Comments from my crystal ball

What confusing times we live in, we need a Crystal Ball to know the answers to some of your questions. "Is the New Year the right time to buy our first home, upgrade, stay put, or downsize." We are asked time and time again to help people with these huge and important decisions, so we have done some research for you. HAPPY READING.

To hopefully help you sort the wheat from the chaff we list some extracts from various sources including Andrew Carswell "The Sunday Telegraph and Stephen Johnson "AAP" among others.

Stephen says, "The first home buyer share of the mortgage market has risen to a seven year high in response to big rate cuts and generous grants to new home owners. Some 11,665 first time borrowers made up 23.6 per cent of the home borrowing market in November, the highest proportion since January 2002, a big jump from October's 19.5 per cent share, official data showed.

The Australian Bureau of Statistics (ABS) data also showed that overall home loan approvals rose for the second straight month in December while the popularity of fixed rate loans dived to a record low. The mortgage market also boosted by the Reserve Bank of Australia's (RBA) decision to slash interest rates by one percentage point in October and another .75 basis points in November, followed by one percentage point in December taking the cash rate to a six and half year low of 4.25 per cent.

Expectations of more interest rate cuts appear to have affected the popularity of fixed rate home loans, which fell to a 2.5 per cent market share in November - the lowest proportion since the ABS starting collecting this date in 1991.
"Confidence in the property market is still a bit shaky and the economic uncertainy is still fairly high.

IS IT THE BEST OR WORST OF TIMES FOR REAL ESTATE? Andrew Carswell sifts through the evidence.

Many property fanatics are proclaiming 2009 as the best year in decades to buy a new home. But others vehemently disagree, arguing that house prices are due for a sharp correction.

At the beginning of 2008, 68.9 per cent of respondents for the Mortgage and Finance Assoc. of Australia/Bankwest Home Finance Index believe property prices would rise in the coming quarter.

The latest figures, out this week, show only 14.6 percent of respondents retained this optimism in the first three weeks of 2009, with 60 per cent believing we're heading for a decline in property values.

Can 60% of Australians be wrong?
Many property experts say: yes they can.

However, Residex property analyst John Edwards said the biggest factor weighing on property prices is unemployment, currently sitting at 4.4 per cent, unemployment has been tipped to rise as high as eight per cent in 2009 as the global financial crisis starts to hit home.

If those levels of unemployment become reality, house prices could slide.

"The areas that are in close proximity to industry/manufacturing areas or small business, probably have some more suffering to do" he said. Despite job uncertainty, Mr Edwards is positive on house values from the major Cities around Australia and swears by the simple motto: "As long as you pay the right price for the property, it is never the wrong time to buy". I totally agree with him.

"In every year, no matter what, there will be area's of the city that will grow well, and there will be, even in boom times, areas that do fairly poorly," he said.

"So it's not the wrong time to buy property in Brisbane; in fact, it's a good time, because now is the time when you are going to find some bargains. "If you've selected properly and in the righ area, you will not see a fall in value. They may stagnate, but not fall. Other's however, dismiss such optimism as naive. Mr Edwards' argument certainly does'nt sit well with notorious bears Steve Keen and Gerard Minack.

Both men - a professor at Western Sydney University and a Morgan Stanley economist, respectively - have predicted the sky to collapse on housing prices. Their conservative estimate is an accross the board fall of 30 per cent.

However, Shane Oliver, chief economist at AMP Capital, says the severe downturn in housing construction - marked by a whopping 34 per cent fall in residential building approvals in 2008 - should ensure any falls aren't quite so steep. "I've been forecasting 10% falls throughout the year" he said. "I don't think we are going to see the 30 to 40 per cent falls that some have been predicting, because Australia isn't going into a depression and we have an under supply of housing in Australia.

"Interest rates have made a mortgage more affordable, and the first home buyers' grant is helping, but the flipside is that unemployment has only just begun to rise and the rise will be substantial. Normally, when unemployment rises, it puts a big dampener on the housing market." Oliver also said the period of high unemployment during the 1990's put a significant downward pressure on housing prices.

Frighteningly, he now predicts 2009 will bring even bigger decreases because the household debt, relative to income levels, is now four times higher that in the 1990's. "Economic uncertainty has caused a decline in consumer confidence," he said.

In the past 12 months, the average days on market in the Brisbane metro area has increased from 30 to 50 days. "This indicates that buyer phychology is changing, as they have a more considered approach to transactions. But I believe this buyer sentiment will shift in the coming months, as property once again becomes the preferred asset to creating wealth, however, stay within a 10 or 12 klm radius of the Brisbane GPO.

Ed Logue AAP says "New Year 'perfect' time to buy your new home. "Australians could find 2009 an opportune time to buy property, but they should not expect a swift recovery in housing prices, he said.

