"Residential recovery may derail rate cut plans"

Here's another article for you guys. this one is sourced from Western Australian Business News and was written by Michael Ramsey and Shanna Crispin.

"Perth's housing market is showing signs of recovery, but analysts say this could put further interest rate cuts in jeopardy.
House prices have increased by 1.3 percent nationally so far this year, but Perth is well ahead of the pack with a 2.4 percent increase.
The city’s median house price is now 3 percent higher than a year ago.
Commsec chief economist Craig James said the Reserve Bank’s decision to cut interest rates in December increased buying activity, especially in WA.
The Reserve Bank cut the cash rate a quarter of a percentage point to 3 percent in December and has delivered 1.74 percentage points in cuts since November 2011.
That had prompted increased activity amid homebuyers nationwide, but Mr James said WA’s economy had compounded the increase.
“Given the strength of the WA economy it makes sense that Perth is leading the way on home price,” Mr James said.
He expected the revival to continue throughout 2013 and forecast the median house price to rise by 22-3 percent nationally.
If the revival continued at the current rate, Mr James said it could force the Reserve Bank to rethink any plans for future interest rate cuts.
“If demand for homes continues to lift over January, pushing up prices, the Reserve Bank will shelve and plans to cut rates,” he said.
The positive activity this month follows a strong December quarter in WA’s housing market; the Real Estate Institute of WA found the median house price rose from $480,000 at the end of September to $495,000 at the end of the year.
However REIWA president David Airey said that could be attributed to more higher-priced properties changing hands.
“Overall sales increased by 4 percent in the quarter with increased activity in the higher price ranges. We have recorded more activity in the $600,000 to $700,000 ranges as well as homes over $800,000,” Mr Airey said.
Perth’s western suburbs recorded the biggest spike in activity, with sales jumping 57 percent on the September quarter.
The increased activity has resulted n the number of selling days dropping from 71 to 62 for the quarter.
Treasurer Troy Buswell said a 28 percent increase in the number of Western Australians accessing the first Home Buyers Grant last year was ‘clear evidence’ the housing market was gaining strength."

"Rebound Areas in WA Offer Opportunities"

Here's another article. This one is more local. It was sourced from Smart Property Investment, and was written by Christina Zhou.

"Favourable market conditions offer ample opportunities for investors waiting to jump into property in WA, especially in ‘rebound areas’, according to RE/MAX WA managing director, Geoff Baldwin.
Some semi-regional and areas just outside of Perth offer terrific value, especially from a positive geared point of view, Mr Baldwin told Smart Property Investment.
“Mandurah and Bunbury are two areas that have suffered quite badly during the downturn over the last four years or so,” Mr Baldwin said.

“It has left it in a position where there is still high rental demand. However, the prices at the moment are still such that you can get some very good buys.”
He explained that it is often the “rebound areas” that offer the best opportunities.
In the metropolitan areas, Mr Baldwin pointed to Armadale as a good investment opportunity as the area is undergoing rejuvenations.
“They are knocking over the old houses and building new villas and so forth. [There are] some very good values there,” he continued.
Although prices, rental returns and low borrowing costs are currently ideal, property investors need to act quickly if they are to take advantage of WA property market, Mr Baldwin said.
“Fixed interest rates are as low as they have been for several years and are predicted to go lower, massive rental demand is seeing returns increasing almost weekly and, although stock is beginning to diminish, there is still some great value available in the WA market”, Mr Baldwin said.
“For the first time in years we are able to offer positive geared properties whereby the rental income will cover the costs after tax for many investors, so people have the opportunity to get into the market without it being a drain on their income.”
Mr Baldwin said he has seen his recent workshop numbers triple what they were a year ago and increased demand for their off-the-plan developments, which he attributes to the advantage of buying in today’s market and settling in an improved market.
“As stock continues to decrease, there will obviously be less choice and, hence, upward pressure on prices. People considering investing in property should take action sooner rather than later”, Mr Baldwin said."

"Manhattan's Housing Market Ends 2012 With a Sales Rush"

Here's an interesting read that I picked up during a recent trip to America. It's from the New York Times and was written by Michelle Higgins.


"The Manhattan real estate market went out with a band in 2012, with the number of sales rising by as much as 40 percent in the last three months of the year - mainly because sellers were in a hurry to close deals before new tax laws kicked in with the new year.

