House prices are predicted to fall over the next 12 months, as the outlook for residential real estate weakens, but falls will be smallest in New South Wales, a survey shows.

The National Australia Bank residential property index, which predicts houses prices, rents and real-estate market conditions over the coming year, said national home prices would drop by 1.4 per cent in the 12 months from June, reversing an earlier prediction that home values would rise 0.6 per cent in the 12 months from last March.

However, in NSW, house prices are tipped to fall only 0.7 per cent, according to report, from a nearly 1 per cent gain forecast in the 12 months from March 2011.

NSW was the strongest state in the index, despite declining from 39 points in March to 18 points in June.

The index is drawn from the opinions of real-estate agents, managers, property developers, and other industry voices, gives a positive or negative assessment of conditions in the industry and the outlook for growth.

For Victoria, the index plunged to minus-16 in the June quarter from a positive-23 point reading in the March quarter.

“There has also been a notable deterioration in house price expectations across the country since our last survey,” NAB chief economist Alan Oster said.

The June quarter’s expectations were pushed lower by Queensland, where respondents predicted a 2.3 per cent fall in home prices over the year, and Victoria, where they saw a 2.1 per cent slide.

But in sobering news for homeowners elsewhere, the survey predicted house prices would drop in all states except Western Australia, where values were forecast to rise by 0.2 per cent over the year, while in South Australian homes would lose 1.7 per cent.

After performing strongly in 2010 the Australian housing market shifted into a lower gear this year.

Auction clearance rates have hovered in the 50 per cent range in NSW and Victoria, down from the highs of 80 per cent seen last year, and borrowers appeared to be less willing to take out large loans for fear of interest rates rising.

RP Data said in June that national home prices had slumped 2.7 per cent in the first five months of the year.

The survey said tighter lending criteria and higher interest rates were the two major burdens on the market in the June quarter.

“Housing affordability was also identified in the current survey as a ‘significant’ constraint and was viewed as being most problematic in Victoria and Western Australia,” the report said.

“The sustainability of house price gains was also cited as a ‘significant’ concern, with these concerns highest in Western Australia and NSW.”

In Queensland the index sank to minus-27 in June from minus-5 in March. In South Australia, the index moved from minus-8 to minus-6 in the same period, while in WA it remained in positive territory, moving from 12 in the March quarter to 5 in June.

The NAB survey also showed rental yields softening over the year, falling to 1.3 per cent in June from 1.7 per cent in March.

Story by Chris Zappone www.smh.com.au

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Now we know the starting price on carbon – $23 – a clearer picture is starting to form as to its impact on the property industry. Will it have a negative impact? That all depends on who you talk to.

The Housing Industry Association – a body that represents builders and the makers and suppliers of building products – remains opposed to a carbon pricing plan, arguing it will add $5000 to $6000 to the cost of a new house and land package – taking into account everything from the price of developing the land to fitting a kitchen cupboard handle.

The HIA argues that putting a price on carbon will burden small energy-intensive businesses such as cabinetmakers who will have to pay high power costs.

“The industry is very much aware that the carbon tax is going to have a significant impact on the cost of delivering new housing and importantly a very significant impact on manufacturing of building products in Australia,” says Graham Wolfe, HIA chief executive.

Wolfe argues that new housing already contributes to energy efficiency through the mandatory six-star energy rating.

In terms of the real impact of a carbon tax, Wolfe says “it’s going to take a little while for builders to come to terms with what those cost increases are going to be, how often they’re going to be passed on and how quickly they’re going to be passed on”.

“I think for 12 months you’ll see a transition period where the industry comes to absorb those costs and pass them onto clients,” says Wolfe.

“I would have thought by the middle of 2013 you’ll probably see it just absorbed in and we move on and unfortunately by that period of time a number of manufacturers will have hit the wall and a number of consumers who might otherwise have invested in a new family home, won’t.”

In terms of minimising the impact of the carbon tax, Wolfe argues “it’s out of the builders’ hands”.

“You go and talk to a kitchen fabricator and they purchase their particle board, they fabricate the kitchen … and all of that requires a lot of electricity to go into the machinery that goes into that work,” Wolfe says.

“The kitchen fabricator can’t do anything about that, there’s no alternate source of energy, they have to get the electricity off the grid. If electricity prices go up, they can’t do anything about that, so they have to wear the extra costs, the question then is, how much of that extra cost do they absorb, and how much do they pass onto the builder?

But Tony Wood, an energy expert from The Grattan Institute, is taking a closer look at the housing numbers.

“Right now and certainly up until now it is absolutely in the interests of those who’ve got ways of reducing costs not to tell anybody,” he notes.

“What you want to do is convince government that the sky is about to fall and it’s all terrible and they need to give you compensation. But as soon as it happens and the price is set $23 in July 2012, then all the things you can do for less than $23 will come out of the woodwork.

“Whenever industry is given the incentive, it finds ways to do things that cost less than any economist can ever think of. There may very well be a couple of pockets of industry that cannot do anything, but that would seem to fly in the face of recorded history.”

Wood points out that this kind of lobbying is not new. “In 1853, Charles Dickens’ novel Hard Times talks about the fact that the millers of Coketown were threatening that if they … had to let their child labourers go to school, or if they weren’t allowed to let the smoke go into the air in London, that they would have to shut down and throw their machines into the Atlantic Ocean. And guess what, they never did.”