Loan Market Group executive director John Kolenda says: "Mortgage holders in the coming year are likely to benefit from the lowest variable interest rates ever offered in Australia as the cash rate could fall to 2.5 cer cent."

He also said. "House prices have been sluggish across the eight capital cities in the past two quarters, down 1.8 per cent in the September quarter, this followed a 0.2 per cent drop in the June quarter.

Mr Craig James from CommSec (chief economist)said housing prices are tipped to rise 3 to 5 percent this year due to an undersupply of housing.

The peak home building body, the Housing Industry Association (HIA) chief economist Mr Harley Dale said, we forecast a recovery in the property market in the second half of 2009. We will be some months through 2009 before these lower interest rates translate into a significant stimulus to housing sector expenditure.

If you would like to discuss any of the above regarding selling you property, buying a property or any other concerns you may have please give me a call on 07 3426 8309 or 0411 664490 and I would be happy to meet with you. I HOPE YOU ALL HAD A GREAT CHRISTMAS AND NEW YEAR.

Where did the year disappear to? Did you think 2008 seemed to be a blink of the eye? Anyway, it was not the best year by any stretch of the imagination. Whilst the market definately slowed, I still have achieved very good results from July with 15 properties sold in Coopers Plains, Salisbury, Moorooka and Annerley, so I cannot complain, my Vendors were all very pleased with their results. However, one thing I have noticed is I now work twice as hard as I have ever had to work to sell a property, most Buyers crash a contract at least once, that is mainly due to the media saying property prices are going to fall another 20% or whatever, buyer remorse sets in very quickly and so it goes.

A lot of properties are on the market at the moment and that keeps the price much lower than when few properties are for sale, which has been the case over the past couple of years when it was considered a "Sellers market", it has become a "Buyer's market" over the past six months or so. Presentation should remain the main priority in this market to achieve the best price.

A very happy Christmas and New Year to all my blog readers and customers and if you would like some excellent tips to sell your home in the New Year and obtain top dollar please call me over the holiday period on 0411 664490.

2008 The good, the bad and the ugly

What exciting times we live in!. At the start of this year and up until about April, the real estate market was booming and everyone was making lot's of money, but could it all last? Of course not, otherwise we would have been paying $500k for a basic 3 bedroom home in Moorooka or Salisbury and no one would have been able to afford to buy a home. So along came the bust, which always follows the boom, as sure as night follows day.

A new market is certainly upon us and sellers are struggling to come to terms with the fact their property value has decreased by about 10% since April and we are hoping it has now bottomed out. Buyers are still very reluctant to make an offer if the listed price is too far away from what they are thinking as they don't want to offend the Seller, so we have a "stand-off" situation happening at the moment, unfortunately, this will not change until the Seller's realize the market is not going to improve in the short term and if they are serious about selling they need to meet the market.

Are we in a recession?. I guess it depends on who you listen to! Would it really hurt us all to stop spending and start paying off those credit cards etc. I think not.

We certainly have some of the most expensive real estate in the World and that is very unfortunate for all of us, but that cannot change as our high home ownership rates continue to rise, but what can change and will change is the deposit and income you now need to obtain the home loan as lending institutions tighten their belts.

Being a "baby boomer" and paying 18% interest on my 1st mortgate, with two young children in the 1970's was still much much easier to manage than it is today as the home cost was only approximately 2.5 times of your yearly earnings eg: if you earned $10,000 per year the medium price in Brisbane was $25,000 now unfortunately it is a whopping 7.5 times your yearly salary. We also had to have at least 10% deposit, and our first homes were not that flash. A huge change is thirty years, but is it for the better. I sometimes wonder.

Our family has had a very big year this year and it continues with my daughter Natalie (photo below) leaving for the Cayman Islands to ply her trade as a Chartered Accountant (tax haven) for the rich and famous, we will miss her terribly but wish her well. Bev's eldest daughter Helen was married a couple of week's ago on the Coast (see photo of her daughter Gabby Jane and Mandy's (her sister) little girl Poppy Kate, both very cute kids. It was a great occasion with all my 7 brothers and sisters in attendance, also Mum (82yrs old) danced the night away, we had a fantastic time, sore feet and sore heads the next day. It is great to all be together every now and again as we are scattered from Darwin to Melbourne.





Don't forget if you would like to crunch some numbers you can call our Finance Expert Leah Blackford on 0406 429 041 and she will only be too happy to help. If you would like any information re selling or buying please give me a call on 0411 664490.

WHERE IS PROPERTY HEADED BY 2010?

This report was prepared by BIS Shrapnel – Matthew Liddy.

