global housing markets

Some of the key signals I previously outlined here that local and global monetary policy is too loose are already coming into play.

I’ve told you to watch out for Australian auction clearance rates piercing the all-important 70 per cent barrier, and it has happened sooner than even I anticipated.

Australian Property Monitors reported stunning clearance rates of 73 and 76 per cent in Melbourne and Sydney, respectively, over the weekend.

On Friday we had another portent that Australian and global economic growth could surprise on the upside in 2013.

China’s National Bureau of Statistics revealed that in January “new” house prices appreciated in 53 of the 70 cities it covers. Existing house prices also climbed in 51 of 70 cities in January, which was an improvement over the 46 city increase recorded in December.

China’s central bank has not touched its policy rate since the middle of last year. Yet the head of Asian research for TD Securities, Annette Beacher, argues that “consensus is slowly coming to the view that not only is the easing cycle over, but the acceleration in Chinese property prices implies that a tightening cycle may arrive by year end.”

There has been a notable synchronicity in the recovery in housing markets across Australia, New Zealand, the UK, US and China since early to mid 2012.

In his submission to parliament on Friday, Reserve Bank of Australia governor Glenn Stevens highlighted that Australian home values were inflating on the back of the best affordability in over a decade.

“Housing prices have been rising since last May,” Mr Stevens said, confirming analysis originally published by The Australian Financial Review.

“Share prices have also risen quite significantly, and if anything by a little more than in comparable markets overseas.”

While the RBA remains hesitant about the local economic outlook, and will closely monitor the results of a crucial capital spending survey released on 28 February, it is slowly coming around to the view that ultra-easy monetary policy is lubricating activity.

Mr Stevens’ sanguine testimony on Friday surprised financial markets, triggering a modest jump in government bond yields. While he has resisted the suggestion that the RBA’s monetary policy settings are at “emergency” levels, Mr Stevens concedes that borrowing rates are “not far from their historic lows.”

The inability to secure sufficiently attractive returns from once-appealing bank deposits has compelled households to search for superior yields elsewhere.

“The returns available to savers on safe assets – like bonds and bank deposits – have fallen by enough to prompt Australian savers to consider shifting their portfolios towards other assets. These are channels of monetary policy at work”, Mr Stevens said.

Positive data flows this year have forced some economists to flee their gloomy rate cut forecasts quicker than a Pamplona crowd.

In December ANZ slashed its 2013 cash rate projection to just 2 per cent (or four standard cuts below the current mark). It has now lifted this back to 2.5 per cent. Market Economics has junked its 2.5 per cent cash rate prediction in favour of no move this year.

It is clear that perceptions about the global economy are in a chaotic state of flux. The debate amongst members of the US Federal Reserve Board on the risks of unremitting money printing is a harbinger of the protracted difficulties central bankers will face unwinding the easiest monetary policy in human history.

article by Christopher Joye

Housing values

Housing affordability is now at its best level in a decade, so there is every chance capital growth will accelerate this year. This has ramifications for buyers and sellers, builders and developers, investors seeking to resolve asset allocation questions and the Reserve Bank of Australia’s monetary mandarins.

In the middle of last year some misanthropes were not prepared to accept that the RBA’s 75 basis points’ worth of rate cuts over May and June, coupled with the 50 basis points salvo in late 2011, had reinvigorated Australia’s moribund residential market.

Seven Network’s David Koch was a prominent sceptic. In July, “Kochie” rejected evidence from RP Data that Australian house prices were climbing again. “[House price rises are] just not happening yet,” he wrote, predicting that “tough times for Australian property appear set to continue”.

One source of his conviction was Louis Christopher, a property commentator with SQM. After the publication of RP Data’s June house price index results, Christopher issued a media release to say that the numbers were simply wrong.

“I do not believe for a moment that house prices are now rising in Sydney or Melbourne as RP Data have claimed,” Christopher said. There were “no other measurement[s] . . ­. indicating that prices are rising”.

These conflicts are par for the course when it comes to the question of whether the cost of Australian bricks and mortar is rising or falling. It is no surprise that the issue attracts attention given that 60 per cent of household wealth is invested in residential property. House prices matter.

The bad news for those hoping to see housing depreciate further is that Kochie and Christopher were wide of the mark. We know this because we have the benefit of the 2012 house price data from the three benchmarks used by the RBA.

According to APM’s monthly index, Sydney and Melbourne prices have appreciated at annual rates of 6 per cent and 7 per cent respectively since June 2012. RP Data offers a similar picture with monthly dwelling values in Sydney and Melbourne rising at a 7 and 6 per cent annualised clip from their depths in May 2012.

The Australian Bureau of Statistics index, which ignores the apartment market and is only calculated on a quarterly basis, shows that free-standing house prices in Sydney and Melbourne have inflated at more modest rates.

The bottom line, all three measures broadly tell the same story: home values were increasing in the second half of 2012.

RP Data’s “hedonic” index, which controls for renovations and changes in the types of properties, suggests that dwelling values in the eight capitals have been expanding at a healthy 6 per cent annualised rate since the mid-2012 nadir. This is faster than wages and disposable household income growth.

House prices are being driven upwards by a tremendous improvement in affordability, the result of generous RBA rate cuts. UBS data show that mortgage repayments as a share of disposable income are at their lowest level in 10 years.

For those analysts who cling to the concept of a “prudent” Australian consumer who shuns risk and leverage and is squirrelling away more savings than they have done in 20 years, the next 12 to 24 months will be a formidable test.

According to UBS’s measure, housing affordability is now better than it was in early 2009 just before a spectacular run-up in national prices. In that year Australian home values jumped about 14 per cent.