Wood also says a careful eye needs to be kept on what costs are being passed through.

“Aluminium and cement and steel are all arguing that they need compensation because they can’t pass through the carbon price, now if they can’t pass it through, how can the housing industry be saying that the price of aluminium [for example] is going to go up?” he asks.

“They can’t both be right. Someone’s having a go at somebody. Now I don’t care which one it is, but it’s one of them.”

Aluminium, steel and cement are viewed as trade-exposed and will be compensated under a carbon tax. “They should not be allowed just to put their prices up and pass through a carbon price they’re not paying for,” Wood says.

Story by Carolyn Boyd www.domain.com.au

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When it comes to sharing a house, it’s important to set some ground rules first.

Having a lodger board in your home can seem a good way to make some extra money to help pay the mortgage.

And while figures on the number of boarders in Victoria are hard to come by, anecdotal evidence suggests it’s an option more people are considering in these financially straitened times.

But there are some issues you need to think about – whether looking to take ina lodger or be one yourself – before taking the plunge.

Lyn Reid is the Sydney-based founder of the website housemates.com.au, where people can post notices either looking for lodgers or somewhere to board.

She says the reasons why people take in a lodger are diverse, from the need to make some extra cash to the desire for some company.

Students, particularly from overseas, are the most common type of lodgers, but others may include people facing financial hardships (such as someone recently divorced), or even seasonal workers.

While some landlords can provide a room and bathroom that is separate from the rest of the property, Reid, whose website boasts about 15,000 members, says that “nine times out of 10 it’s just in a normal three or four-bedroom home”.

It’s important for potential landlords to do their research before inviting a lodger into their home, Reid says.

This includes asking how they intend to pay the rent (and whether they have proof of this), as well as whether they’ve had any experience in living with others in share accommodation and what course of action they’d take if somebody else in the house did something they didn’t like.

It can also be a good idea to talk to potential lodgers about issues such as whether they’ll have visitors to the property and chores such as cooking and cleaning, as well as the division of bills.

“A lot of the time, if people are looking for a room, they do ask for rent including bills, so they just have one amount to pay each week,” Reid says. “Sort out that situation – how the rent is paid, how the bills are paid and when they’re paid – prior to them moving in.”

Guy Mitchell, development manager at house sharing website flatmatefinder.com.au, suggests it can also be wise to take a bond of between two and four weeks’ rent from a boarder or lodger (terms, he suggests, which have these days largely been replaced by the more general flat mate).

“Often a householder won’t accept a bond … but what that, of course, means is a flatmate has nothing to lose by walking out one day – they don’t have to give you notice, they’re just gone the next day and the householder ends up losing out,” he says.

“So we always say, ‘Make sure you absolutely always get a bond, because that basically ups the commitment by your flatmate’.”

Mitchell, whose website has about 3500 listings, says one advantage of living with someone who owns a home rather than renting a property yourself is they tend to care for the property more than a landlord living away from it. “[Light] bulbs get replaced, dripping taps get fixed and all that sort of stuff.”

If problems do arise, experts say it’s wise to first see if they can be sorted out amicably. If that fails, disputes between lodgers and landlords may be dealt with by the Victorian and Civil Administrative Tribunal.

Toby Archer, policy liaison officer at the Tenants Union of Victoria, estimates there are only a couple of thousand lodgers in Victoria (about half the number of people living in rooming houses). Thanks to a lack of legislative protection, he believes lodging can be a “really bad deal” for the lodger.

“If you are a boarder or a lodger you essentially have been granted a licence or a limited right to live at the premises, in contrast to a tenant who is somebody who has been given a lease over the premises or part of the premises,” he says.

“So if you’re just residing there as a licensee, you’re essentially there at the grace of the property owner and that licence can be terminated or revoked by the landlord, essentially at any time.”

Michael Redfern, an accredited property law specialist and consultant with Russell Kennedy lawyers, says the residential tenancy provisions of the Residential Tenancies Act 1997 – which protects the rights of tenants – do not usually apply to lodgers, except where a lodger has been given exclusive possession of a room or rooms and if the rooming house provisions of the act apply (these kick in when there are four or more people taking rooms in a house or if a premises is declared to be a rooming house by the Minister for Consumer Affairs).

“It is not usual that this is done, as the owner will usually want to have access to the room to ensure that it is clean and tidy, that it is not being damaged [and] that the lodger is well behaved,” he says.

If the residential tenancy and rooming house provisions of the act do not apply, having a written agreement in place that stipulates what happens in the case of termination of the arrangement and outlines an agreed dispute resolution procedure – such as referring the matter to an agreed professional, mutual friend or mediation service – is “most desirable”.

Archer says people who are looking to enter into a lodging arrangement should do their research first. “You need to be aware of what rights you potentially have and potentially don’t. You need to think about whether it’s a good deal for you.”

It’s also important to have a “full and frank exchange” about the parameters of the arrangement before moving in, he says. “And you should never assume anything about it,” Archer says, adding that people who are unsure about their status should seek some advice.

“If you think you’re a boarder and you’re not sure, then you should be getting some advice sooner rather than later from us or from Consumer Affairs,” he says.

Lodgers for fun and income

For Michael Bulzomi, the benefits of having boarders lodge in his Footscray home include both the income and company they provide.

The 44-year-old first took in a boarder after he returned to Australia midway through last year following a 6-year stint working in London. His parents offered him the option of living in what was his grandmother’s four-bedroom house on the condition he found a couple of boarders to bring in some rental income.

