Category: State of the Market

RBA lifts interest rates

For the past five months, the first Tuesday of every month has seen us here at Century 21 breathe a sigh of relief as the Reserve Bank of Australia delivered their decision to keep interest rates on hold.  We assumed that the inevitable – a change in rates – would come at some stage, however each month brought the good news that reprieve had been granted for a little while longer.   

But apparently this wasn’t to last with November bringing the (somewhat unexpected) news that the RBA had decided to lift the official cash rate by 25 basis points to 4.75 per cent after five consecutive months of keeping it on hold at 4.5 per cent. 

In his explanatory statement, Glenn Stevens, Governor of the RBA, cited the reasons for the bank’s decision.  He explained that as Australia is currently experiencing historically high terms of trade the economy is now subject to a large expansionary shock and has relatively modest amounts of spare capacity.  He also noted that there is a risk of inflation rising over the medium term. 

The board’s decision therefore was that the “balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent.”

For ordinary Australians with mortgages, the rate rise of 25 basis points will see around $50 added to the monthly repayments on an average $300,000 home loan.  However we’ve already seen two (at time of writing) of Australia’s big banks, the Commonwealth Bank and ANZ, raise the rates on their standard variable home loans by significantly more than the RBA. 

This rate rise therefore has the potential to make things difficult for many Australian families leading into Christmas and perhaps next year as well, as the possibility for further rate increases remains. 

So what can mortgage holders do to lessen the blow? I for one am a firm believer in the effectiveness of forward thinking and practical household budget management. 

It could be an incredibly worthwhile exercise to sit down and plan out your month to month expenses as well in advance as is possible.  By factoring in any expenses that you know are coming, such as water and electricity bills and home loan repayments, you will be able to reduce the likelihood of overspending and be in a better position to incorporate the additional mortgage repayments less painfully into your budget. 

Mortgage holders should be aware that future rate rises (and therefore increased mortgage repayments) are definite possibilities.  However the simple act of planning can go a long way to lessen the financial impact on your family.  

0 comments | Posted by Charles Tarbey on 15/11/2010 at 11:37 AM | Categories: Finance - State of the Market -

Housing expectations for Australia in 2020

The future is a funny thing.  In my experience, we often spend a great deal of time talking about what our lives will be like in the years to come and then suddenly we’re living it.  It can be incredibly hard to imagine ‘the future’ and as such many of the ideas we have about what it might be like are simply extensions of our day to day lives in the present. 

Two researchers, Rebecca Huntley of Ipsos and Bernard Salt of KPMG, recently set out to determine what Australia might look like in the future, a horizon which they set at ten years, or the end of the 2010s. 

Their report, Future Focus, (which you can read at is one of the first studies aimed at investigating the attitudes of Australians regarding the future direction of our country.  In quite an innovative approach, the study involved the development of two distinct scenarios of what Australia might be like in 2020 – both different but credible versions of the future. 

These scenarios were read out to consumer groups and business leaders, with the responses documented.  The report covers their thoughts regarding a wide variety of topics including population growth, immigration, infrastructure and foreign trade and markets.

Not surprisingly, given the industry in which I work, what I thought to be most interesting in the report were the attitudes toward housing in the future. 

Housing affordability was found to be a significant concern of consumers when considering the state of Australia in 2020.  Both consumer groups and business leaders were hesitant to believe that property prices would ever drop dramatically, with consumers worrying about the ability of future generations to afford housing. 

My response? It is almost a blessing to have an understanding of what our fears may be in ten years time regarding housing affordability as it means that we can actively try to improve the situation now and over the coming years. 

The fact that Australia is currently experiencing a housing shortage is no secret and this will continue to drive house prices.  There is a clear onus on governments over the next decade to create initiatives aimed at helping to ease pressures. 

But responsibility falls on home buyers as well.  Importance must be placed on forward planning and prospective purchasers, especially those in the first home-buyer bracket, may find it valuable to revise their spending/saving plan. 

Remember, the first property you purchase doesn’t necessarily have to be your dream home.  It may serve as a way of building equity or as a foot in the door to the property market. 

Although buying property may require further planning over the next decade as prices rise, I really do think that strategic (and forward) thinking is the way to ensure entry to the housing market. 

