Housing boom, interest rates, inflation - from the fin review
an abbreviated version of Christopher joye's article
continued booming residential home prices, suits me fine as I have a large investment in a REIT child care (FET) the capital gain in the 2014 FY's return was 13%, on top of an 8% annual dvd.. so another 13% capital gain this current FY would also be fine...
its my view that with all families owning residential property, because they are now becoming wealthier due to the increased value of their real estate asset, are using this asset as collateral for their current ongoing lifestyle ie. spending, spending, spending ... well that's how it looks to me when I see the inordinate volume of consumer spending that my kids and their piers take part in...... and of course with their increased collateral they can now afford that extension to their home, a holiday, etc.etc.etc. some of you people on this site might like to fill me in on how this generation gets its money....
if I have got this right then there's no need to be too negative about the banks, or maybe even the retailer's ???? did I say that ?
For the rest of the year all eyes should be on housing. It’s the key to inflation, interest rates, and the performance of Australia’s $400 billion mega-banks.
Contrary to optimistic forecasts that the boom was over after a temporary seasonal blip, the market has recovered with gusto in the final two months of winter..
Over the past 12 months housing costs in Sydney and Melbourne have jumped by 16.0 per cent and 11.6 per cent, respectively. Nationally, house price inflation over the year to 19 August is back at a super-strong 10.9 per cent rate ..
Australian dwelling values are 25 per cent above the record reached in March 2008 before steep mortgage rates and the global financial crisis induced a slump. They have also fully recovered the 8 per cent peak-to-trough losses realised over 2011 and 2012 to be 9.5 per cent dearer than the previous high water-mark set in October 2010.
Importantly, significant house price increases over the last quarter have forced the RBA to modify its official rhetoric.
The RBA’s take on Australia’s exuberant property prices was discernibly different in the August board minutes released on Tuesday: “Conditions in the established housing market remained strong and while house price inflation across the country in 2014 had not been as rapid as over the second half of 2013, it had remained robust.”
Rather than touting cooling price growth, the RBA now admits it has stayed “strong” and “robust”, which are sharp adjectives for a dour central bank.
The RBA says we should not get exercised about stonking house price appreciation because Australia’s housing credit growth rate is modest.
In his July speech Stevens said “the growth of credit outstanding for housing is about 6 to 7 per cent per annum, or slightly above trend nominal income growth”. “It’s hard to mount the soap box to complain about that pace,” he averred. Really?
The issue is that leverage is already at near-record levels.
In contrast to the US and UK, Australian households hardly deleveraged during the GFC. The current household debt-to-income ratio of 150 per cent will soon exceed the 152 per cent level hit in June 2007.
Likewise the ratio of house prices relative to incomes is about to breach the records attained in 2007 and 2010, if it has not done so already.
housing credit growth is running at more than twice current income growth.
A final interesting dynamic is the de facto rate cuts lenders have been bequeathing borrowers out-of-cycle.”. It seems those calling for RBA rate cuts are already getting them."
The Australian Financial Review
BY Christopher Joye