He has one boarder – a male who works in the IT industry – and is looking for another after a female student from Germany, who occupied a second room, returned to Europe.

Mr Bulzomi, who works in the finance industry, asks his boarders to pay a bond and sign a tenancy agreement, initially for a six-month term.

For him, the ideal boarder is someone who fits in with his lifestyle and who is also happy to spend some time socialising. “Not someone who just sits in their room and does their own thing [but] someone who likes to socialise in the evenings, you know,” he says.

Mr Bulzomi says having respect for each other – and being willing to share the chores – are the keys to arriving at a successful arrangement between a landlord and lodger.

“I did it in London for seven years, so I know how it works,” he says. “You do your bit, but most of all I respect their privacy and their beliefs.”

Story by David Adams www.domain.com.au

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There’s a change happening in households around Australia, and it’s at the stinky end of things.

Many of us probably don’t think much about where the garbage goes when it leaves our homes but councils, tasked with the job of dealing with all of muck we throw away in our rubbish bags, do, and they’re getting much smarter about it.

In Sydney, the SHOROC groups of councils, which represents Manly, Mosman, Pittwater and Warringah councils, are actively considering asking residents to separate out their food waste from their mainstream rubbish, potentially into some sort of kitchen caddy that will get emptied into the green waste bin.

The councils are joint shareholders in Kimbriki Environmental Enterprises – the old Kimbriki Tip that has been operating in Terrey Hills since 1972 but now has morphed into a recycling and landfill site. The Northern Beaches councils hope, says SHOROC executive director Ben Taylor, to keep the landfill site operating in perpetuity.

Food waste is clogging up the system, however. “Our numbers say to us that about 40 per cent of the contents of the general garbage bin is food,” says Taylor.

“So the driver really for the councils is to try and remove that from the waste stream and then potentially … use that food with garden organics and compost to produce a marketable compost product.”

Sounds simple enough and you might wonder, with the prevalence of green waste bins already, why can’t we just throw our food scraps into these? But the composting system required to deal with food waste is different to normal garden organics, explains Mark Winser, senior project officer at Kimbriki.

“As a general concept you can just get that garden material shredded up, put it in big piles and turn it around to sort of compost it away and then process it, screen it and send it out as a product,” explains Winser.

But with food waste, “there’s more flies, there’s more smell, there’s a potential for the leachate that’s generated when rain falls on it or surface water runs through the processing site, to become more highly contaminated and it’s problematic.”

So the solution is to process the food waste inside huge concrete tunnels. When air and leachate (the run-off from the waste) is forced through the tunnels, food waste can compost in as little as a month. It can then be used as garden fertiliser, and even has applications on farms. Some processors mix the food waste with sewage sludge to produce a richer end-product.

Food in the general waste stream is a big problem, says Winser. “If it goes to landfill and gets buried, it’s organic, it’s active, it’s got a lot of nutrients in it so in the process of rotting it generates a lot of gas and that’s obviously problematic.

“Very large landfills claim they can capture a lot of that gas and make it into energy and that’s true that is happening but there’s a lot of question marks about how much of the gas is actually captured, and what quality it is and how much of it can be used as a fuel.”

Food waste is already recycled in a handful of council areas around Australia. The latest to join in have been several South Australian councils after a trial in that state over the last couple of years.

There’s not just an environmental driver, but an economic one too. “The cost of landfilling is significantly higher than recycling,” says Taylor.

Story by Carolyn Boyd www.domain.com.au

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Australia’s largest independently-owned mortgage broker has found that of those who will buy their first investment property in the next two years, for 19% it is their first ever property purchase.

This incidence was highest in New South Wales (26%) and lowest in Western Australia (13%). Gender-wise, males were more likely than females to make this choice (21% versus 17%).

Of all the 1,060 respondents to the Mortgage Choice 2011 First Time Property Investors Survey*, each of whom were buying before July 2013, close to one in four will do so alone. Queenslanders were most likely to fly solo and Western Australians were least, while the genders were on par.

The number one motivator to buy was ‘I want to set myself up financially for the future’ (82%), then ‘I see more benefit in investments such as property than in I do shares’ (57%). ‘Tax benefits’ ran third (53%), followed by ‘I’ve researched the property market and feel property investment will enable me to achieve my financial goals sooner/better’ (40%) and ‘potential rental yields’ (39%).

The biggest concerns for the next 12 months for these upcoming investors were:

1. Costs of living such as clothing, utility bills, etc – 24% of respondents.

2. Interest rates – 21%.

3. Economic management at Federal Government level – 18%.

4. Rise in housing prices – 9%.

5. Job security – 8%.

Only 18% did not plan to add to their investment property portfolio after this first purchase while, on the flipside, another 18% were planning to purchase as many as possible.

Mortgage Choice spokesperson Kristy Sheppard said, “Once we’d delved into the results, the description that came to mind for these first time property investors was logical, well-planned, long term thinkers who were determined, careful researchers and aware of their limitations.”

“This may be why so many are buying for investment purposes before becoming a home owner.

“The findings show these novice investment buyers to be almost the opposite. They are making educated choices based on a long term commitment to their property cause and are thinking with their heads rather than hearts. All are vital attributes of a successful investor.

“For example, 84% already knew how much of an interest rate buffer they were going to factor into their repayment budget and only 2% weren’t putting in a buffer. Also, 47% were looking to hold onto the property for 10 years or longer and 43% were looking at five to 10 years.”