Price growth in Brisbane is forecast to be strongest of the state capital cities covered by this report. House prices in most Australian capitals will continue to climb in the 2007/08 financial year due to strong economic growth and continuing demand, economic forecaster BSI Shrapnel predicts.

However, prices will not reach the rate of growth levels of 2006/07. Despite the impact of rising interest rates and a forecast easing in economic growth in later 2008/09, solid underlying demand and a deficiency of dwelling stock in all markets are expected to maintain upward pressure on prices, the Outlook for the Australian Property Market 2007-2010.

Supply and demand
First homebuyers entered the property market in increasing numbers during 2006/07 enticed by expanding first homebuyer’s benefits, the report says.

“Investors have also returned to the market in greater numbers in 2006/07 as tight vacancy rates have accelerated rental growth,” it notes. “Nevertheless, investor activity overall remains below previous peaks and performance.”

In the medium term, BIS Shrapnel expects business investment, especially in the resource sector, to begin to decline over 2009 and 2010, with a resulting dampening effect on purchaser demand. “However, with the underlying fundamentals expected to remain solid, underpinned by strong population growth and a continuing dwelling deficiency, we nevertheless expect further upward momentum to construction and prices.”

Underlying demand for new dwellings in Australia is expected to rise to 182,300 over the 2006/2007 to 2011/2012 period, mainly due to higher net overseas migration. BIS predicts that this, combined with a slump in dwelling construction in recent years, will create a significant deficiency of housing stock in coming years.

“Australia’s stock deficiency is estimated to have increased from 22,800 dwellings at June 2006 to 60,200 dwellings at June 2007, as underlying demand continued to accelerate during the year, while total dwelling completions showed a modest decline,” the report says.
“The majority of Australia’s stock deficiency at June 2007 is located in QUEENSLAND, New South Wales and Victoria with the three states accounting for 94 percent of the national total.”

Underlying demand should remain high in Queensland throughout the forecast period, with overseas migration to pay an increasing role in keeping demand high.

Rising dwelling deficiency and strong economic growth is expected to fuel housing demand and price growth of 9 percent is forecast for 2007/2008 the report says : Price growth is expected to slow slightly, although remain solid in 2008/2009 at around 6 percent in both years.”
Prices should continue to grow in the following two years, BIS Shrapnel adds.

Brisbane’s forecast median house price of $460,000 by June 2010 represents a total rise of 26 per cent over the 2007 to 2010 period. Price growth in Brisbane is forecast to be strongest of the state capital areas covered by this report.

WHAT THE ANALYSTS CURRENTLY SAY ABOUT BRISBANE REAL ESTATE

ANZ’s Property Outlook report: “The lure of the sun and surf of Queensland is once again drawing inhabitants of southern states. House prices have risen by 22 percent in the year to March and maintain considerable momentum for further gains remains, with our affordability measures suggesting that six percent over the next two years could be sustained.”

Access Economics Business Outlook report: “Overall Queensland’s prospects remain good … Queensland’s very healthy job growth is abundant, output growth is strong, retailers are ringing up robust sales and consumer investment is surging (and is at its highest share of the national total since detailed results began in the min 1980’s). Importantly, forward indicators such as housing finance have fallen less than elsewhere since recent peaks. Even underlying demographic swing back towards Queensland, with the net annual population inflow nearly double or extended period of weakness stretching back to mid 1996.”

Macquarie Bank: “Over the next few years, we expect southeast Queensland to benefit from the strongest interstate and overseas migration inflows since 1989. While the southeast Queensland market is likely to take a breather as interest rates rise but once home buyers and investors realize the rises will be relatively moderate, further growth can be expected.”

FIVE HOT TIPS TO REDUCE YOUR INITIAL AND ONGOING MORTGAGE COSTS

1. Investigate a portable load
Portability means simply that you can pick up your loan and carry it with you when you move houses. In the past, a housing loan was secured by a particular property and if you wanted to sell that property and move, you had to take out a new loan for the new property. A portable loan now allows you to sell your old property and buy a new one while keeping the same loan. Naturally, the new property would have to be valued at the same loan-to-value ratios (LVR) of your existing loan. However, shopping around for a loan that’s portable will save you the hassle and extra costs involved in finalizing an old loan and starting afresh.

2. Avoid mortgage insurance
It’s no secret that the higher the LVR you borrow at (usually greater than 80 percent), the more likely you will be required to cough up the lenders mortgage insurance (LMI). The cost of LMI varies from bank to bank, depending on the underwriter’s view of the level of risk associated with the loan.

Ideally, of course, a 20 percent deposit sees you avoiding LMI completely. But that’s easier said than done. For a property worth $300,000 you would need to save up a $60,000 deposit which is a tall order.

