- the team with a difference

Monday, October 27, 2008

First-home grant set to steady the market

The debate over where house prices are heading has been heating up, with economists such as Gerard Minack and Steve Keen broadcasting gloom over the sector.
Not me. I have maintained my belief, even before the Reserve Bank's rate cut or the Rudd Government’s actions to bolster first-home owner grants, that the underpinnings for the market were solid.
Broad economic factors do influence the residential property market, but the fundamental drivers of prices are often left out of these discussions. Among the most important are the supply of new dwellings and the patterns of demand from first-home buyers. Astute property investors know this pattern is one they need to understand and watch.
The key questions are: How does the supply of new homes contribute to price formation in the property market, and will it be affected by the recent increase in the first-home owner grant?
In my experience, supply relative to demand is the core market driver, for without a healthy new dwelling construction first-home buyers and investors are pushed into established housing, competing for and driving prices up from a base of low and finite supply.
An obvious driver of new construction rates is the availability of land for the development of new estates or for sale to developers as “speculative” blocks. With state governments seeking to restrict urban sprawl and local governments enacting restrictive planning policies for new estates and high-rise development, the price and cost of new homes in the suburbs of our cities has soared. This has been a boon for property investors, with the established sector delivering record growth over the past 10 to 12 years.
This more restrictive policy to developing new estates is a primary reason Australia’s property market rose so robustly and didn’t fall like those overseas. As research group Demographia noted in its 2008 International Housing Survey: “Prescriptive planning markets (urban consolidation cities in the US) have seen their prices escalate $160,000 compared to responsive markets (cities without an urban consolidation policy).”
The other reason for high prices is the shift of infrastructure costs from government to developers and on to home buyers in the past 10 years. As Chris Lamont, chief executive, policy, at the Housing Industry Association points out, the supply responsiveness is significantly decreased when “the cost of developing a new block on Sydney’s outer fringe goes from $30,000 in 1997 to $110,000 in 2008. That’s a significant hurdle rate for developers to invest for, and just ends up restricting new house starts.”
With growing underlying demand from Australia’s increasing population (driven by rising net immigration, and higher birth rates) exceeding the number of new dwellings developers are willing to build, the expected shortfall in new dwellings will top 40,000 this year, adding to an accumulated deficit over the last five years.
And after a good run of growth following the first-home owner grants boom in 2001, the construction industry has seen business slow this year, with the number of dwellings approved falling 7.6% in the year to August 2008, according to the ABS.
The result of this assortment of housing policies is that people who, under other circumstances, would have been buying new homes are instead competing to buy (or rent) established dwellings.
This latent demand acts as a floor under property prices, forming a new pattern of stagnant or soft growth for six or 12 months followed by one to three years of rapid price escalation. Given this evolving pattern, it’s interesting to add the housing choices of Generation-Y into the equation, influenced by prevailing prices and the extension of the first-home owner grant.
If we look back at first-home behaviour when the grant was first introduced, I think the “buy or miss out” sentiment will reappear. The anecdotal evidence is already appearing. A friend told me last week that all of her three adult children called her to ask to borrow $20,000 to supplement their home deposits, promising to pay it back when the increased grant is paid. I very much doubt my friend’s experience this week would have been unique or anomalous.
While truly bad economic news, as distinct from financial market news, could halt price growth, tales of 40% falls to come are far from the mark. The view from the HIA is similar. Lamont says: “I don’t see the doomsday scenario happening. People are reluctant to sell a residential home at a loss, and investors are seeing low vacancy rates and increasing rental returns.”
For investors ready, willing and financed, the doubling and tripling of the first-home owner grant’s effect on the market is a golden opportunity, but it comes with a caveat. While the news is good for short-term price expectations, the limited supply of newly constructed homes, increasing pent-up demand and evolving home buyer patterns are likely to set the stage for recurring episodes of sudden prices rises interrupted by pauses.
While the nature of the pattern may change, the overall upward trajectory will play out fairly consistently over the long term. Bad employment news or other economic shocks will subdue prices, but any subsequent recoveries are likely to be as sharp.
I expect prices for established middle-priced apartments and homes in the inner and middle metropolitan ring to see a direct impact from the first-home owner grant.
Source Monique Wakelin

Thursday, October 16, 2008

Tripling of the First Home Owners Grant

As you have heard the great news, Kevin Rudd announced a raft of measures aimed at stimulating the economy to the tune of $10 billion dollars. About $5 billion of this was aimed at pensioners, seniors and carers.