54% of respondents owned their first home also and 27% had owned more than one home before.

Other key results

· 44% were not concerned by falling property prices and 40% were only a little bothered.

· 23% will purchase alone, 69% will buy with a partner and 5% will buy with friends.

· Most common finance strategy was borrowing while using equity in their home as security.

· 31% will use a mortgage broker for the purchase and 48% might.

· 69% will make, or are already making, lifestyle sacrifices in order to buy.

· Favourite property type was a small house of one to three bedrooms.

· Top two property features were tenant demand in the area and right suburb and street.

Property location and characteristics

QLD ranked first for investment location, at 22% of respondents. VIC followed with 21%, then SA, WA and NSW at 18%. NSW residents were the least loyal to their state, with 10% planning to buy in another. QLD residents were the most, with only 6% buying elsewhere. Males ranked QLD as the top choice (25%) while females favoured SA (23%).

When asked for their top five desired property features, respondents ranked them as follows:

1. Tenant demand in the area – 58% of respondents.

2. In the right suburb and street – 57%.

3. Locality to amenities and entertainment, ie. cafes, restaurants, etc – 57%.

4. Population growth in the area – 46%.

5. Infrastructure going into the area – 44%.

6. If it needs repairs, renovations or regular maintenance – 41%.

7. Size of rooms and functionality of layout – 38%.

8. Ability to renovate to add value – 35%.

9. Suitability of property to desired tenants – 29%.

10. Aspect, ie. not looking into neighbour, views, direction, window placements, etc – 15%.

“I’m surprised the property’s potential to add value through renovation didn’t rank higher. Its suitability for renting out easily is a clear winner over easy short-term capital growth. The focus is getting tenants into a well-located property in a popular area with solid growth prospects,” Ms Sheppard said.

Smaller was better, with a house of one to three bedrooms ranking first (44%) and a unit/apartment of one to two bedrooms ranking second (19%). The former was most popular with SA and VIC while the latter was the most popular in NSW and VIC. The third most appealing property type was a house with four or more bedrooms (18%) then a unit/apartment with three or more (6%).

Lifestyle sacrifices

As opposed to the 82% of Mortgage Choice’s February 2011 Future First Homebuyers Survey respondents who said they will or were making lifestyle sacrifices in order to purchase their first home within two years, only 69% of the 2011 First Time Property Investors Survey’s respondents intended to do so for their purchase.

The top 10 most common sacrifices were:

1. Cut back on general day to day spending – 68% of respondents.

2. Eat out less and cut back on take away food – 63%.

3. Miss out on a holiday – 49%.

4. Delay a vehicle purchase – 33%.

5. Cut back on alcohol related spending – 31%.

6. Purchase a less expensive property than desired – 21%.

7. Remain in my current job rather than move on – 20%.

8. Change jobs for a higher income – 18%.

9. Take on an additional job – 16%.

10. Cancel gym membership – 12%.

“It’s interesting to note what an impact property investment plans have on employment trends, with at least one in five respondents having already or intending to stick with or change their job situation due to their impending purchase,” said Ms Sheppard.

“The same goes for these buyers’ health situation. On one hand the majority are cutting back on richer and/or fattier foods, and a large number on alcohol related expenses, to get in a better financial position to buy, yet on the other hand more than one in nine are giving up the gym membership.”

Purchase and tenant details

Only 23% planned to take the leap alone, compared to 32% in the 2011 Future First Homebuyers Survey. 69% will purchase with a partner (vs. 61%), 5% with family (3%) and 2% with friends (2%).

A significant number were also getting friends and family involved as tenants. Although most – 83% – planned to rent out the property to an unknown person, 4% were becoming a landlord to their children, 4% to family members other than their parents and 3% to friends. 3% will use it as their own holiday home while 1% were expecting to have their parents as tenants.

Interest rate buffers and concerns

When asked what interest rate rise they could handle before giving up on buying, the results were:

“With interest rate rises a regular discussion point at the Australian dinner table, it was prudent to ask about the effect these would have on future first time investors’ plans,” Ms Sheppard said.

“It’s great to see 9% could handle any rate increases but concerning to find 16% would give up on buying their first investment property once rates rose by half a percentage point. I hope anyone who can’t handle an interest rate rise of at least one to two percentage points thinks carefully about entering the market at all, unless they intend to fix their interest rate for some time or are sure they will be in a better financial position once the purchase process moves into full swing.”

When it came to the interest rate buffer these buyers would put on top of their repayments, the five most popular (apart from ‘I don’t know’, at 16%) were:

This buffer was an area where the genders gave very different responses, with males having much more awareness of their buffer plans. Only 8% hadn’t decided on a buffer, versus 24% of females.

For home loan tips, trends, facts, data and other information, visit MortgageChoice.com.au, Facebook.com/MortgageChoice or Twitter.com/MortgageChoice. Or, call 13 MORTGAGE.

* Ticketek Insights ran the independent survey from 17 to 24 June 2011, asking a range of questions to 1,060 Australians, all of whom were purchasing their first investment property in the next two years. Respondents were evenly split between male and female while 28% were Generation Y, 45% Generation X, 27% Baby Boomers and less than 1% were Builders. For the purposes of this survey, Gen Y is born between 1980 to 1994, Gen X between 1965 and 1979, Baby Boomers between 1946 to 1964 and Builders between 1925 to 1945. Each major state (NSW, VIC, QLD, SA and WA) had just over 200 respondents while NT and TAS were not used in state-based comparisons due to their small number of respondents.

