Housing prices, some, but not for a long period of weaker Sydney

New Home Under Construction - Phil Keeffe

Sydney's property prices continue to soften, but there are underlying strengths in the market that should see a return to increases over the next six months

Recent house price figures from the Australian Bureau of Statistics indicate that most capital city property markets showed signs of slowing in the March quarter. The ABS reported that prices for established houses in Sydney fell by 1.8% during the March quarter, restricting the annual increase to just 0.8%.

Australian Property Monitors figures for the March quarter show a slightly lower rate of price weakening. APM says that Sydney median prices fell by 0.4% during the quarter. This statistical variation is understandable, given that APM and the ABS use slightly different methods of calculating the median price.

However, as usual with the Sydney market, not everything falls at the same rate. In fact, not all Sydney house prices are falling.

Writing on Domain.com, Dr Andrew Wilson noted that in the past year the top five suburbs in median house price growth were Kensington (30.9%), Westmead (30.7%), North Sydney (28.9%), Lewisham (26.1%), and Neutral Bay (25.2%).

Dr Wilson also notes that Sydney remains the most expensive capital city in which to buy a house or a unit. The March quarter Sydney median house price was $643,713, and for units the median price was $448,585.

So it follows that renting is more expensive in Sydney than any of the other capital cities. Figures from Australian Property Monitors says Sydney's March quarter median weekly asking house rental was $485 – 33% per cent higher than Melbourne's $360.

Dr Wilson leaves us in no doubt about the future of Sydney house prices: “Expect Sydney houses and units to remain prohibitively expensive compared with other capitals, particularly as it clearly has the best prospects of a sustained recovery in prices from the current subdued market conditions being experienced in all Australian capital city housing markets.”

Interest Rate Hikes Expected

There are signs that the Reserve Bank will be raising its interest rate in the near future. A report by Richard Gluyas in The Australian says that the head of the CBA Bank, Ralph Norris, expects “...one or two more increases in official interest rates in the next six months.”

The report also said that Mr Norris is optimistic about conditions between now and the end of the year.

“Notwithstanding present challenges, we continue to expect a gradual improvement in operating conditions through calendar 2011, as the economy recovery strengthens and system credit growth rebounds,” Mr Norris said.

Another sign of what lies ahead is the rising number of new homes sold, which increased for the third month in a row.

An AAP-sourced story in The Australian said that the latest Housing Industry Association (HIA) new home sales report showed the number of new homes sold across Australia increased by a seasonally adjusted 4.3% in March, following a 0.6% rise in February.

The article quoted HIA chief economist Harley Dale, who said there was still a long way to go for new home sales to reach healthy levels.

"The March result for new home sales reflects an ongoing pause in the interest rate hiking cycle and some abatement of the severe weather conditions witnessed in early 2011," Dr Dale said.

The HIA also noted that sales volumes remain low by historic standards, and that the level in March was nearly 1000 sales lower than the average over the past decade. It joined the CBA Bank in forecasting an interest rate rise on the horizon.

"However, it's now apparent that the next move from the Reserve Bank may be early in the third quarter of 2011, and this runs the risk of reversing the upward trend in sales," the report said.

The HIA report said that NSW new home sales were up by a "very encouraging" 13.5% in March, for a 20.7% rise in the first quarter of the year.

"Sales are on somewhat of a barnstorming run in NSW, from an awfully low base," the report said.

Which Way now for House Prices?

Domain.com’s Michael McNamara, a property commentator and valuer, tried to sort out the direction of house prices.

“At this stage, the indices show that home owners have simply given back the capital gains they have achieved over the preceding 3 quarters. In short, over the year, national house prices have recorded no meaningful change.”

McNamara notes that finance approvals (a forward indicator of buyer confidence) are declining while at the same time stock levels (properties on the market) have begun to increase.

He says that the number of properties advertised in Sydney (comparing March year on year) have risen from 42K to 46K, or about 9%, and asks whether this growth in supply will team with the fall in demand to further weaken prices.

His conclusion is that the shortfall in demand from the owner-occupier sector will be offset by growing demand for properties from investors.

“Landlords are rubbing their hands together over the last five years’ results; according to SQM research, rental values, in Sydney for example, have climbed at a compound rate of 8.5% per annum, clearly exacerbated by vacancy rates below 1.5%.”