However, borrowing in excess of 80 percent LVR would mean an addition cost of up to $5000 as LMI. The market is now recognizing this difficulty, particularly for property investors and we are seeing variations on product offers that help overcome this, in particular the “Guarantor Option”.

It is now possible for a guarantor to help with the purchase by contributing the 20 per cent deposit. Around 70 per cent of the 374 variables on the CANNEX data base allow for this flexibility.

Even though the guarantor option seems attractive because it eliminates the cost of LMI, it is not without its pitfalls. As the name suggests a guarantor puts up part of the equity in their home as a security for the new loan. In the event that the borrowers are unable to make repayments, the lender has the ability to call up the debt, so make sure you read the fine print first.

Another way of avoiding LMI is to look for bans and non-bank lenders who offer a maximum LVR of 85 percent before the borrower is forced to pay LMI. In recent times banks like Westpac have begun to offer loans with a higher than average LVR of 85 percent without attracting the additional coast of LMI.

3. Shop around and negotiate
Upfront fees such as the application fee, settlement fee and valuation fee could cost you between $100 and $1500 depending on who the lender is.

The best way to pay the lowest price possible is to negotiate. Some banks are happy to waive the application fee, but add it as a deferred establishment fee which they will charge should you pay out the loan in the first three to five years (which is the average exit fee period).

The average application fee is $625 so it is a worthwhile saving but you need to be sure you are staying with your current lender beyond the timeframe when the deferred establishment fee applies.

Remember that the lending institution wants to retain your business, as competition these days is fierce.

A great place to research and compare rates is the internet. Before deciding on a loan, hop around and do your homework on all products available by logging on to http://www.ratecity.com.au/. Or call Leah Blackford of the Loan Market on 0406 429 041.

4. Don’t pay for what you don’t need
If you don’t need branch access or face-to-face financial service, consider online mortgages as this offer the best savings.

It may sound daunting for first home buyers, but it may be an attractive option for experienced borrowers who understand mortgage products quite well and are able to make decisions without advice.

Homeopath, a subsidiary of the Commonwealth Bank, has been offering online mortgages since 2001. It was followed recently by Virgin Money, One Direct (a subsidiary of ANZ Bank) and My Rate.

How do online mortgages stack up against bank branch mortgages? The nominal interest rates available on the four online products are considerably lower than comparable products offered through traditional banking channels.

The average online rate of 7.5% is 0.2 per cent lower than the average basic variable product offered by six major banks.

By maintaining the minimum monthly repayment on an average $250,000 basic variable loan in an online mortgage, you could achieve an interest saving of roughly $14,800 over the life of the loan, or cut more than one year off the life of your mortgage.

5. Plan Ahead
In your eagerness to get your home loan “up and away” you may tend to ignore the bigger picture. In order to avoid paying certain bank fees, including switching fees (fees charged to change to a different loan or interest rate within the one organization) and deferred establishment fees, ask yourself these questions before jumping in:

Am I comfortable with my level of borrowings? Am I stretching the budget just a bit or am I being realistic about my situation? Banks charge fees for being late in making periodic payments. This may be added onto your loan amount. You don’t want to pay an average fee of $20 every month on top of penalty interest rates as high as 2 per cent over your nominal interest rate payments.

Do I intend to stay in this property for long? The shorter toe period, the more likely you’ll pay the exit penalties associated with the loan. From the lender’s perspective, the longer you take to service the loan the more interest it earns. In a traditional mortgage a large part of the interest cost is recovered in the early years of the loan. As interest is calculated daily on a minimizing balance, naturally, the early years of the loan bear more of the interest cost burden.
If you think you might exit or refinance to move to a better property in the first four years it might be worthwhile shopping for a loan that has no or low exit-period penalties, as these fees could be as high as 2 per cent of the original loan amount. Am I happy with a basic variable product or do I really need the offset and transactional account? Am I likely to make extra payments and need the redraw facility? Redraw facilities may be available with a basis product; however there may be a limit to the number of free redraws. Choosing a product that suits your needs to start with may well avoid paying switching fees later.

There are a few factors to consider such as: Can I live off a credit card and use my extra repayments to cover the cost once a month? Do I need unlimited free withdrawals to pay other debts or living costs?

If you start off with a basic variable product with limited redraw facilities and then buy an investment property which requires payments fortnightly rather than monthly, you may end up paying extra for each additional redraw you make. It would be wise to put all your salary into your principal mortgage and make fortnightly withdrawals for the investment load and monthly ones to pay off your credit card.

You may think of switching your basic variable loan to a standard variable which has more flexibility in terms of an offset transaction account and redraw facilities. Be aware that this will cost you an average switching fee of $300.
Acknowledgement: Mamta Grewal the author of the secret to living without mortgage fees is a financial analyst with financial services research group CANNEX and is a regular contributor to Australian Property Investor