Renters: Stop Walking on Egg Shells

FHOG$50K

The paranoia many renters face trying to find a place to genuinely call home is undermined by the juggernaut of rising property prices. Why do rents outpace wages? Is the market about to turn?

It is time prospective first home owners looked beyond mainstream media to arm themselves with information crucial to the biggest decision of their lives. We believe the following series of news snippets may help in deciding upon the right time to enter the market….ie NOT now!:

RP Data reports via realestate.com.au

Weekly house rents fell by 3.5 per cent ($15), while unit rents remained resilient, recording a fall of just 0.6 per cent for the same period.

The largest falls in house rents have been recorded in Canberra, where the median weekly rent is down just over six per cent for the June ’09 quarter, falling from $530 in March ‘09 to $498 in June.

At the other end of the spectrum, the only mainland capital city to record an improvement in the median weekly rental rate was Darwin, which now has the most expensive weekly rental rate for houses of any capital city. On average, renters in Darwin are paying about $100 a week more to rent a house than someone renting in Sydney.



If ever there was a sign that a speculative bubble was still in full swing, look no further than Darwin with rents $100 above Sydney?!! With clearance rates in Melbourne at 85% last weekend, it is interesting to note that the supply of properties to market has only recently lifted above last year’s supply (having been down drastically all year). Will we see a cascade of properties hitting the market before the end of the boosted FHOG?

With yesterday’s ABS property sales data showing a 0.2% drop in the sale of new dwellings and a flat 1% increase in existing (once affordable dwellings), the property market is yet to recover. RP Data’s link above shows that property prices are now at record levels. Watch Phil Anderson on SKY news as a reminder that this is an 18 year cycle, not a month to month timeline.

Gavin Putland’s Recession’s Begin at Home report shows that for 32 out of 40 countries, there was a 8 – 9 quarter lag between a fall in property turnover to the onset of recession. That 8th quarter falls due at… the end of September. With the FHOG clouding the market, the 9th quarter looks very interesting.

Don’t buy now and peg your mortgage repayments at record repayment levels.

In this age of transparency, what a tragedy that 27% of the buying market are first home owners with little understanding of the nuances of economics or the land and housing market. As a market segment, young house buyers have always been the most susceptible to cash carrots. As Bryan Kavanagh says “FHOG’s – our very own version of subprime loans, but government-sponsored!”

Will first home owners be able to resist the callings revealed in this photo (right)? Over 180,000 first home buyers will be manipulated into buying a house by the end of this ‘boosted FHOG period’ on the premise that land prices never go down in Australia (regardless that they have in the vast majority of western countries).

One could assume that the usual September/ October correction in the sharemarket could send markets into another tailspin. What is the Fed planning with this in mind? Will there be more overtime on offer at the Mint printing T-Bills?

As the Chinese sharemarket seems to be wavering, will the market remain confident in the ‘dubious’ statistics provided by the CCCP? The internet is growing with signs that data manipulation may be a pre-cursor to moving up the Communist Party ladder. Check here and here

Back to domestic issues, REITs on the retreat after $20b losses

Australia’s $1 trillion in pension savings helped fuel a global buying spree from companies such as Centro Properties Group that saw the nation become the biggest overseas buyer of US property from 2005 to 2007. That backfired when property values tumbled and borrowing costs spiked because of the credit crunch, forcing companies to write down and sell offshore assets and replenish balance sheets ravaged by losses.

The property index is now trading at a price-to-book ratio, which measures shares relative to assets, of 0.86 compared with the S&P/ASX 200 Index at 1.90. A number lower than one means the shares are trading at less than the value of their assets.

Australians spent twice as much as Middle Eastern investors on US real estate from 2005 to mid-2007, and almost three times more than Germans, according to New York-based Real Capital Analytics, a provider of data on the US property market. That investment into the US “evaporated” in 2008, according to an April report from the industry researcher.

Among the biggest buyers was Centro, which last year handed control to banks after failing to refinance $5.1 billion of debt accumulated as it acquired 650 US malls.



With US land and housing prices yet to find a bottom, will Centro and others be able to keep liquidators at bay? The coming month will be fascinating to watch in terms of green shoots or green ideologies. Hopefully the backlog of speculative vacancies will hit the market over the next 6 months to push down both rents and land prices back to levels that realistically reflect wage levels rather than expected future capital gains. Then renters won’t have to walk on egg shells when discussing these issues with real estate agents.

From the Editorial, August 23, 1930 edition of the Wall St Journal:

A bright spot in the depression is California, now in a strong financial situation by a number of measures. Bank deposits and life insurance are up; commercial and agricultural real estate is more active; securities issued are almost back up to first half 1929 level; department store sales are down, but Wells Fargo points out they’re doing better than rest of the US. All in all, California “is carving out for itself a future prosperity that must in time rival that of the eastern seaboard.

1 Comment

  1. Adam25-12-2016

    Seven years on the madness continues. The new feudalism

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