There are more property investment articles, commentaries and analyst reports on the Web every week than anyone could read in a month. Each Saturday morning I like to share some of the interesting ones I’ve read during the week.
Enjoy your weekend…and please forward to your friends by clicking a social link buttons on the left.
Sydney’s property bubble hysteria is unfounded: Terry Ryder
Terry Ryder writes in Property Observer that reports of a property bubble in Sydney are much exaggerated:
For the past three years headline-writers at metropolitan newspapers have been in despair. They have been cruelly denied the opportunity to put “bubble” in a headline.
With capital city prices mostly in decline since 2010, even a species willing to use fabrication when sensationalism won’t do has been unable to conjure a bubble out of our property markets.
Now, with capital city prices up a moderate 5% on average, a peephole of opportunity has appeared.
Sub-editors have, as willing accomplices, a gaggle of chattering economists and sharemarket analysts who see an opportunity for a bit of personal limelight while pontificating on a subject outside their sphere expertise.
That’s all it takes in this country to turn a nothing into a sensational issue.
He justifies his views well and explains:
For there to be a bubble fit to burst, there needs to be a major decline in affordability.
But Australia has the opposite.
The past eight quarters have produced consecutive improvements in affordability. Prices, on average, have fallen and there have been multiple interest rate decreases.
The forgotten part of the affordability equation, income, has assisted as well.
New figures from the Australian Bureau of Statistics suggest an average 5% rise in wages in the past 12 months. That’s a rise larger than the median price rise over the past year in five of the eight capital cities.
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Australian housing nudges affordability highs
Although first homebuyers might find it hard to believe, housing affordability conditions in Australia are among the best we’ve seen for decades largely as a consequence of lower interest rates and rising incomes against which house price rises writes Melanie Timbrell in MyWealth.
Any measure of affordability has to take into account the following three factors.
1) First is the cost of borrowing or in other words, interest rates. According to the Real Estate Institute of Australia’s (REIA) latest housing affordability report, nationwide the portion of family income required to meet home loan repayments is currently at around 30%, 2.7% lower than this time 12 months ago. The decrease has, predominately, been driven by the fall in interest rates.
2) The second factor impacting affordability is the price of dwellings. As prices rise, all else being equal they become less affordable.
Although into the ‘price’ you also have to consider the influence of taxes such as stamp duty and any government grants available, such as for first homeowners.
3) The third influence on affordability is disposable income, which will usually rise over time alongside economic growth and prices. The general wisdom is that housing costs should not consume more than 30% of a household’s income in order to be considered affordable, according to the Housing Industry Association.
Shane Garrett, senior economist at the HIA says that affordability levels are currently at similar levels to the mid ‘90s.
“They’ve gone through periods where affordability was at a peak towards the late 90s where you had a combination of low interest rates, weak house price growth and incomes which were still rising.
“Then houses became quite unaffordable or quite expensive relative to income around the mid noughties in the 2005-06 period just before the GFC.”
How much are you worth?
If you’re part of an ‘average’ Australian household, chances are you’re now worth nearly three-quarters of a million dollars.
Australian Property Investor recently quoted an Australian Bureau of Statistics report that says the average wealth of households in 2011-12 was $728,000
If you live in Canberra, you’re probably worth even more, according to ABS director of the living conditions, Caroline Daley.
“Wealth varied greatly across the states and territories,” she says.
“The ACT had the highest level of wealth at $930,000, which was around 28 per cent higher than the Australian average. Western Australia, New South Wales, Victoria and the Northern Territory all had levels of wealth close to the Australian average.
“South Australia, Queensland and Tasmania had levels of wealth less than the Australian average, with Tasmanian households having the lowest level of average wealth at around $600,000. Household wealth was more concentrated in capital cities, where the average net worth of households was $781,000, compared to $637,000 outside of capital city areas.”
Not surprisingly, most household wealth is thanks to Australians owning a principal place of residence. More than two-thirds of Australian households own their own home outright or have a mortgage.
“Households that owned their own home outright, 2.7 milllion households, had an average net worth of $1,237,000. Households with a mortgage on their home, 3.1 million households, had an average net worth of $790,000, and the average net worth for households that rent their home was $160,000.”
SMSF sharks are circling property investors: AIST
The self-managed super fund “sharks are circling”, according to Tom Garcia, chief executive of the Australian Institute of Superannuation Trustees.
Get rich quick schemes from unregulated property spruikers, as well as the ability to borrow in SMSFs was creating a dangerous situation which could lead to a failure in the financial sector, Garcia told The Weekend Australian. He said:
“Most people don’t know their ability to cope with risk until they experience an adverse outcome, by which time it may be too late. It is not well understood that an SMSF trustee has a fiduciary duty to act in their own best interests to provide for their retirement.
“By law, SMSFs are required to have a documented investment strategy.
He says the dangers of SMSF schemes mean many investors will be stung and will have to rely heavily on the pension scheme.
“While we don’t represent SMSFs, we recognise they have a legitimate role to play in our super system and it would be a problem for all taxpayers if SMSFs were to fail through bad investment advice, resulting in disappointed super investors having greater reliance on the age pension,”
“If that happened, more retirees will be dependent on the age pension and more people will lose confidence in the system, as we saw with the collapse of Storm Financial and Westpoint.”
Weekend fun video
The Hungarian shadow-theatre company ‘Attraction’ leaves the Britain’s Got Talent crowd and judges in tears.
Blogs you may have missed this week:
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