At the same time, inventory across the board has continued to fall, leading those in the industry to predict that the scarcity of apartments will bring higher prices in 2013.

“The consensus is prices are going up,” said Pamela Liebman, chief executive of the Corcoran Group, which reported available listings down 16 percent in the fourth quarter of 2012 to 6,514 – seven-year low.

Corcoran’s report also said sales in volume was up 20 percent in the fourth quarter, to 3,200 closing, compared with the same period a year ago, and the median price rose 8 percent, to $827,000. While the rise in prices is good news for sellers, Ms. Liebman said, for buyers, “it’s a very frustrating market.”

And there is little relief in sight.

“Product has dried up, there’s not much available and I don’t see a sudden surge of properties coming into the market,” said Dottie Herman, the chief executive of Douglas Elliman, which showed in its report that listing inventory fell to 4,749 apartments in the fourth quarter – the lowest level in 12 years. Depending on the location, she estimated prices could rise, “anywhere from 5 to 10 percent,” in 2013 because of the lack of inventory.

Despite the scarcity of apartments, however, fourth-quarter sales were robust. Rushing to close deals in anticipation to tax laws, wealthy buyers helped push the total number of sales to 2,297 – 40 percent higher than in fourth quarter of 2011, according to reports by Brown Harris Stevens and Halstead Property. The sharp increase in luxury sales bumped the median apartment price up 6 percent to $836,000 compared with the same period a year ago. The number of sales over $10 illion rose 44 percent, to 23, from 16 a year ago.

“All the managing agents in town were just inundated with pressure to close,” said Hall F. Willkie, the president of Brown Harris Stevens Residential Sales. “Without the tax law changes, a lot of that would have gone into January and February.”

Though the end-of-the-year frenzy caused sales to pick up, prices have yet to reach the pre-recession highs.

“If we’re looking at average or median prices, you’re still about 6 to 7 percent below where you were, over all,” said Gregory J. Heym, the chief economist for Halstead Property and Brown Harris Stevens.

Still, brokers are optimistic. Corcoran said a wide majority of its Manhattan agents indicated in a recent survey that for the first time since 2009, they felt the market was ‘strong’ as opposed to merely ‘stable.’

“It’s now been three years since the recession and each year you see it building with all positive signs,” said Diane M. Ramirez, president of Halstead Property, citing historically low interest rates and pent-up demand. “Customer confidence is coming back. The buyers are motivated. The builders – their confidence is definitely back. I’m very optimistic.”

But despite anticipated price increases in 2013, Sofia song, vice president of research at StreetEasy and author of the company’s market report said: “In a healthy market, inventory would be low because of high demand. Buyers from all segments, not just entry-level and luxury, would be clamouring to take advantage of the record-low mortgage rates. But instead, sellers are slow to enter the market and midsegment buyers are feeling trapped.

Douglas Elliman said fourth-quarter sales volume was the highest in about 25 years, but its price indicators were mixed as luxury sales outpaced the overall market and the price of condominiums was relatively stable. Over all, the report showed a 2 percent drop in the median sales with a price to $837,500.

“Basically the market is flat,” said Jonathan J. Miller, the president of the appraisal firm Miller Samuel and the author of Douglas Elliman’s report. With credit expected to remain tight and inventory expected to remain low, he said, “the market we’re going into is going to be this artificially induced improving market.”"

"Where to for house prices in 2013?"

Here's another article for you to read. This one is sourced from BusinessSpectator.com and written Steve Keen. Steve Keen is Associate Professor of Economics & Finance at the University of Western Sydney and author of Debunking Economics and the blog Debtwatch.

