Property has been in the news again, so I thought it was time for an update. Once again, I remind punters that booms last longer than people expect.
The govt has just done real estate agents a favour by signalling RBA cuts are on the way. Although they didnt cut this week, they have signalled a likely cut next month, to keep inline with international pressures.This will mean that home buyers that have been sitting on the fence waiting for property prices to fall (while they get grey hair) are now jumping back in, and not waiting for any fall. Like the GST and first home buyers grant that started this whole boom, rate cuts will fuel it all for another 6-12 months yet.
There will be no softening of this boom, until companies get into trouble and start laying off staff. As long as jobs are steady, people will still feel confident to upgrade houses and borrow.While homeloan affordability is still a large portion of the avge wage (due to higher prices) there will always be people who take out mortgages that make my head spin. Whats worse, is that thye can handle that high mortgage, as long as they have a good job. Once again, we see employment stability as the engine driving this boom.
On recent threads at HC, I agree that overgearing is in the minority. I liked the Gittins SMH article and thought he was spot on, as long as you remember he was talking about inner city apartments in Sydney and Melb. Buyers of those things deserve what they get. I recommend a standard 3-4 br house in an average suburb, close to shops and employment areas.
It should be remembered that BIS have their own cause to further. WHile the BIS article countered the SMH, we know that BIS make their money from helping developers and purchasers of investment property. It makes sense for them to tell the punters that its all going ahead. BIS might charge $50-100k to a developer to do quantity surveying (costing), then they charge each buyer $500-1000 for a report on costing that they can show the tax dept for depreciation.BIS wouldnt be in business long if they agreed with Gittins and SMH.
Qld is still leading the way for growth, over NSW and VIC. That doesnt mean that there isnt some great buys in all states. Just buy for the long term and hold. Let the rent pay off the debt, and borrow against the increase for more assetts. While I am saying that there is still time for capital gain, dont buy just for the 2 years growth. The loan costs, stamp duty and capital gains tax make your profits disappear pretty quick.
So while there has been a bit of a pause in the uphill run, as buyers waited to see the direction of rates, we now have a clear signal that its going ahead for a while yet. You need to remember that we have never been in this situation before, with a strong economy yet low interest rates and low inflation (with deflation still a possibility). So dont trot out all the statistics and try and interpret them for cycles of highs and lows. The goalposts are always shifting.