Another $2 billion was aimed at the residential property construction market. For all contracts entered into by 30 June 2009,

The First Home Owners Grant will doubled, from $7000 to $14,000, for existing homes and tripled to $21,000 for newly constructed homes. This is on top of stamp duty savings that the state government currently has in place which is worth close to $18K for those that live in their property for the first 6 months.

This brings the total savings for first home buyers to almost $40,000 including the state government stamp duty exemption for First home buyers.

This is fantastic news as now would be a great time to Build or buy an existing home with the dramatic savings available, We can offer you a range of properties for sale in the Griffith and surrounding areas, As we also specialize in Dennis Family we can offer you a house & Land package, And have large range of different designs available to build your brand new home.

So if you or your friends and work colleagues are interested in taking advantage of these opportunities please give us a call, or drop into our office for some more information, @ 146 yambil st, Griffith RE- The team with a Difference!

U.S. Stocks Rally Most Since 1930s on Bank Plan; Dow Gains 936

U.S. Stocks Rally Most Since 1930s on Bank Plan; Dow Gains 936
By Elizabeth Stanton

Oct. 13 (Bloomberg) -- U.S. stocks staged the biggest rally in seven decades on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.
The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points. Morgan Stanley soared 87 percent after sealing a $9 billion investment from Japan's Mitsubishi UFJ Financial Group Inc. Alcoa Inc., Johnson & Johnson, Chevron Corp. and Prudential Financial Inc. posted their biggest gains since Bloomberg began tracking the data. Europe's benchmark index climbed 10 percent, its best jump ever, and Asia's added 3.1 percent.
``The worst of the immediate danger is past,'' said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, which manages $30 billion. ``It's always easier when you've got markets going up and you're not having to talk clients back in off the ledge.''
The S&P 500 rose 104.13 points to 1,003.35. The Dow increased 936.42, or 11 percent, to 9,387.61, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since 1933. The Nasdaq Composite Index climbed 194.74, or 12 percent, to 1,844.25. Sixteen stocks gained for each that fell on the New York Stock Exchange.
The S&P 500 halted an eight-day losing streak, its longest since 1996. Last week's 18 percent declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended last week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.
Global Rally
Today's rally boosted the index's price-to-earnings ratio to 19.2. The S&P 500 is still down 32 percent in 2008, poised for its worst yearly loss since 1937.
All 10 industries in the S&P 500 added more than 7 percent. The rally from Tokyo to New York sent the MSCI World Index up 9.5 percent, the biggest gain since the gauge was created in 1970.
Some 1.5 billion shares changed hands on the floor of the NYSE, less than 1 percent more than the three-month daily average. The bond market was closed for the Columbus Day holiday. The dollar fell the most in three weeks against the euro.
Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at ``healthy'' firms, will be voluntary and have attractive terms to encourage participation. As part of the Fed-led plan, the European Central Bank, the Bank of England and the Swiss central bank will auction unlimited dollar funds. Previous swap arrangements between the Fed and other central banks were capped.
Morgan Stanley
Morgan Stanley, the investment bank that last month turned itself into a bank holding company after investors lost confidence in firms that depend on the bond market for financing, rose $8.42 to $18.10. Morgan Stanley agreed to change the terms of its $9 billion investment from Misubishi UFJ, providing the Japanese bank with preferred stock that pays a 10 percent dividend instead of common stock.
Mitsubishi UFJ, Japan's biggest lender, will get 21 percent of the New York-based company as previously agreed, the two firms said today in a joint statement. The terms were renegotiated after the tumble in Morgan Stanley's shares last week.
Equity Stakes
The S&P 500 Financials Index added 10 percent after the gauge of banks, insurers and investment firms sank 22 percent last week, paced by Morgan Stanley's 60 percent plunge after Moody's Investors Service said it may reduce the company's credit rating on concern the financial crisis threatens earnings and investor confidence.
Goldman Sachs Group Inc. rallied 25 percent today to $111 after dropping 31 percent to $88.80 last week. Bank of America Corp. climbed 9.2 percent, while Citigroup Inc. added 12 percent.