"The usual suspects are talking up the prospects for Australian property prices as the New Year approaches, with permabull and Australian Property Monitors senior economist Andrew Wilson forecasting 3-5 per cent growth nationally, and BIS Shrapnel managing director Robert Mellor calling for between 2 and 8 per cent growth for Sydney.
Such calls range from just equal to, to well above, the expected rate of consumer price inflation. So they’re a return to the usual property mantra that house prices always rise faster than consumer prices because of the “fundamentals” of (a) a rising population and (b) tight supply. Unfortunately, that once popular rap is out of tune with the actual performance of the market for the last two and a half years. House prices peaked in June 2010, and have fallen 4.1 per cent in nominal terms and 9.8 per cent in real terms between then and September 2012 (the most recent date for the ABS existing dwelling price index). There was a slight uptick in nominal prices in the last two quarters, but the first of these was equal to the rate of consumer price inflation, and the second was slightly below it – so that real prices at best flatlined, and then fell, as figure 1 shows. Figure 1: Australian house prices since US house prices peaked in January 2006
For the permabulls’ dreams about 2013 to come true, the slight uptick in nominal prices over the last six months would need to accelerate (though it’s currently decelerating). What are the odds? Call me a permabear, but I’d say, not good. Firstly, the “this place is different” argument that says we can ignore what has happened overseas is not holding up so well after just over two years since its peak. While Australia’s house price fall post its bubble peak is clearly different to America’s crash, it’s on par with that experienced in Japan’s long slow melt (see figure 2). That was the basis of the comment that dragged me into the property debate back in 2008, that Japan had experienced a 40 per cent fall from its bubble peak over 10-15 years, and I saw no reason for Australia to be different. So that call is looking healthy. Figure 2 But Australia clearly hasn’t had a crash like America’s. Does this hold any hope for Australian property speculators (sorry, investors) that prices might resume their pre-2010 rise in 2013? The bulls would say yes, on the basis that the key difference between Australia and the US was that there was massive over-supply there, while there has been none here (except in Victoria). While the over-supply difference between the two countries is real, as Macrobusiness regularly observes, that cuts both ways: a rigid supply of housing would amplify downward movements when there were downward shifts in demand. So it alone can’t explain the difference between the two countries. On the other hand, the demand side factors that I emphasise – the level, rate of change and rate of acceleration of mortgage debt – show huge differences between the US and Australia that can account for their very different post-bubble paths. Firstly, Australians have not delevered, whereas American households have done so massively. American mortgage debt peaked at 86 per cent of GDP and has since plunged to 68 per cent. Australian debt peaked at 87 per cent, fell to 84 per cent, and has since risen to 85 per cent (mainly because nominal GDP is growing even more slowly than mortgage debt now is). Figure 3 The fact that mortgage debt in Australia is growing more slowly now than at any time since records began is well known. But a slowdown in the rate of growth is one thing, an outright fall in mortgage debt is quite another. A slow growth rate aside, mortgage debt is still growing in Australia, whereas it has been falling in the US since 2009, and is still falling now (see figure 4). Figure 4 So far it’s 'vive la difference'. But differences disappear with my primary riposte to the bulls' “population growth drives house prices” argument, that it isn’t people who buy houses – it’s people with mortgages who do. For prices to rise, the flow of new mortgages has to exceed the flow of properties onto the market, and that requires mortgage debt to not merely rise, but do so at an accelerating pace (there’s a lot more technical detail to this general economic argument about the role of private debt in effective demand, which I cover here). The very different paths of Australian and US house prices were driven by the same dynamic of accelerating and decelerating mortgage debt (see figure 5 and figure 6). Figure 5 Figure 6 And therein lies the rub for the Australian housing market. To get sustained house price rises above the rate of inflation, accelerating mortgage debt has to be maintained for some time. But just as it’s hardest to make a car accelerate when it is close to its maximum speed, it’s hardest to maintain accelerating mortgage debt when the debt burden is already immense. Australia, with a mortgage debt to income ratio that has barely budged from its 87 per cent of GDP peak, has precious little room to maintain accelerating mortgage debt. America, on the other hand, has some headroom because of the fall in mortgage debt from 86 per cent to to 68 per cent of GDP. These differences are now apparent in the data. Even though US mortgage debt is still falling, it is falling more slowly and therefore accelerating – see figure 5 – and has been doing so for some time. The rising demand has pushed up house prices, which are now rising in real terms. The recent tiny uptick in nominal house prices in Australia was driven by an acceleration in mortgage debt too – even as the rate of change of mortgage debt was falling – but it wasn’t enough to reverse the trend for inflation-adjusted prices to fall (see figure 6). It already appears that this acceleration is petering out, and the rate of growth of nominal house prices is falling further below the rate of inflation as a result. So American property bulls have some prospects of a rosy 2013 – though that is not guaranteed, since the rate of acceleration of mortgage debt there declined in the most recent flow of funds data (see figure 5). But Australian property bulls are likely to be disappointed. Insert crocodile tears here. Figure 7 "