Property Values Rising: Property Investment Market Report

INTEREST RATES

As expected the Reserve Bank Board left the cash rate unchanged at 3.00% in April.

There was nothing new in the press release from the RBA and their summary was almost identical to that in March when rates were also unchanged.

“The Board’s view is that with inflation likely to be consistent with the target, and with growth likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate. The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand. At today’s meeting, the Board judged that it was prudent to leave the cash rate unchanged. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target over time.”

The RBA next meets on 7 May 2013 where we expect the board will maintain the wait and see attitude and leave the cash rate at 3.00%. Without a substantial change with the Australian economy, or dramatic changes to the world economy, interest rates are likely to stay on hold for some months to come.

Interest rate changes now appear to rest with lenders who have increased the gap between home loan rates and the cash rate by approximately 1.5% over the last 5 years. Recent indications are that lenders cost of funds has been reducing and therefore provides scope for them to reduce their variable interest rates – but don’t hold your breath waiting for this to happen.

All lenders change their interest rates and loan products on a regular basis. When was the last time that your home loans and investment loans were reviewed to ensure they have remained competitive?

PROPERTY

The RP Data – Rismark Home Value Index reports that dwelling values across the combined capital cities recorded a 2.8% rise over the March quarter, taking the cumulative capital gain to 4.7% since the market bottomed out in May last year.

Dwelling values posted a solid rise over the month of March, increasing by 1.3%. The positive conditions were broad based, with every capital city recording a rise, apart from Adelaide where the market remained steady over the month.

Rismark International CEO Ben Skilbeck commented, “The March 2013 result is one of the strongest we’ve seen over the 3 years since March 2010.

“Darwin & Perth are recording rental growth higher than 10% year on year which is providing a significantly higher total return compared with other cities.

“With gross capital city unit rental yields now at 4.9%, and a number of short term fixed rate loans also being offered at these levels, it’s not surprising to see investors responding to these conditions more quickly than owner occupiers”.

Apart from the capital gains being recorded across the housing market, other indicators are continuing to suggest the housing market recovery will continue. Mr Lawless points out that both auction market and private treaty indicators are showing strong results.

“Auction clearance rates haven’t been below 55% on any occasion so far this year, and over recent weeks the capital city weighted average clearance rate has been around the 60% mark with Melbourne and Sydney nudging the 70 mark. Additionally, vendors selling their homes by private treaty have been discounting their prices by a lesser amount in order to make a sale. The average selling time was consistently shortening prior to the Christmas / New Year slow down.”

HOUSING AFFORDABILITY

As reported in the Adelaide Bank / REIA Housing Affordability Report, the December quarter 2012 recorded another welcome improvement in housing affordability.

All States recorded an improvement with Queensland and South Australia leading the way – both now 3.5% better – in terms of affordability since the December quarter 2011.

A combination of interest rates hitting their lowest point in more than 50 years and an increase in the National Median Weekly Family Income of 2.2% to $1616 during the quarter has contributed to the improvement.

It now takes 30.4% of the median family income to meet average monthly home loan repayments, a decrease of 1.4 percentage points over the December quarter.

The current low interest rate environment is encouraging many people to re-visit and weigh up the ‘buy versus rent’ equation.

CYPRUS

Cypriots were stunned by last month’s collapse of its second-biggest lender, Popular Bank, and a decision to slap losses (9.9% of balances) on large deposits (above 100,000 Euros) at the Bank of Cyprus in return for a 10-billion euro bailout deal with the European Union and International Monetary Fund.

Anger and impatience is rising as the results of an official inquiry into what caused the crisis, and exactly who knew what and when, is unlikely to be ready for weeks.

Banks reopened last week but Cypriots can withdraw only 300 euros ($390) a day under a range of controls imposed to prevent panicked residents from emptying their accounts or moving all their savings abroad. Anxiety is being deepened by confusion over how the hastily-imposed rules should operate.

While tiny in economic terms, the chaotic bailout deal highlighted the political discord that has left Europe’s economy rudderless, with the latest data showing signs of further deterioration rather than recovery.

POLITICS

With the longest election campaign in Australia’s history underway all eyes will again be on Canberra on 14 May when Federal Treasurer Wayne Swan is due to release the 2013-2014 budget.

While we won’t know the actual outcome of the 2012-13 year until September it is highly likely that the ‘return to surplus’ promise will not be met. The next four weeks will be filled with ‘leaks’ and media reports about new taxes and other measures that may be included in the budget.

Already announced changes include the National Disability Insurance Scheme, implementation of reforms in education from the Gonski report and a new 15% tax on Superannuation Incomes in excess of $100,000.

Prime Minister, Julia Gillard, called for a Labor leadership ballot on 21 March to pre-empt a possible leadership challenge by Kevin Rudd. It was a party with no fizz because nobody challenged for the leadership. With a previous challenge in February 2012 you would expect that this may have ended speculation at least until the September election but the rumour mill continues to abound with suggestions that another challenge is likely to be made on 3 June 2013.

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