0 comments | Posted by Charles Tarbey on 01/11/2010 at 3:23 PM | Categories: State of the Market -

Is Australia facing a Housing Bubble?

The subject of a ‘housing bubble’ seems to be a media favourite at the moment, with consistent coverage ever since US property investor Jeremy Grantham said in June that it was only a matter of time before the Australian residential property market crashed. 

I can understand that for those Australians who own property and/or are considering making a property purchase, such speculation may be quite worrying.  

My colleagues and I at CENTURY 21 have consistently refuted the notion of a housing bubble ever since the topic arose, pointing out the stability of the residential property market in recent years which has been underpinned by steady upwards trends in the growth of house prices for over a decade. 

However, given the continued nature of the speculation, I thought I would recap on the views of the different experts, including the Reserve Bank of Australia, who have weighed in on the debate. 

The most recent commentary was from the chief economist at Goldman Sachs, Tim Toohey, who last week dismissed the concept of a speculative housing bubble.  Mr Toohey was quoted in the Sydney Morning Herald as saying that the behaviour of housing prices over the past year does not resemble a housing bubble due to a number of factors.

These factors include the fact that the refinancing of established homes is at a nine-year low, that loan-to-value ratios are well below the levels seen in 2000 and that the loan-to-value ratio of new dwellings has remained virtually unchanged for over a decade. 

Mr Toohey also referred to Australia’s housing shortage which is reaching chronic proportions and looks only to worsen over the next few years as the demand for residential housing continues to surpass supply – Goldman Sachs has estimated that by the end of 2010 the national housing shortage will be 250,000. 

The Reserve Bank’s viewpoint appears to be in agreement with that of Mr Toohey and Goldman Sachs and CENTURY 21.  In a research report released by its economists, the RBA downplayed concerns of a housing bubble, referring to the fact that the issues which led to the housing bubble of the early 2000’s and subsequently required policy intervention are not present in the market currently. 

The RBA’s research notes how the residential housing market has now improved and is less likely to result in a bubble, mentioning that investors now play a less prominent role, the lending standards of banks have become better and the ratio of housing prices to income has been moderately flat for some time.    

So it would appear that many Australian experts also agree that a housing bubble is not what we are currently experiencing.  Having said this however I would encourage those interested in property to continue reading and to remain abreast of the different opinions that arise on the topic.  Australia continues to have a chronic housing shortage and ongoing increasing demand, which should help to keep the house prices trending upwards for the time being.

0 comments | Posted by Charles Tarbey on 14/10/2010 at 4:05 PM | Categories: State of the Market -

Things may be looking up for the Australian property market

September has seen the release of various data by the Australian Bureau of Statistics that could be suggestive of improving conditions in the Australian residential property market. 

In a report regarding approvals for the construction of new dwellings, most important given the large shortage of homes Australia is currently faced with, the ABS released data at the beginning of this month showing that after falls in April, May and June, there was an increase in the total number of dwellings approved in July.   

These approval figures saw increases in New South Wales, Victoria, South Australia and Tasmania, while Queensland and Tasmania were down. 

With similar timing the ABS also released its Australian housing finance data for July at the beginning of the month.  These figures showed an increase of 1.7 per cent (seasonally adjusted) in the amount of owner-occupied housing commitments over June 2010. 

While these increases in dwelling approvals and housing finance may seem slight, increases they are none the less.  2010 has been an interesting year for residential property in Australia, with some uncertainty regarding the direction of the market. 

These findings therefore come as positive news and could suggest that the market is starting to pick up somewhat. 

Interestingly, the housing finance data also showed an increase in the number of commitments for the refinancing of established dwellings (up 1.3 per cent).  I think it is promising that we may be beginning to see more Australians taking charge of their mortgage options and engaging in the refinancing process. 

It has been a topic that I’ve talked about in this blog before – the value that can often lie in the refinancing of a home loan.  For many Australians, although their current mortgage was the best product available at the time of commitment, there may now be other options on the market that could be considered as viable alternatives. 

I hope to see this refinancing data continue to increase over the coming months as Australians realise that mortgages do not have to be static contracts for the 20 to 25 years that many people hold them for.  There is often a better outcome available and I would encourage all mortgage holders to continually seek information. 