The Treasury Department will take equity stakes in banks using authority it was granted under the $700 billion bank rescue plan enacted two weeks ago, Treasury Secretary Henry Paulson said over the weekend.
New Approach
``We're talking about making investments in these banks in a way that doesn't necessarily punish existing shareholders,'' Charles Bobrinskoy, vice chairman of Ariel Investments, which manages $13 billion, said on Bloomberg Television. ``Most of the bank actions to date in the U.S. have been good for bondholders but terrible for common stockholders.''
Government actions this year to prevent bankruptcies at investment bank Bear Stearns Cos., mortgage lenders Fannie Mae and Freddie Mac and insurer American International Group Inc. resulted in near-total losses for the firms' shareholders.
The collapse of New York-based Lehman Brothers Holdings Inc. on Sept. 15 precipitated the latest chapter of the 14-month-old credit crisis, causing banks to stop lending to each other out of concern they may not get their money back.
Insurance companies in the S&P 500, which slumped 28 percent last week as a group on concern the credit crisis will reduce the value of their investments, rebounded 18 percent today for their biggest advance since S&P created the group in 1989. Genworth Financial Inc. rallied a record 81 percent to $6.32 and Prudential Financial added 38 percent to $49.95.
XL Capital Ltd., the Bermuda-based business insurer whose stock is down 85 percent this year, jumped 37 percent to $7.43 after an analyst at Fox-Pitt Kelton Cochran Caronia Waller said the company may have to consider a sale.
Energy Rally
Exxon Mobil Corp., the world's largest oil company, climbed 17 percent to $73.08 after a 20 percent tumble last week, helping to lead the S&P 500 Energy Index to a record 18 percent rally. Chevron, the second-largest U.S. oil producer after Exxon, rose $12.06, or 21 percent, to $69.89. Crude oil gained 4.5 percent to $81.19 a barrel today, rebounding from a 13-month low.
General Motors Corp. jumped 33 percent to $6.51, the biggest gain in the Dow average, and Ford Motor Co. added 20 percent to $2.39. GM, the largest U.S. automaker, is in talks with Cerberus Capital Management LP's Chrysler LLC about a merger or partnership, five people with direct knowledge of the discussions said. Ford, the second-largest, is considering selling its controlling stake in Japan's Mazda Motor Corp., a person familiar with the matter said.
Freeport-McMoRan Copper & Gold Inc. added 25 percent to $45.37 as copper on the London Metal Exchange rebounded from a 33-month low. Alcoa, the largest U.S. aluminum producer, gained $2.57, or 23 percent, to $13.82.
`Opportunity of a Generation'
Apple Inc. jumped 14 percent to $110.26, its biggest gain in nine years. Sanford C. Bernstein & Co. analyst Toni Sacconaghi upgraded the maker of Macintosh computers and the iPhone to ``outperform'' from ``market perform,'' saying the shares are ``overly discounted'' after plunging 46 percent in two months.
Abbott Laboratories rose 9.6 percent to $54.21. The maker of drug-coated heart stents said it will spend as much as $5 billion to buy back shares. Johnson & Johnson, the world's largest maker of health-care products, increased $6.83, or 12 percent, to $62.68.
``This could be the buying opportunity of a generation,'' Kevin Divney, chief investment officer at Putnam Investments in Boston, said on Bloomberg Television. ``The real catalyst is the levels of valuation,'' Divney said. Putnam manages $137 billion.
General Electric Co. was the only member of the Dow average to decline, after JPMorgan Chase & Co. analyst C. Stephen Tusa said his forecast for profit of $1.80 a share next year may be too high.
VIX Retreats
The benchmark index for U.S. stock options declined 21 percent for its first drop in six days and steepest retreat in almost a year. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the S&P 500. It averaged 59.43 last week, almost triple the 22.39 average in its 18-year history.
Goldman cut its forecast for the S&P 500 by 29 percent to 1,000, while saying the benchmark index is set for a potential ``strong'' year-end rally starting in late November, according to a note from strategists led by David Kostin.
Europe's Stoxx 600 advanced a record 9.9 percent, clawing back more than a third of last week's 22 percent slump.
Billionaire investor George Soros said the European agreement is a ``positive'' step that may help stabilize global financial markets.

``In the last 72 hours, I think the European governments got religion and realized that this is a serious problem,'' Soros said in Washington. ``People are looking for some leadership and finally they are getting it.''