McNamara says that a combination of excellent rental returns, a shortage of rental properties and steady employment levels will pull Sydney prices out of their decline over the next six months.

“Today, yields in Sydney are at 5.4% and rising. There is no glut of accommodation, no rising unemployment. Quite the opposite.”

Journalist Chris Zappone, writing in the Fairfax newspapers ‘Business Day’ column, says the federal government’s decision to lift "the overall increase in the permanent migrant intake to 185,000 from 168,700 places," will further strengthen demand.

He quotes St George chief economist Besa Deda who said that boosting immigration "...means more demand for housing and dwelling starts are failing to keep pace with population growth at the moment”.

Ms Deda told Zappone that even without the increase in skilled migration, dwelling starts won't catch up with population growth for some years and the housing shortage problem could likely continue.

Zappone commented that Australia now faces an estimated 200,000 shortfall of houses and apartments, with building approvals continuing at historically weak levels.

Negative Gearing to Stay

This ongoing shortfall in meeting demand for property has a silver lining for investors in that it supports the federal government’s favourable taxation policies for property investors.

Terry Ryder, in his ‘Hotspotting’ column in The Australian, strips away the props for all those advocating an end to negative gearing in the hope it can somehow improve housing affordability.

“There is a growing debate about the reasons for rising property prices, which in itself is rather odd because we all learnt the cause in high school economics. There is strong demand for a commodity that is in relatively short supply. It's that simple.”

He says that the economy is strong, unemployment is falling, wages are rising, Australia’s individual wealth is at record levels and personal debt levels are falling.

“The only outcome of stopping negative gearing will be to create a shortage of rental properties, which will force up rents and make it harder to first-home wannabes to save a deposit - that's what happened the last time it was scrapped.”

Ryder even sees the bright side of rising house prices: “This pattern of rising home values is a good thing for most Australians, because about 70% of households own their homes.

“It's also good for the nation because the value of the family home is the financial imperative by which many Australians fund their retirement.”

Sources

• ABS 6416.0 – ‘House Price Indexes: Eight Capital Cities, Mar 2011,’ 2 May 2011


• ‘Prices are falling - some suburbs still hot,’ Domain.com, 7 May 2011


• ‘A slight hiccup, but house prices still on the up,’ Sydney Morning Herald, 9 May 2011


• ‘CBA ready for two official rate rises in next six months: Ralph Norris,’ The Australian, 11 May 2011


• ‘New home sales on the rise,’ AAP report in The Australian, 5 May 2011


• ‘Rents underpin property values,’ Domain.com, 10 May 2011


• ‘Inflation, rates and a deep breath,’ Domain.com, 5 April 2011


• ‘HIA: Budget worsens housing affordability,’ Sydney Morning Herald, 11 May 2011


• ‘Scrapping negative gearing won't make housing more affordable,’ The Australian, 5 May 2011

The day of the future: the new housing sector, earnings

While cash fled shares in the wake of the revision of the Standard & poor's downgraded its outlook on U.S. debt to negative from stable yesterday, the Treasury market rallied to the advantages of close to one month. The yield of the 10-year reference declined four basis points 3.37%, while the yield on 30-year fell by two basis points is% 4.35 and coupon FNCL 4.5 MBS went out 9/32 higher prices 102-05.

Yields of Treasury changed gradually higher in active trading overnight. Note 10-year reference is now-4/32 to 101-29 heavy-duty 3.391% (+ 1.1 bps) and FNCL 4.5-2/32 102-03 heavy-duty 4.139% in accordance with the MBS MND model by the yield.

Actions are more or less flat Monday after a sharp sell Off that pushed indexes more than 1% lower. S & P 500 futures are up to 2 points to 1,303.00, Dow futures trade 28 points higher at 12,168.

Light crude oil futures are now-0.63% to $ 106.44 and gold futures are + 0.19% to $ 1,495.30. The price of gold traded around $ 1,500 yesterday, a new record high.

Mixed guidance from markets around the world. Asian stocks were mostly lower with shares in Japan and Hong Kong falling 1 21% and 30%, respectively; the current session, Europe is more positive with shares London rises 0.49% and 0.36% German stocks climbing.