0 comments | Posted by Charles Tarbey on 30/09/2010 at 11:41 AM | Categories: State of the Market -

Plan to beat worsening housing affordability

At the risk of beginning to sound like a broken record, I will again turn to the topic of housing affordability this week.  Since my last blog regarding the subject another report has been released which further highlights that housing affordability in Australia continues to worsen. 

The Real Estate Institute of Australia’s Deposit Power Housing Affordability Report recorded the sixth consecutive quarterly decline in housing affordability in Australia over the June quarter.  Decreases were seen across all states and territories, with the exception of the Northern Territory and Tasmania. 

Of particular concern in the report is that a national increase was seen in the percentage of income required to meet loan repayments.  In the June quarter it rose by two per cent, with the proportion heading towards 35 per cent – a level not seen since 1990 when interest rates were as high as 16.4 per cent. 

For many Australian home owners, this rising percentage of monthly income needed to service a mortgage could place greater strain on the household, reducing the amount that can be spent on general day to day expenses. 

And with the ongoing concern that the Reserve Bank of Australia could lift interest rates over the coming months, this proportion of monthly income required make loan repayments may be at risk of increasing further. 

So what steps can Australian households take to safeguard themselves against the current conditions in the housing market? I would start by reinforcing the importance of having a good, working budget in place. 

Having a budget that considers both incoming revenues and expenditures for at least three months into the future should help households to plan and allocate funds effectively.  Taking into account these extra months, as opposed to simply the current month, will enable the sharing of income across time periods if needed. 

For example, you may find that your expenses for October are lighter than usual however November will see several larger one-off payments due, such as car registration.  Instead of using the extra money in October for unnecessary spending, this forward planning will allow you to deal with November’s payments efficiently, thus reducing the stress on your budget. 

Budgeting and planning could be the key for Australian households to stay well positioned during periods of uncertainty in the housing market.  The steps are also important even when conditions are good.  As you never know when unexpected expenditures may arise, planning will enable you to deal with unforeseen but necessary costs in an effective way.   


0 comments | Posted by Charles Tarbey on 20/09/2010 at 9:57 AM | Categories: State of the Market -

Decreasing housing affordability - will the new government act?

There are two things that I love about the buying and selling of residential real estate.  One is the feeling of personal achievement as a real estate agent when a house is sold and a good price has been achieved for your client - it is quite satisfying to know that you have done a good job. 

The second thing that I enjoy is watching the excitement that many people experience when they buy a property (be it their first or their tenth).  For a large number of Australians, the purchase of a property represents life-change – be it that they are making the move out of the family home, upsizing to accommodate a growing family or even just taking steps to move out of the rental market. 

It is therefore increasingly worrying to hear that home ownership is becoming more and more difficult for many Australians.  We have seen this trend occurring for a little while now, and the recently released HIA-Commonwealth Bank Housing Affordability Report found that housing affordability levels around Australia have reached record lows. 

The report’s Housing Affordability Index is formed based on a combination of interest rates, household incomes and home prices to determine affordability conditions.  The latest report showed worsening affordability in most regional areas and capital cities across Australia in the three months to June. 

From my perspective in real estate, a key contributing factor to this situation is the critical supply situation that is occurring nationwide.  This large undersupply of residential real estate, which many have estimated to be over 200,000 dwellings and growing, may largely be due to the lack of strategic urban planning by governments at levels.  

The Federal Election, as the most recent example, saw little attention paid by either party to the state of housing in our nation.  It is understandable that there were other issues also of great importance which needed to be covered.  But from where I sit it appears that the residential property market is an issue that is causing Australians much concern, and it is thus important that the situation is addressed by government bodies.  

They say that it often takes a crisis to occur before anybody takes action to rectify an issue.  Well, with Australia’s growing population and housing shortage, we could be in a situation where it won’t be long before affordability levels mean that the great Aussie dream of home ownership will for many remain simply a dream.  This, in my humble opinion, would be a tragedy. 

How can we avoid such a situation? Perhaps the answer is for local, state and federal governments to direct their focus to co-operative and competent strategic urban planning to ensure that land is released and housing construction levels increase.   Whatever action is taken, it is certain that it needs to occur. It will be interesting to see what actions the new government (which hopefully will be decided upon today!) will take to improve the housing situation in Australia.