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Property prices won’t experience huge losses over the next three years but interest rates will rise to almost 9.5 per cent by 2014 to force buyers back onto the sidelines, a new study says.

The report by BIS Shrapnel, released today, dismisses forecasts of sharp falls in prices over the short to medium term and predicts prices to remain steady through the rest of 2011 “with some cities even showing moderate price growth over the two following years”.

Report author Angie Zigomanis said the drop in home prices to June this year had been caused by the government’s withdrawal of stimulus spending, rising interest rates and a 50 per cent pull-back in the number of first-home buyers entering the market.

But he said buyers would return as investment from the mining boom started revving up the economy through 2012.

“The only question mark for us is interest rates. Our forecast is for a half a per cent rise later this year, and another half a per cent rise in the first-half of next year,” said Mr Zigomanis.

“In an environment that is strengthening, we can probably handle that at current price levels. People have factored those rate rises in, so as the economy picks up people will wade back into the market knowing that there is a couple of interest rate rises on the horizon.”

He said the forecasts were based on unemployment falling below 4 per cent in “a strong economic environment” where rising wages and inflation would see the RBA hike rates.

“Housing rates are consequently forecast to peak at 9.4 per cent by the end of 2013. While the momentum in purchaser activity is expected to continue into 2012-13, rates at this level will eventually bring about a downturn in both the residential market and the economy over 2014.”

City by city

Mr Zigomanis forecast Sydney’s median house price to be $640,000 in June 2011, or a 1 per cent rise on a year earlier. The report noted that house prices would “remain 9 per cent below the peak of March 2004″ but home loan affordability was “at its best level since 2002″.

Melbourne’s forecast median house price would hit $575,000, a 3 per cent rise on a year earlier, but Mr Zigomanis noted there was “little upward pressure on prices” as the construction of new dwellings was beginning to exceed demand.

In Brisbane, the median house price would slide 4 per cent over the year to $440,000. The report noted that “underlying demand in the Queensland market has been weakened by lower overseas and interstate migration inflows that have fallen to long term lows”. The Gold Coast and Sunshine Coast regions were expected to have moved in tandem with Brisbane.

Adelaide’s median house price to June 2011 was predicted to remain static at $410,000, while Perth home prices would settle at $480,000, down 4 per cent for the year and 10 per cent since the March quarter peak of 2007.

The median price of a home in Hobart was steady at $365,000 over the year to June and Canberra’s median house price was estimated to have fallen 2 per cent to $512,000.

thomas.hunter@theage.com.au

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The Reserve Bank of Australia (RBA) left the cash rate steady at 4.75 per cent at its regular monthly board meeting on Tuesday.

The decision was expected, with all 11 economists surveyed last week by AAP predicting the RBA would keep rates on hold.

The central bank’s board last raised the rate from 4.5 per cent in November 2010.

RBA governor Glenn Stevens said underlying inflation has been in the bottom half of the target range, though a gradual increase is expected over time.

“Year-ended CPI (consumer price index) inflation is likely to remain elevated in the near term due to the extreme weather events earlier in the year,” Mr Stevens said.

“However, as the temporary price shocks dissipate, CPI inflation is expected to be close to target over the next 12 months.”

The central bank said it would continue to “assess carefully the evolving outlook for growth and inflation”.

ICAP senior economist Adam Carr said the statement accompanying the RBA’s decision showed the bank was “confused” about the state of global growth and inflation.

“Really there doesn’t seem to be too much of a change to their view – they’ve just added that caveat about global growth.

“They do seem to be softening their stance on inflation somewhat, relative to May.”

Mr Carr said the statement suggested that the central bank would need to see a very strong CPI figure later this month to cause it to raise the cash rate in August.

The Australian Bureau of Statistics is due to release CPI figures for the June quarter on July 27.

JP Morgan economist Helen Kevans said an August rate rise was still very much on the cards.

But she believes the RBA will wait to see how economic and inflation data pan out, particularly the second quarter inflation figures.

“From here on in, it is very much a month-by-month case for the next rate decision,” Ms Kevans said.

“The RBA has said that at some point rates will have to rise. We think that point will be in August.

“By then we will have more data to indicate the domestic economy has improved and also those second quarter CPI (consumer price index) figures.”

Ms Kevans said the biggest contributor to the central bank’s decision to leave interest rates on hold in July was likely due to uncertainty stemming from offshore.

“We have seen a lot of trouble escalating in Greece, particularly over the last few weeks,” she said.

“We do get mention of that again in the statement today.”

UBS interest rates strategist Matthew Johnson said the Australian bond market had reacted to the RBA’s downgrade of Australia’s 2011 economic outlook and the global outlook.

The September 30-day Interbank Bill Futures rose to 95.325 (implying a yield of 4.675 per cent) from 95.305 (4.695 per cent) before the RBA rates announcement at 1430 AEST.

“So growth through 2011 is now unlikely to be as strong as earlier forecasts,” he said.

“If you’ve got a bit slower growth now, you’ve got a bit longer now before you raise rates.

“The market is seeing the RBA as putting off the day of their next tightening and on that basis the market is rallying a bit.

He said that the RBA was still expecting average rates of growth or higher over the medium term.