To be sure, they had the tailwind provided by an enlarged first-time buyers’ bonus. Yet we also had a global economy in recession. Today local and global growth prospects are demonstrably more positive.

The last time Australian housing affordability was this good was in 2001. That year Australian dwelling prices surged 19 per cent. They ballooned again in 2002, by 16.7 per cent and in 2003 by 17.6 per cent.

One important difference in 2001 was that Australia’s household debt-to-disposable income ratio was a substantially lower 95 per cent. By 2006 it had hit 150 per cent, which is about where it is today.

In the early 2000s families could assume more leverage to bolster their purchasing power. They may not be able to do this again.

However, the signs of housing momentum are building. Australia’s largest mortgage broker processed more home loans last month than in any January previously.

RP Data’s CEO, Graham Mirabito, says that his valuation subsidiary, ValEx, which covers 80 to 90 per cent of all loan transactions,, last week mediated more valuation requests than ever before.

The RBA with its policy settings is certainly doing everything possible to fire up the embers. It says rates are not at “emergency lows” but they sure look like it.

During the GFC, the RBA pushed the average discounted home loan rate down to 5.4 per cent. Discount home loan rates today are only 30 basis points higher at 5.7 per cent.

Fixed-rate home loans are cheaper than ever. The average three-year fixed-rate loan in 2009 was 6.6 per cent. Today it is just 5.5 per cent. On Friday, Westpac announced a two-year fixed-rate product for just 4.99 per cent.

It is hard to imagine how these circumstances will not stimulate hearty asset price inflation.

Article by Christopher Joye

Latest data

Australian Property Monitors are reporting that national house prices grew 2.1 percent in 2012, accelerating towards the end of the year, and growing a very impressive 1.9 percent in the December quarter. To put that in perspective, that's a annualised growth rate of a little less than 8 percent a year. That's a decent clip, and as I said, we're just getting started.

Now just to drive this home, if you put in a 10 % deposit an you get an 8% return - that's a huge 75% cash-on-cash return...try getting that in another form of investing in 2013...

And what's more, the national figures hide some very strong performances by Perth, which grew 6.1 percent in the 2012, and Sydney, which was up 3.4 percent. Both cities have a full head of steam behind them. Only Melbourne seems confused about which direction it should be running.

Looking at some of the other datasets, which use different methodologies, the Residex measure was up 0.53 percent in the month of December, which is an annualised growth rate of 6.5 percent a year.

Residex Chief Economist Jon Edwards (nerdy looking guy, but super sharp) said it's the best performance in 18 months.

To top it off, the RP Data-Rismark measure was up 1.1 percent in January. That's an annualised clip of 14 percent a year. Any investor would be happy with that.

Hey, what I have quoted above are "averages." If you add a little real estate education, you could get 300% better return that the averages.

There is also a solid recovery underway in new home sales. It seemed that investors and existing homes were supporting the market through most of 2012. However, the Housing Industry Association Land Sales Report showed that residential land values increased 3.8 percent in the year to the September quarter. Not bad at all. And I think we'll see an even better result once the December quarter data come in.

The HIA measure of new home sales also bounced in December. They were up 6.2 percent in the month, and 3.3 percent in the quarter. This shows that the housing market is building a solid and broad base from which to launch its current run.

wow

The residential property market appears to have bottomed out and is set for a "mild cyclical recovery" over the next 12 months" says AMP Capital Investors chief economist Shane Oliver.

Oliver anticipates only short-term gains in property prices in the range of 5% to 7% over this period as "buyers remain cautious about taking on excessive debt, particularly as job insecurity remains high".

But he expects the property market to outperform both the bond market and what's available through cash deposits - a reverse of the performance of these markets over the past five years.

Shares, Oliver says, are the most attractive asset class "offering relatively attractive starting point dividend yields of around 5.7% with franking credits added in" though he warns investors against presuming a "smooth run" for shares in 2013.

But term deposit rates have fallen from as high as 8% a few years ago to 4% and continue to fall while Australian 10 year government bond yields have fallen from 6.3% to currently 3.5%

In comparison, Oliver says house and apartment yields are running around 3.7% and 4.8% respectively, which are well up from their lows last decade.

Despite offering a better return than cash or bonds, Oliver says capital growth in residential real estate is likely to be constrained over the next five to 10 years "by still very high property prices relative to incomes and rents and house prices still above their longer term trends".

"This suggests that a cyclical rebound in real estate prices over the next year should be seen as part of a broad range bound market for property prices in real terms as the market continues to work off the excesses that built up over the property boom that started in the mid 1990s and continued into last decade.

"Of course, good quality properties in sought after locations will do well, but the medium term back drop for property returns is likely to remain constrained, albeit better than that from cash and bonds," he says.

Oliver says there are two main risks to his forecasts.

The main downside risk to property is a hard landing in China, a risk he says is receding while the upside risk is that "the old housing bubble is reignited by the latest collapse in mortgage rates".

"Again this seems unlikely though given Australians' more cautious approach to debt since the GFC," he says.

What stops you from having financial gain in property investing

The main reason is most people wait too long to start

Most people can't wait to succeed; yet they are willing to wait to get started on the road to riches. 

Many investors are waiting for everything to be "perfect" before they get going.   

They wait for the right time in the cycle, the right property, the right economic environment or the right interest rates. Which means they never get going. 

The longer you wait to get started with your investing, the longer it will be before you get the money, success and freedom you want.
Here's the clincher- It takes time to grow real wealth. It takes time for the power of compounding to work its magic. 

You need to understand that the timing will never be perfect or you will never have all the information you want. 

You need to develop the confidence to make an investment decision based on knowing enough and realising that you will learn the rest along the way.