We're a funny lotThe scene is set for a home construction boom after a record number of Australians rushed to take advantage of the First Home Owners Boost in September ahead of the wind-back of the scheme from October.
More than 49,000 Australians took out mortgages that for purposes other than refinancing in September, a seasonally-adjusted record. Around 7600 were construction loans, the most since 1994.
Borrowers who entered into contracts to build new homes before September 30 were eligible for the $14,000 temporary First Home Owners Boost on top of the $7000 first home owner grant. From October 1 the Boost fell to $7000 and will vanish altogether in January...
First home owners buying existing houses were eligible for $7000 on top of the $7000 grant, but are now able to get a boost of only $3500, and nothing from January.
"It's one last surge," said ANZ economist Alex Joiner. "Things will moderate from what has been frenetic activity over the last few months. This is not only as the grants are wound back but also as interest rates rise."
Westpac economist Andrew Hanlan said the surge would ignite a construction boom. "The upswing should kick-in late this year and become a key growth engine of the economy through 2010," he said.
"Its not only first home buyers. Upgraders are continuing to respond to what are still extremely low interest rates. Finance to upgraders is up 34 per cent so far this year."
The Bureau of Statistics figures show lending to first home borrowers up an extraordinary 86 per cent in the year to September with lending for construction up 84 per cent. Lending to investors is up 18 per cent.
The latest RP Data house price index shows the typical Sydney price passing $600,000 and the typical Melbourne price approaching $500,000 after swelling 9 per cent and 13 per cent in the past year.
Apartment prices are cheaper and the houses bought by first home buyers are usually much cheaper.
The government yesterday opened tenders for the second round of grants from the Commonwealth's $512 million Housing Affordability Fund which will subsidise the infrastructure costs of new developments in return for guarantees that a certain proportion of the homes will be made available to low and middle income earners.
An Essential Media poll released yesterday found that only 41 per cent of Australians expected the latest round of interest rate increases to make them worse off and only 10 per cent expected to be much worse off.
Asked what the interest rate hikes indicated 53 per cent said they showed the economy was getting better and only 12 per cent getting worse.
The ANZ measure of newspaper job advertisements took a breather in October, slipping 1.4 per cent after gains of 3.7 and 5.5 per cent.
"It's not a concern, yet," said CommSec economist Craig James. "The lift over the past three months is still the strongest gain for almost two years. It is understandable that employers are still a little cautious to take on more staff. Most will meet demand by getting staff to work longer hours. Only when the lift in work looks sustainable will they hire."
Published in today's SMH and Age
Graphic: catalogs.com
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11 comments:
Yep, so over the next few months we should expect a $14000 drop in house prices. Which will leave the silly people who rushed in to "take advantage" of the grant looking sick.
Really Dumb Goverment Programs (RDGP™) aside, the risk of a genuine housing crash is in my opinion very real. A triple whammy of rising interest rates, a high Aussie dollar (due to the carry trade the RBA has now created) that destroys maunfacturing employment, and falling commodity prices (which are being sustained by the whimsy of the Chinese in shipping Mt Tom Price to create rusty hills beside their steel mills - they're stockpiling way beyond their needs) is very possible.
Wow DD, welcome to the club!
With the near universal belief in China-will-save-us doctrine that dominates our media at the moment, its refreshing to find a fellow traveller. To question the sustainability of the post-GFC China boom has become downright un-Australian.
Mind you, I don't see housing crashing if Kev follows through with his insane 35 million Aussies by 2050 plan.
Welcome to the bubble Peter!
Carbonsink - There will be a housing crash, it's just that you can't expect to predict it. It might be next year or the year after. At some point the top of the market will be found and there will be a correction. Lets hope that it's not a brutal correction that hurts a lot of people. The reality is that without other competing places to invest there was no where else for all the extra credit to go except the housing market. Once it took off it's all been self-reinforcing.
If there had been a maximum on loans of 80% of the market value of the property being lent by banks I don't think our property values would be where they are today. Who has really benefitted from this bubble? Answer=banks. Who is ultimately unwriting these loans? The Australian public.
I agree that a correction will most likely happen. It's arguable that it needs to. I would prefer that it was a period of stagnation, rather than a complete collapse, as I'd rather not see people turfed out of their homes or put in severe financial stress by it. There will be people who have over extended themselves and will suffer anyway, however.
We may not see it for a while though. The population is continuing to grow. In Perth, we have 44,000 more people living here from interstate or international migration alone in 2009. This is to say nothing of the increased birth rate over the last few years.
It's not at all hard to predict housing will crash, or at best stagnate, at some point. But I'm more rash in prediction than that - I reckon it's more likely to be a crash, and its likely to happen within the next two years.
And the timing couldn't be worse because China is likely to crash at about the same time. We needed to have our property crash in 2006-7 when it wouldn't have hurt anywhere near so much.
DD, I keep hearing about a looming crisis in China. I am open minded about it, but haven't seen a lot of good analysis. What have you seen? And would you care to put your money on the line by predicting when and how it would occur?
A good article from Reuters on China...
http://in.reuters.com/article/businessNews/idINIndia-43832220091110
So asset inflation and over investment in under performing areas is the risk. Got it.
Interesting article by Michael Hudson in the age today about housing prices
http://www.theage.com.au/business/fall-in-housing-starts-to-impact-prices-20091110-i7qk.html
I have heard a lot about a housing price fall in Australia, but have yet to really see it effect much more than some apartments that are massively overpriced.
The worse bit about the relentless rise of house price has been that being financial prudent has actually been a detriment, instead of saving up a deposit you would have been better off just buying something.
- Marek
Marek, we've had housing prices fall over here in the West. In some areas it was by more than 10% over the year. Prices appeared to stabilise in the last quarter and look like starting to rise again. That's handy timing for me, I've just put my place on the market.
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