The Best House on the Worst Street!

You don’t have to be an economist to note we are in extraordinary times, with the Australian economy, one of only four nations to avoid recession (two consecutive quarters of negative growth) and the only major economy to have grown over the past year.

The latest figures from the ABS showed the economy grew 0.6 per cent in the June quarter and by the same amount over the year to June. (Source: Shane Wright, the West Australian). In normal circumstance a 0.6 may not be considered strong but in comparison to all advanced economies Australia came out on top, the only one staying in positive territory. (Ref: Andrew Probyn – the West Australian)

The latest ABS figures point to market recovery with loans in June reaching $1.8 billion for established owner occupier homes. According to valuations manager Travis Coleman, this represented a jump of nearly 39 per cent compared with June 2008. During the past year the ABS figures show that the average home loan for an established owner occupier home in WA jumped by more than $39’000 to $282’900.

Figures from RP Data and Rismark showed prices in Perth are up 2.5 per cent this year to a median of $481’903, REIWA reported at a Perth Median of $450'000 with a percentage change of 4.6% over the last three months. Figures from RP Data and Rismark recorded nationally house prices rose 0.9 per cent in July to be up 5.9 per cent for the first seven months this year. Perth has some time to go still in comparison to other states although land sales are at peak levels Perth’s leafy suburbs are leading at discount prices with Applecross at 9.3% of homes advertised discounted to an average of 19.7%.

Early signs that investors are slowly starting to return to the market are due to rising rental returns and first home buyer demand starting to fall back. Low interest rates and lower house prices have been the driving factor behind many Australians taking advantage of the First Home Owners Boost which will be reduced to $3500 for established and $7000 for new homes come Sept 30th. The First Home Buyers Grant of $7000 will remain. As demand for homes surged some first home buyers and investors put off entering the market for more attractive bargaining power taking advantage of the first home buyer aftermath.

The Reserve left rates at 3% at their board meeting last week but is tipped to start raising interest rates, possibly as early as next month. The Reserve has expressed concern about low interest rates fuelling a bidding war in home sales. Rory Robertson an interest strategist predicted probably a quarter percentage point in October. NAB global markets senior economist David de Garis said the timing of official interest rate rises would depend on retail trade figures due out in the next few weeks.
(Source –The West Australian)

More residential development will be required in the next 20 years in the central business district according to a recent survey and featured in an article in The West Australian by Beatrice Thomas.

According to a State-Federal project, more than 1700 homes will be built for people on low incomes in WA under stage 2 and are set to be completed by June 2011 as the latest figures from the Department of Housing shows the number of people in urgent need of housing had risen almost 80 per cent over the last year. (Source -The West Australian Yasmine Phillips)

According to a West Australian article earlier this week, “There are $100 billion worth of projects either in the pipeline or under construction for WA, chief economist John Nicolaou said”. Most notable will be the $50 billion Gorgon LNG project, based on the supply of liquefied natural gas from WA to China under a 20 year agreement, and tipped to create up to 10’000 jobs during construction at Barrow Island of Dampier. Karratha and Dampier are said to benefit as they are near the proposed development.

The number of properties for sale fell by 25.6% during the June quarter 2009 and the number of sales were rising by 59% compared to June 2008. Racquel de Brito from the Sunday Times reported earlier this week.

Fix or variable, seems to be the hot topic for the opinion poll. With Michelle Hutchinson, consumer advocate at financial comparison website, RateCity saying interest rates would have to rise faster than market expectations for fixed loans to pay off for borrowers over the next five years. (Source API.) Lenders price in future interest-rate movements, in other words already factoring in the rate rises they see over the coming years. If rates where to sharply increase those on variable could be ending up paying more, while gradual increases on a variable rate over the same time frame could be more cost effective than a higher rate on fixed rate today. The question remains that of risk, and consumer sentiment.

Some say the market has bottomed out? Others say we will zig zag, then plato for a while as one investor notes we are not out of the woods yet but we can be likened to the best house on the worst street.