Key earnings releases this morning include Goldman Sachs, Intel, and IBM. After bell results from Yahoo expects too. While the housing data hit the wires, too, the focus is clearly on earnings.

Today's events:

8: 30 ? the average of five months for housing starts was relatively flat from the summer of 2009, but the amount from month to month are wild and unpredictable. In February the index dropped 22.5% numbing the mind to their second lowest in the records books (which date back to 1946), but the month before in jumped 18.4%. So is expected this month? Another great leap.

Economists polled by Thomson Reuters for an annual rate of housing starts leap 9,6% to 525 k per year. Estimates, of course, all all over the place, from the half million to 625 k.

"Melting snow in the Northeast and Midwest and payback from the building code changes in the West, which increased ? begins in December and January in February cost ? may have played a role in the horrifying numbers," said economists at IHS Global Insight. "We expected a much better numbers for March, but these increases will be payback numbers, not the numbers indicating the pickup in demand."

Economists at BBVA advise keeping expectations low for the coming year.

"The housing market will continue to suffer from foreclosures, despite robust economic recovery," they said. "A significant decline in existing home prices to attract customers and reduce the demand for new homes, and therefore, we expect housing starts, building permits to improve, but still weak throughout the year."

Treasury Auctions:
11: 30-4-week bills

Geithner biennial sets target for housing finance reform

Secretary of the Treasury Timothy f. Geithner saidF.
House Committee on financial services today that Congress must meet reforming
Freddie Mac and Fannie Mae, or Government-sponsored enterprises (companies)
will only return to their old form.

Geithner prepared testimony before the
The Committee was based on the Administration the white, Obama has delivered two weeks
to outline its vision for reforming housing financing market.  In this vision, "said the Secretary of the Treasury
the basic role of the Government of will be limited to consumer protection and supervision,
targeted assistance to low-and moderate-income-interest and renters; (i)
targeted capacity to promote market stability and crisis response.

In other words, is the administration of the
DETERMINED the system of private market subject to the supervision of the strong, consumers and
the protection of investors and where the private market, not American taxpayers
bear the burden for loss.

Geithner
criticized for a long time the role of Government in housing finance for supporting incentives
that created significant market distortions, moral hazard and ultimately
left taxpayers responsible for the resulting MESS.  While all Americans should have access to
affordable quality housing , said the objective should not be for every American
To become just thecicielem House for rent.  Targeted and
effective support should be available for families who have a financial
the ability to own a home but are billion private market coupled with the
the range of options for the Americans, who rent.

On
with winding stressed important and Freddie, Fannie, and the careful
the pace of the intended as no shock there is already a fragile housing market and the said
This can be achieved by:

• Gradually
  increase of the price guarantee for enterprises as if they were held to
  the same standards of capital as a private institution;
• To Reduce The
  conforming loan limits by allowing temporary increases enacted in 2008 to
  expire as scheduled on October 1, 2011
• Gradually
  an increase in the amount of private capital that the risk of losing ahead of taxpayers through
  credit losses in the economy and gradually increased down payment requirements;
• Still
  the wind, as a general rule, investment portfolio companies amounting to not less than ten
  per cent per annum.

As
Decreased presence of enterprises, Geithner said the Administration will also
Scale Back FHA "to his more traditionally-oriented role."  The maximum size of the loan should be reduced, and
After the return to the levels of pre-2008, should consider whether further reduction
are justified.  The pricing of FHA
mortgage insurance should also increase beyond two rounds of price increases
already adopted, both to reinforce the account capital reserves and align its
Structure about pricing and availability of a more appropriate relations with the private sector.

The
The Administration also supports reform of the Federal home loan banks (FHLBs) by
initiating a single division membership, limiting the level of advances to each
institution and the reduction of the FHLB investment portfolio.

The Government Of
Administration reform, Geithner said, is only half the picture.  "We have also achieved reforms,
restore confidence in the mortgage market among borrowers, lenders, and
investors. "  Laid down in the Act of Dodd-Frank
laying the foundations for many of these reforms and the Treasury is to coordinate changes
on the securitization market will require creators and securitizers to
maintain financial risk shortly adopt the Bureau of consumer protection
authority of the occurrence of abuse and to promote thechoice for consumers.  Carried out are also changes to the capital of the Bank
standards and reform to the servicing industry.  National include design
support for standards and identify ways to reduce conflicts of interest between
holders of mortgages the first and second and improving incentives for servicers to
Working withthe troubled borrowers.

