Investors …waiting and watching!

It’d seem the stars are aligned: low rates, population growth, low vacancy rates, strong rents and a shortage of housing in most capitals.

Since late 2008, the number of loans to first home buyers has outweighed substantially those to existing owner-occupiers and investors as first-time buyers rush to take advantage of the increased government grant. These numbers are set to surge in the next two months after the Prime Minister indicated that the increased grant will end June 30. In previous interest-rate cycles, lending to investors and existing home buyers increased alongside that to first-home buyers.

Part of the reason is that investors are not getting the first-home-owner grant, and when you have to lay your own money down instead of the government’s, you tend to think more carefully before deciding to take the plunge. Unemployment concerns and fears about how the economy will evolve this year are also key reasons why investors are not yet entering the market.

Consumer sentiment figures released earlier this month by the Westpac-Melbourne Institute Survey found pessimists still outnumbered optimists and, with the prospect of more unemployment, that’s unlikely to change soon.

Interest rates are one of the crucial aspects investors consider. During the past month or so, several of the big banks have increased their fixed mortgage rates, even though variable rates are expected to go even lower.

Banks say it’s because of an increase in the rates in the wholesale market where they access funds. Not everyone accepts that that is the reason, but most acknowledge it’s a signal borrowing costs are near their lowest levels!!

Some economists believe fixed rates will continue to rise as banks manage their risk, and it’s just a matter of the speed at which it happens. Of course, fixed rates are not popular at the moment even with investors who traditionally use this option.

That’s not a surprise, given the cash rate is expected to fall to 2 per cent by the end of the year.

But fixed rates are a bit of a barometer of the longer term trend in interest rates, so they are worth watching. It also pays to remember that just because the Reserve Bank of Australia cuts rates,  that doesn’t mean banks have to follow suit.

Only time will tell whether property buying will be better next year.

Perhaps investors are waiting for a sign that unemployment will stop rising, or for first-home buyer activity to dry up!

House price rise bucks global trend

The value of Aussie homes increased in the first quarter, bucking a global trend downwards, according to a recently issued report.

House and flat prices in Australia increased in value by 1.6% in the first three months of the year, helped by a scarcity of supply, lower interest rates and incentives to first-home buyers.

The slight recovery in Australia “has been driven by the 40% fall in home loan rates to 5.7%, which are now at their lowest levels since July 1968!”

March’s three-month gain follows a 0.1% rise in the three months to February in the RP Data-Rismark’s national dwelling value index, and a 3% fall in the value of capital city homes in 2008.

The strength of Aussie home prices is a world away - so far - from the 2.7% drop in British home prices over the first quarter, capping a year to March 17.5% plunge.

US housing didn’t fare that much better, with prices in the top 20 cities sinking 1.9% in February, which brought the 12-month fall to 18.6%, according to the most recent S&P/Case-Shiller index, a widely followed measure.

RP Data-Rismark said the first-home buyer’s grant, which ends June 30, has acted like a catalyst for new home buying in Australia, but lower interest rates are sustaining the market’s growth.

Young people still buying

FIRST-home buyers are flooding into the market thanks to falling interest rates and slumping home prices.

But investors are shunning cheaper homes because they fear prices could fall further.

Read the full article here: http://www.news.com.au/heraldsun/story/0,21985,25014496-5013926,00.html

Federal Government grants stimulating ‘first home buyer’ market

Right now the Federal Government is stimulating the ‘first home buyer’ end of the market increasing the current state grant of $7000 to $14,000.  The boon is, that if people purchase a new property between October 14, 2008 and June 30, 2009, the grant increases to $21,000 and if they purchase a property that is new and under $500,000 the grant increases to a massive $26,000!!!

This, coupled with the falling interest rates, has provided an opportunity for first home buyers that had previously been shut out of the market to take the opportunity!

Mark Forytarz