect foreign investors interest costs.There is a danger of a property bubble occurring.
As prices go higher and higher the rent that people can afford to pay is limited to the market price.
This reduces the return on investment for new investors.
This makes investment in property a low yielding investment compared to other investment.
If interest rates go higher home buyers will be under stress.
The RBA is about keeping inflation at 2% to 3% so that the growth of the economy is sustainable.
If prices of houses keeps rising people will demand higher wages and inflation can take off.
Interest rates then increase and then home buyers sell because they can't afford the interest payments on their loans.
Supply goes up as lots of distressed home owners sell and no one buys due to high interest rates so demand is lower.
Eventually prices drop.Duckster I agree with the majority of your statement as it exactly what you find in an economic textbook.
However I don't believe property prices will drop anytime soon.
This is due to many factors, some of them are:
– Population growth (immigration & natural) -> Increasing Demand
– Land restrictions -> Limiting Supply
– Credit Restrictions -> Limiting SupplyYou may note I have not included yields & interest rates which are fundamentals when accessing investment options.
In my opinion I believe the property market is dominated by higher net worth individuals & wage earners. These individuals have a greater ability in the long term to ride out high interest rates & lower yields to create wealth. This is the opposite for low net wealth & income individuals as it means they are unable to enter or remain in the market. If less people are able to enter the market and create supply (building new dwellings) this adds further pressure on demand (rental demand)
In summary I believe there is going to strong property yields (rent + capital gain) for the next few years.
Feel free to disseminate my post and disagree economically or logically.
Cheers,
Dave
I think the govt relies on investors to provide rentals. Think about how many properties each investor on this site owns. None of mine are empty. That would be 9 people out of mine that the govt would have buy houses for. I don't see the govt buying heaps more housing stock for people to rent. Do you? They rely on investors to prop up the property market from the bottom up.
Govt's have a vested interest in keeping the property market exactly as is. If there is too much pressure either way govt's will pay out until it stabilizes. They guaranteed all the deposits in the banks. They gave the first home buyers more money. There are many many charities which have been given big dollars to provide emergency accommodation. But it is not long term rentals. There is less homeless people living on the streets because of the way the housing system works in Australia. That is why we are the lucky country. There is a balance and no matter what the reserve bank does, the govt will work to their own agenda, keeping the country running and the housing system running the same, keeping wealth in the stones or wood that people live in. (Even though KRudd annoys me lol!)
Wonder why they opened the market to overseas buyers? Hey fellas, sure park your money here. Not only will we tax you for the priviledge, we will tax you while you own it, tax you when you sell oh and it is great because your money is here it makes our country more prosperous. Also keeps the construction industry going too.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeInvestors Zorba wrote:The property market in certain states is over heating because of simple supply/demand scenario. it's not the investors driving up prices but the in action of state govts not cutting enough red tape top release more land. also the huge amount of various taxes charged allong the way.
While no expert, I suspect that release of land by the government, especially at urban fringes, as suggested by some, will do little to cool the market. What we need is more land and housing close to infrastructure and close to work, not just more land on its own.
They could release a lot of land at an affordable price but the deciding factor for buyers would be whether they're happy commuting for hours one-way to get to work, and whether they would like to stay in a place where the nearest sizable shopping center, school or eatery is still a time-consuming drive away.
Some have talked about decentralising jobs out of the CBD to create mini CBDs in outer areas, which is a great idea. After all, people don't just want a shack to live in. They want a place that's close to the things they need, things they want to see, and things they want to do.
DW you're on the money about the"keeps the construction industry going too". I think you'll find when the economy is humming along so is the "home building industry." If the RBA is going to keep rates climbing then obviously the amount of people borrowing will diminish ie less houses being contructed.
Without private investment in the development of new housing and rental accommodation, there would be immense pressure on States to deliver public housing – which is already in a sorry state and there is no budget to properly accommodate substantial increases in demand.
Below is a link to an interesting article on the shortage of supply of housing
http://www.theage.com.au/opinion/no-room-for-nimby-syndrome-20100405-rn08.html?rand=1270465134946
Cheers,
Dave
I am no accountant nor an expert on the economy but it is all good and well for the RBA chief to say this as im sure his massive pay packet without investing is a comfort to go home at night….. But for us mere mortals investing is the one way to seriously get ahead and try to break the 9-5 rat race……
Ill still take as much money as the banks are willing to give me.
Get rich or die trying…….
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