0 comments | Posted by Charles Tarbey on 07/09/2010 at 2:13 PM | Categories: State of the Market -

Good news for home owners as interest rates are left on hold again

For those home owners with a mortgage, or prospective buyers looking to purchase real estate soon, last week’s interest rate decision by the Reserve Bank of Australia was good news and brought some relief. 

After almost a month of speculation that interest rates would be increased in July, the RBA decided to keep rates steady at 4.5 per cent, making this the third consecutive month that interest rates have been kept on hold. 

The RBA’s decision came off the back of official inflation data for the June quarter which showed that inflation was far lower than expected, potentially indicating that consumers are spending with caution.  Glenn Stevens, the Governor of the RBA, said that he expected core inflation to fall within the top half of the RBA’s target zone until mid-2011. 

As a result, many economists are now expecting that rates will be held at 4.5 per cent until mid-2011, unless there is an increase in consumer spending. 

For mortgage holders the rate decision buys some more time before the possibility of an increase in monthly mortgage repayments occurs.  But how long will this last? Nobody can be certain.  Definitely until the first week of September when the next decision is due and very possibly into next year. 

I think that the wisest financial approach to this unknown period would be to prepare your budget and position yourself well for potential rises in the future.  Now is the time to consider your household expenses and look to see if there is a little bit spare here and there which can be used to build up the equity in your mortgage.  Now that we’re coming to the end of winter for instance, the savings you start to make as you reduce your heating costs could be contributed towards your mortgage. 

For prospective buyers, as banks are likely to increase their rates in line with the RBA, you now have at least another month to secure an attractive fixed rate mortgage.   Our internal CENTURY 21 data suggests that property listings are currently up compared to where they were last year, which means that there could be buying opportunities aplenty near where you are. 

Whether interest rates change next month or next year, just remember that they can’t stay on hold forever, which means that your monthly mortgage repayments could change.  If you plan ahead for this, you can effectively diminish the effect that any increase in rates has on your budget. 


0 comments | Posted by Charles Tarbey on 09/08/2010 at 12:31 PM | Categories: State of the Market -

Real Estate and The Election

It won’t be long until August 21 rolls around and all Australians will be asked to make a decision about who is to lead our country for the next three years.

From the perspective of the property industry, this upcoming election holds a number of key issues, including increasing population growth, interest rate uncertainty, housing affordability and taxes. 

From my position as General Manager of CENTURY 21 Australia, regardless of who wins the election, I see very clearly an opportunity for whichever party is elected to address the worsening housing situation we are seeing in Australia. 

The fact that Australians are worried about their ability to afford basic housing is no secret; even the Governor of the Reserve Bank spoke publicly a little while ago about his fears that his children would not be able to own their own homes due to the property boom in Sydney.

There are a few reasons for the housing supply shortage that we have started to see and expect to worsen, however many agree that government policy (at all levels, not just federal) seems to top the list.   A recently released J.P. Morgan report, for example, suggested that the supply of new houses has clearly been restricted by government policy restraints. 

Housing is a basic need, and as such, housing availability and affordability is an issue of vital importance to the Australian public.  This election represents an ideal time for our leaders to step up and acknowledge that housing is a major issue by making policy decisions that aim to address the situation. 

Australia is already at a deficit when it comes to the amount of houses needed – data from the period between the last quarters of 2006 and 2009 shows that the construction of new dwellings was approximately 180,000 dwellings short of demand (J.P. Morgan).  It will likely take significant reform to ensure that construction commences and the deficit is reduced – as opposed to this deficit simply worsening into the future. 

But we are still at a stage where large-scale land release strategies and incentives to increase housing construction can have a significant impact to improve the national supply shortage.  This is good news – the only barrier of course being the uncertainty of electing a Government who will enact the necessary reforms. 

In my mind, it could be very disappointing from a real estate perspective to see little change result from this election.  The issue of Australia’s housing shortage isn’t one that can simply disappear. 


0 comments | Posted by Charles Tarbey on 02/08/2010 at 12:50 PM | Categories: State of the Market -