Geithner
He said the Administration has set out three possible options for the structure of Government
support in the housing finance market, where the private sector is dominant
Supplier credit and mortgage risk bearer. 
In each, would support the Government's "clear, explicit, and
Limited "and each would help FHA and similar Government
initiatives that help targeted groups such as the low-and moderate income households
families, farmers, and veterans.

The
The first option would limit the role of the Government almost exclusively to these targeted
assistance initiatives.  The Vast
The majority of mortgages should be financed by the private sector, and not
take advantage of the Government guarantee.

The
the second option would complement targeted aid although FHA and other initiatives
to backstop the Government with a view to promoting stability and access to mortgage loans
credit market in times of tension.

The
The third option would be the Government, in addition to the FHA and targeted
initiatives to aid, the provision of reinsurance for certain securities, which would be
be backed by mortgages of high quality. 
These securities would be guaranteed by private strictly regulated
companies under stringent standards of equity and strict supervision and is reinsured
by the Government which would charge a premium to cover future claims and would be
After private guarantors are zaprzepaszczeniu only pay those claims.

Geithner said in his prepared remarks that he hoped financing reform of the legislation of the housing complex will pass congressional vote within two years. He added, "idle exacerbate market uncertainty and the risk of leaving many of the defects in the market
has brought us to this point firstly not included. "

After
overnight, members of the Committee questioned the Geithner about the costs associated
in these options.  , The Secretary said
that the costs to the consumer will be higher in each of the reforms, but
in accordance with the first reform would be higher than in the second or third.  Each
the medium-term reform presented will require action by Congress, the Secretary
He said, but by providing a set of options, and key criteria by which they
should be assessed, the Administration hopes that encourage conversation honest
about the pros and cons of each.

 

Below you can find quick reminder Geithner in response to Congressional questions which, after his prepared testimony.

RTRS-U.S. f. GEITHNER TREASURY SAYS 90 PCT ROLE for GOVT BACK MORTGAGES NECESSARY NOW, BUT NOT in the future

RTRS-U.S. TREASURY'S GEITHNER SAYS THE HOUSING SLOWDOWN WOULD BE MUCH MORE SEVERE WITHOUT THE SUPPORT OF FANNIE, FREDDIE

RTRS-U.S. TREASURY'S GEITHNER SAYS, LEAVING ONLY BACKER AS FHA MORTGAGES CANNOT ACTUALLY REDUCE TOTAL GOVT ROLE IN HOUSING MARKET

RTRS-F. GEITHNER-THE CONGRESS YOU CAN STIR THE OPTIONS PROPOSED BY THE TREASURY ON FANNIE, FREDDIE REFORM

RTRS-F. GEITHNER SAYS NO GUARANTEE THAT THE PRIVATE SECTOR WILL STEP BACK INTO THE MORTGAGE

RTRS-F. GEITHNER-IN ALL THE OPTIONS FOR REFORM, FHA MUST BE ABLE TO PROVIDE MORTGAGES FOR LOW/MODERATE INCOME FAMILIES WITH MODERATE PREPAYMENT

RTRS-F. GEITHNER SAYS TERMINATING MORTGAGE MODIFICATION PROGRAMS WOULD RESULT IN A LOT OF DAMAGE TO THE FRAGILE HOUSING MARKET

RTRS-U.S. TREASURY'S GEITHNER SAYS FANNIE FREDDIE GUARANTEE OPTION EXPLICIT HAS "A LOT OF MERIT"

RTRS-F. GEITHNER IS HARD TO KNOW IF THE HOUSING MARKET IN THE UNITED STATES HAS BEEN REVERSED

RTRS-F. HOUSING MARKET STILL GEITHNER-HAS A LOT OF DAMAGE TO ABSORB; NEEDS TIME TO RECOVER

RTRS-F. GEITHNER SAYS DON'T LOOK TO THE EUROPEAN SYSTEM OF HOUSING FINANCE AS A REFERENCE MODEL, A ROLE FOR THE UNITED STATES