Putting the market into perspective

August 4, 2011

The recent decision by the Reserve Bank to keep interest rates on hold was welcome relief to home buyers and therefore home sellers alike. Interestingly, the decision had some commentary that is worth examining. “Interest rates have now been on hold for the past nine months – Reserve Bank governor Glenn Stevens said in a recent speech that Australia is in the most stable period for interest rates in the past five years”.

FULL STORY  http://www.abc.net.au/news/2011-08-02/reserve-bank-rates-decision/2821136?WT.mc_id=newsmail

I think if we surveyed the typical buyer or seller today, there would be a feeling that the environment in which we are all operating is one of volatility and uncertainty, and consumer sentiment very low, yet in this climate interest rates are in fact quite stable, and not running away as many would have feared or even felt was the case.

In previous Blog entries, I have commented and in episode 3 of Evolution TV http://www.evolutionrealty.com.au/tvshow.aspx that the property fundamentals are very good.

  • Unemployment still very low in WA
  • Interest rates historically low and stable
  • Population growth high
  • Housing shortage
  • Real Estate values down so value high
  • Property is a medium to long term hold
  •  Stock markets all over the place and extremely volatile recently
  •  Globally, other economies weak in comparison to the local market

As we see some properties approach 2006/2007 prices as to the value, the question is as to when do we jump in. Waiting for the market to recover is academic if you are a trade up buyer or need a home to live in.

In previous Blogs I have explained why it is better to trade up in a down market, http://www.evolutionrealty.com.au/blog/post/TRADING-UP-TO-A-NEW-HOME.aspx but all of the arguments about buying a new home in terms of money, miss one fundamental reality.

We Australians buy homes for a vast number of emotional reasons not related to money or financial ones. This includes but is not limited to the following;

  1.  Australians are house proud. We want to show off our pride and joy, invite our mates over to see our new Cedar lined alfresco, our new roll on turf or new kitchen. We are social creatures and often our home is an extension of who we are
  2. Security- There is a feeling of security knowing you cannot be kicked out of your home (Assuming you are not taken away by the authorities or evicted by the bank for non-payment of the mortgage). No rental inspections, no grumpy Property Manager telling you how to live, no rules about pets and so on. We like to be the “King or Queen of our own castle”.
  3. Capital appreciation- Homes over time go up in value. Rent money is dead money and is making the owner rich at your expense. Remember property is a medium to long term hold. I was talking to an owner recently that bought a block in Como 20 something years ago, a quarter acre for $90,000. Today that property is well more than $1million dollars. If you “get in” to the market and hold, you cannot help but see growth.
  4. Privacy- Owners can erect walls, fences, grow shrubs, have a dog in the front yard, place alarm systems or even say “no” to unwanted viewings or inspections. You have the privacy that a renter can never have.
  5. Forced savings- (Noel Whittaker said in his famous book, “Making money made simple”, http://noelwhittaker.com.au/products/view/making_money_made_simple_20th_anniversary_edition/ It is well known by financial experts that we will all make the required payments on the car or mortgage without problem. Without that commitment, very few will save the equivalent money. In other words, paying off a home if forced saving. Think about that for a moment. Buying a home forces you to make the fortnightly payments, and over the long term your asset will grow.

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