Mr Johnson said the futures market was still pricing in a cut in the cash rate.

“I think what that represents is, there is a small probability that something will go wrong and (if there is) there will be a large cut (in the RBA’s cash rate).

“The fixed income markets trade a bit different from what you might consider to be the most likely case.”

ANZ senior economist Katie Dean said a sluggish recovery from the floods and sovereign debt concerns in Europe had probably driven the RBA’s decision.

“The RBA does appear to be a little less upbeat about the outlook than they were a month ago,” she said.

“They have explicitly noted that they’ve downgraded their economic growth outlook for Australia, largely reflecting a slower than expected recovery from the floods.”

Ms Dean said a slowdown in global growth may have also weighed heavily on the RBA.

“They (RBA) are more concerned about the downside risks to the global economy at the moment as well. It does suggest the view that rates are likely to remain on hold for some time,” she said.

“They seem to be a little more concerned about the extent to which the global economy can recover in the second half of this year.”

She said a weak domestic household sector also probably influenced the decision.

“The fact that consumer spending remains muted has perhaps taken them a little bit by surprise.”

She expects the RBA to hold off tightening rates until February 2012 if inflation remains in check.

The Australian dollar dropped slightly after the decision, falling back from 106.99 US cents to below the 106.90 US cent mark by late afternoon trade.

AAP

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Glad you asked! With all of the talk about carbon, emissions, footprints, trading and tax it’s little wonder we’re all a bit dazed and confused.  We have put together some questions and answers to help get you in the know.

Now the technical name for carbon is CO2e, or ‘carbon dioxide equivalent’. Equivalent to what? Good question! Equivalent to the global warming potential of a given mixture, and amount, of other greenhouse gases.

In case you’re of a scientific persuasion, the six main greenhouse gases are: carbon dioxide (CO2), methane (CH4), nitrous oxide, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6) – phew!

What is a carbon footprint?

It has NOTHING to do with the size of your feet (or how much they smell). Carbon footprint is a term that describes all the greenhouse gas emissions caused by a person, organisation, product or event. To make it easier it’s often expressed in terms of the amount of carbon dioxide, or its equivalent of other greenhouse gases, emitted.

What is climate change and what causes it?

Ooh, the biggie! The vast majority of scientists now agree that our climate is changing. That’s largely due to the observed increases in human-produced greenhouse gases. Yeah, it’s our fault.

What do greenhouse gases do?

Greenhouse gases sit up in the atmosphere and stupidly stop the heat from getting out into space. It turns out that this extra heat has been the main cause of observed changes in the climate system over the last century. Things like: warmer average air and ocean temperatures, melting snow and ice, and related rising global sea levels. This annoying extra heat in the climate system also has other impacts, affecting atmospheric and ocean circulation, which influences rainfall and wind patterns.

How do I contribute to greenhouse gases and carbon emissions?

So what does this mean for you and Sharon across the road? Well it might feel like the gas in the atmosphere or the changes to the sea are a long way away, but these small changes flow right up the food chain. So for example, if the increase in ocean temperature affects the tiny creatures (phytoplankton and zooplankton), that the little bait fish eat, this affects the big fish who eat them – and before you know it, fish and chips is off the menu! It’s sort of a butterfly
effect.

For more information on buying carbon credits visit www.yonderr.com.au

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House prices have fallen almost three per cent so far in 2011 as potential home buyers choose to save their pennies rather than bid for real estate.

The RP Data-Rismark Hedonic home value index shows a 2.7 per cent decline in Australia’s capital cities house prices through the first five months of 2011.

In the 12 months to May, prices fell 2.3 per cent, the report said.

RP Data research director Tim Lawless said the housing market was soft as potential home buyers focussed on saving, not spending, because they were worried about the economy.

He added that sales volumes in real estate were about 25 per cent below the five-year average.

Meanwhile, the number of listings was up 25 per cent on the prior year.

“Despite the low rate of unemployment and the strength of the resources sector, it is clear that the average Australian is content to pay-down debt and wait for some economic certainty to return,” Mr Lawless said in a statement.

Rismark joint managing director Ben Skilbeck said the high Australian dollar had made local housing more expensive for expatriates, particularly at the luxury home end of the market.

Declines were biggest in the resources-linked cities of Brisbane and Perth, where the median house price fell 5.9 per cent and 7.5 per cent, respectively.

Mr Lawless said house prices in Perth had been falling since late 2007 due to a lack of buyer demand, despite strong population growth and low unemployment in the West Australian capital.

The report, which was released on Thursday, showed Sydney was the only market to have recorded a rise in property values in the year to May, with house prices in the Harbour City up one per cent.

In brighter news, the report said rental yields had improved and Mr Skilbeck said vacancies remained very tight.

“We are not looking for any capital gains in 2011,” Mr Skilbeck said.

“Total returns will be boosted by very solid growth in rents, with gross yields in May now at five per cent for Aussie apartments.”

© 2011 AAP

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Ongoing discount rate loans still leading the pack

The popularity of fixed interest rate home loans hit its highest level in five months in June 2011, reaching 12.3% of all approvals for Australia’s largest independently-owned mortgage broker, Mortgage Choice.

Every state apart from SA saw a rise in appetite for fixed rate loans. The largest increase in interest came from WA, where demand rose from 9.4% in May to 14.2% in June.