To contact the reporter on this story: Elizabeth Stanton in New York at

Monday, October 13, 2008

REIA- Welcomes First Home Owners Grant Announcement

The REIA provided its support to the Government’s initiative to double the First Home Owners Grant on existing property, and triple it for new housing.

‘This initiative will provide encouragement for first home buyers, and is something that the REIA has been advocating for some time’ said REIA President Noel Dyett.

‘This decision, combined with last week’s reduction in interest rates, should provide a much needed impetus to first home buyers who have been waiting to enter the housing market’ continued Mr Dyett.

‘The decision should also see a positive response by the home construction industry in increasing the production of new dwellings’said Mr Dyett.

‘Whilst the decision is welcomed we should not lose sight of the need to address the many factors that affect housing affordability’

‘We hope that the initiative will be the catalyst for all governments to seriously consider a number of longer term measures such as reductions in stamp duties and land taxes.’

In concluding Mr Dyett said ‘The REIA would urge the Government to ensure that a careful review is made of the impact of this initiative before reducing the payments to the previous level in June next year as has been proposed.’

-Real Estate Institute Australia

Surprised economists happy with cut

Economists were pleasantly surprised by the rate cut, with Commonwealth Bank senior economist John Peters calling it an insurance policy for the economy."The cut certainly shocked the markets. It's an insurance move to shore up the economy. Further moves will depend on what is happening offshore," Mr Peters said."There is more easing in the pipeline, the extent and how fast will depend on how the US package settles down. The RBA has been concerned by inflation, but risks to growth eclipsed those concerns. There is plenty of scope for the RBA to move.''Su-Lin Ong, senior economist with RBC Capital Markets, said "this is a pretty aggressive move and reflects the intensity of the global credit crisis and its implications for the economy"."The RBA is trying to bring key lending rates down as it recognises that banks' funding costs have been rising due to the credit crunch."

At 6%, the RBA is at the top of its neutral policy range. It is trying to reduce the risks of a marked slowdown in the economy by front-loading the rate cuts and the statement speaks about a moderation in activity for its trading partners in Asia. It also suggests that they can go again.Kevin Macdonald, chief executive of the NSW Business Chamber, said it was welcome relief for business operators, who were under significant pressure."With the (NSW state) economy slowing and the cost of doing business on the rise, the cut to official interest rates is a much needed confidence boost."What's important now is for the banks to pass on the cuts to their customers in a financially prudent and sustainable manner."The banks must also take into account the margin between the official cash rate and business interest rates which has been widening. Business owners deserve this relief.''Joshua Williamson, senior strategist at TD Securities, said the move was "a big surprise and is a pre-emptive move by the RBA to protect the economy from the adverse impact of the global financial market turmoil"."This also sets the scene for other central banks around the world to cut rates and we would expect the RBNZ (Reserve Bank of New Zealand) to follow suit."There is still a possibility that the RBA goes again in December depending on how the developments in the financial markets unfold.''Helen Kevans, senior economist with JP Morgan, said "the main reason the RBA is acting so drastically is to prompt a material drop in costs for borrowers. It is a move to prompt banks to pass on some interest rate relief"."Financial conditions have turned for the worse and the deteriorating global growth outlook is going to be a weight on our terms of trade."The RBA had to move drastically to offer some relief to home owners. The next move will be dependent on what happens in financial markets in coming weeks and what happens for funding costs in wholesale markets."A follow up move in November is likely, though the size of that move will depend on what happens in financial markets.''Senior economist with ICAP, Adam Carr, said the RBA had "taken a pro-active move to insulate the domestic economy from the broader financial crisis"."What the RBA has done is front-load the rate cuts. I don't expect to see further easing unless the credit crisis fails to improve.So if spreads stay where they are, the RBA will cut by another 25 basis points in November but it all depends on what those interbank lending spreads do.''

Macquarie senior economist Brian Redican called it a "stunning move, and easily defendable"."If the need is there to get rates down towards something that's more neutral, then why dilly dally? Get it done in one go."We shouldn't expect another move of this scale next month but equally there's plenty of scope to ease further. This is not a ``one and done' move. In fact, it's a positive for Australia that the RBA has room to ease much more. It's a flexibility other central banks should take careful note of.'