LOWER INTEREST RATES INCREASE INTEREST …

ARE WE SEEING THE FIRST SIGN OF A RECOVERY?? – The following is an article by John Edwards from Residex. I think its very useful to realise we are at the bottom of the cycle and everything points to a rosey future…

“It is not since May 1991 that we have seen such a significant interest rate adjustment process by the Reserve Bank in any 6 month period. In May 1991 the adjustment for the 6 month period to May was in total 5.75%. This represented an adjustment of something in the order of 33% of the peak rate of 17.5%. The adjustment of 3.75% in the last five months is significant but not as high. However, in percentage change terms it is close to 50% of the peak rate of 7.25% in March 2008.

The last adjustment to the cash rate by the Reserve Bank was on the 4th February. The rate now stands at a potentially similar rate to that which one could have expected to be set by the Reserve Bank in the mid 1960’s should the same system we have now, then existed

This last rate adjustment seems as if it has “hit the spot” as far as the housing market is concerned. The auction clearance rates for the week ended 14th were significantly improved with some markets reporting a clearance rate of something in the order of 70%. Up until this date the market was reacting moderately well to the changes but did not show any signs of strength.

While it is too early to announce a solid turn around, clearly there is increased interest in property. The question for me is; will this increased interest translate into an accelerated number of sales as banks enforce stricter credit conditions?

 
Growth Trend in Major Markets

ACT – January and February presented with small amounts of positive growth. December was better and these two months were sufficient to offset the losses which occurred in November. This market is looking as if it has bottomed. A few more months of adjustment is expected but smaller than we have recently seen.

SYDNEY – While quarterly and monthly losses for houses are still significant (1.1% and 0.7% respectively) it presents as being the market which is further along the correction phase than others and is definitely trending to positive growth. Our predictive models suggest it has the best potential in the medium term.

BRISBANE – While in recent months the growth rate in this city has been better, January presented particularly badly (-1.24%). The general trend excluding January appears to be a market which has bottomed. We suspect this market has passed its bottom but the recovery will be slower than for most others.

MELBOURNE – This market is not presenting as if it has reached the bottom of the correction phase. We note the rate of correction is still increasing and the market activity is still skewed to the top two quartiles of property values. 60% of sales activity is still concentrated in properties with a value in excess of the median value.

PERTH – The bottom of this market looks as if it was achieved in December. Further corrections are to come over the next few months but they are likely to be smaller than we have seen in the recent past.
Given all of the above, I believe there needs to be a little caution as it is possible that we may see a “false dawn” where the uninformed move values forward before the increases can be sustained. The rules remain, buying in this market is sensible provided purchases are well priced and the properties are well positioned and have the capacity to rent at improving yields. This means well priced and well positioned properties are the only ones to be considered. Sydney in my view presents the best opportunity as based on our numbers, even with a decreased immigration, a supply shortage will remain. Melbourne units are also presenting as an opportunity, particularly the older properties which are more affordable.

 

Finally, don’t panic even if it feels like your opportunity is passing. I suspect that bargains will be there for some time as our economic period of adjustment has a little way to go yet. The key to success in this market, is making sure your investment is priced right with good rental growth opportunity.”
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