However, ongoing discount home loans – where the interest rate is discounted over the entire loan term usually in return for an annual fee – remains the clear favourite at 32.2% of approvals, dropping less than half a percentage point over the month.

Company spokesperson Kristy Sheppard said, “Perhaps the constant speculation about interest rate rises in the latter half of 2011 and beyond convinced a higher number of borrowers to simply lock in their rate rather than feel their stomach churn with each piece of speculation.”

“July’s figures will be interesting because over the past month we’ve seen several lenders reduce their fixed rates on home loans. Now, there’s one tenth of a percentage point between the average three-year fixed rate, traditionally the most popular with borrowers, and the average basic variable rate. We haven’t seen that close a comparison in some time.

“Of course, there’s still a range of good ongoing discount rate home loan deals on the table at present, hence the overriding popularity of that more flexible product type.”

The second most popular loan type for June was standard variable rate, at 24.6%, closely followed by basic variable rate, at 20.8%. Demand for line of credit home loans, often more popular with investors, rose slightly to 5.1% of approvals as did introductory rate loans to 4.9%.

Note: Mortgage Choice currently writes one in 25 new home loans in Australia, equating to over $10 billion in approvals per year, hence it provides a clear insight into borrower preferences. The 18+ year old mortgage broker has a loan book of over $40 billion.

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In these times of lower auction results, and tales abounding of property bargains galore it might seem a bit unbelievable to be talking about a housing supply issue.

Many vendors are probably thinking that the only supply issue they have right now is that there’s too many properties on the market. But behind the scenes there’s still plenty of talk about how we’re not building enough houses by number crunchers who are taking a long-term view. They argue that if we don’t get building soon, it’s really going to bite down the track when a lack of supply will keep prices artificially high.

For now, though, says Robert Mellor, managing director at BIS Shrapnel, there’s a very real chance we’ve temporarily “thought” ourselves out of the problem by changing the way we live. As any parents of Gen Ys or even some Xs will tell you, there’s been a huge surge in young people staying at home for longer. The trend started in Melbourne and Sydney and has been taking hold in Brisbane over the last two years.

“Once you’ve got that tight market for such a significant period of time, people then … start to stay at home for longer, or they live in larger group households,” says Mellor. “That’s just the way people behave in [the] future.”

Nevertheless with immigration predicted to climb to more than 200,000 people arriving annually in a few years’ time, the mental powers of the young can only go so far and Mellor says underlying unmet demand for extra houses won’t go away.

“We estimate underlying demand is probably just under 183,000 dwellings per annum for the next five years,” he says.

“If interest rates rise as we expect over a two-year, two-and-a-half year period, then we won’t go anywhere near averaging 183,000 dwellings over the next three to four years and there’ll be further significant shortages in the marketplace.”

This year it’s expected we will build fewer than 150,000 dwellings.

When the National Housing Supply Council last released a report, in 2010, it said Australia was 178,400 dwellings short. That’s a tad below where BIS Shrapnel puts the shortage.

The supply council predicted the country would gain 3.2 million more households by 2029, and would need to build 160,000 dwellings every year to keep up with demand. But in 2008-09 we managed to put up about only 127,000.

The Housing Supply Council is due to report again later this year.

Respected economist Saul Eslake, who sits on the supply council and is also with Melbourne think tank The Grattan Institute, suspects the problem could actually have gotten “a bit worse because the level of dwelling completions, I suspect, would have been lower than was assumed in compiling [the most recent] report”.

To make matters worse, Eslake’s Grattan Institute colleagues have just released a study that shows the houses we are building aren’t necessarily what people want. Many people would settle for a semi or an apartment in the middle or outer ring suburbs, but these are hard to come by, the report found.

Tackling a housing shortage – even if it doesn’t feel like there is one at the moment while we are wallowing in properties for sale – would require a multi-faceted approach.

About 70 per cent of new housing stock is expected to be medium or high-density properties in infill developments, but community opposition is a significant barrier because people don’t necessarily want tower blocks in their backyards. In many cases they are also opposed to lower density townhouses and apartments.

Other factors are the higher costs of building in existing areas, banks that are not so keen to lend for development, and investors giving property a wide berth.

Eslake says the best way forward is for governments to abolish any financial help for home buyers – such as stamp duty concessions and first home buyer grants, because they just increase the price of properties. “All that happens is that the same people end up paying more for the housing that they would have bought anyway,” he notes.

Eslake says that money should then be used to increase the supply of affordable housing by governments funding new homes for people on low incomes, possibly through community housing organisations.

“The money is there to do something if they want to but they keep wasting it by giving cash away,” he insists.

Eslake’s sentiments echo the official finding of the supply councils’ last report: “Even if the market responds to demand by increasing supply over time, it is unlikely to provide sufficient housing for people whose incomes are towards the bottom of the house income distribution … a substantial part of the response to this gaps needs to lie with government policy.”

Story source: www.domain.com.au

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It’s the great generational debate. Who pays more for their housing?

Did the boomers have it easy in 1986 when house price to income ratios were a little over 2.5? As opposed to today’s ratio of 4.2, which is where HIA Economics put it as of December last year. (Other commentators say the ratio is higher though, putting it as much as 6-7 times family income in our capital cities.)

“Of course it was easier a few decades ago,” I hear you say. But there’s plenty of experts willing to argue that, when you take into account lower interest rates and higher household incomes, mortgage holders these days are no worse off than their parents

“The correct summary of the situation is that the rise in house prices between 1986 and 2011 can be mostly explained by the growth in incomes and the reduction in income rates,” says Christopher Joye, managing director of Rismark International.

But I can’t help feeling, as a working mother, that around the time that credit became cheap, child-care more widely available, unemployment started to head south and women were more willing and able to stay in the workforce, that we all got a bit too excited about the ability to fork out more bucks for a house.

And now we find ourselves locked into a situation where one income just isn’t enough, removing the choices families once had for mum to stay at home with the offspring. (… or dad, or the other mum, depending on your family situation).

In effect, when complaining about high house prices, you have to ask – do we only have ourselves to blame?

I’m not having a go at working mums here. I’m one, and I love that, as mothers, we have the right and ability to work. I’m just wondering if it’s a case of the more you get, the more the spend.

In 1978 43.5 per cent of women participated in the labour force, versus nearly 60 per cent in 2011.

Lifespan of workforce participation rate, 1980 and 2005. Source: ABS; Productivity Commission

Interestingly, at the same time, men dropped back from 79.4 per cent in 1978 to 72.3 per cent in 2011. But overall we have seen an increase in the number of people in the labour force, rising from 61.2 per cent in 1978 to 65.6 per cent this year.

More of the people participating in the labour force are actually working, not just looking, with unemployment at just 4.9 per cent.

Source: ABS

The main breadwinner is also working longer hours. Weekly hours worked per household head was about 43 in 1983 and climbed to about 55 in 2008.

Source: ABS

Low interest rates have encouraged households to take on much more debt. In the late ’80s, household debt equated to less than 50 per cent of household disposable income, now it is three times that, at more than 150 per cent, and we are devoting a higher percentage of our disposable income to servicing that debt.

Source: ABS; RBA

While the house price-to-income ratio may have been steadily rising, interest rates have been falling (from a general trend perspective) from double digits in the ’80s to single digits now.

Source: ABS; RBA; REIA

According to an RBA analysis of the Median Housing Price Affordability Index, the least affordable time to buy a house since 1980 was in 1989 / 1990 when interest rates reached 17 per cent, and then in the lead-up to the GFC when debt was much higher and interest rates were climbing towards 10 per cent.

Which just goes to show that it doesn’t take many interest rate hikes for us to push back into costly territory thanks to such high debt levels. (And nearly puts paid to the boomers’ argument that Gen Xers have never had to struggle under the weight of high mortgage repayments like they did.)

Source: ABS; RBA; REIA

But as Joye says: “There has been in a long-term sense … a quite profound reduction in the cost of mortgage debt.”

So people have been able to afford to take on much more debt for a given level of income, and splash out on much more expensive homes. “House prices have risen to reflect that, and that’s why we’ve had the big run up in prices, which won’t happen again in the future,” says Joye.

On Joye’s figures, house prices have risen on average by about 7% per annum since 1980, which he labels “a significant rate of increase”.

However, on the whole, despite borrowing up big, Australia’s rate of non-performing loans remains very low.

Source RBA

We might be coping with servicing our debts quite well but, as Joye says: “What that debt level does is it makes it difficult then for females to reverse out of that pattern [of working]. It’s hard for them to then withdraw from the workforce if they have to service debt.”

And remember housing debt is very long term. It could be 25 years.  “So once you take out a loan, absent of sort of selling your home and renting, you’re kind of locked into that commitment for a long time,” Joye notes.

Paul Braddick, head of property and financial system research for ANZ, says thanks to lower interest rates the cost of servicing a loan on a median-priced house hasn’t changed dramatically when you view it in terms of overall household income.

However, it’s undisputedly more difficult for people to save the required deposit now compared to before the early 1990s, he says. “When you are saving for a deposit you don’t have the additional benefit that comes from falling interest rates, whereas when you are servicing the loan that is a very important factor,” Braddick says.

But for first home buyers there is a ray of hope – in the form of a slowing housing market. Home buyers seem to be saying, at least for now, that they want to wind back debt and a slowing market is evidence of that.

So too are the rising levels of household savings. In terms of holding onto our cash, we are now back to levels not seen since 1990.

Household savings rate. Source: ABS, ANZ Research

Women may not have left the workforce en masse and aren’t likely too either. (And I’m not suggesting they should). But households are realising that cheap debt can’t last forever.

House prices have definitely, for now, come off the boil. It may not be the crash that many pundits in blogosphere are eagerly predicting, but it might just give us all a bit more breathing space when it comes to affording a home.

Story by Carolyn Boyd, Carolyn is a property journalist and keen follower of Australia’s housing market. www.domain.com.au

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If you are one of over 1.69 million* Australian property investors preparing to lodge their annual tax return, are you aware of what to declare and how to make the most of your investment strategy?

Ahead of the next financial year, thoroughly research your tax obligations and claimable expenses to find out how to use these to your advantage for this tax return and for the future.

Mortgage Choice company spokesperson Kristy Sheppard said, “If you haven’t already, now is an ideal time to assess your financial position, re-examine suitable investment strategies and explore ways to better use these to benefit your tax situation and property goals.”

“There can be numerous tax and other benefits associated with owning an investment property. The trick is to know what they are and how to make the most of them over the short and long term.

“Negative gearing entices some investors to property. This occurs when the combination of annual home loan interest repayments plus any deductible expenses is higher than the rental return. The loss is offset against an investor’s gross income, meaning they are taxed on the reduced amount. On the other hand, positive gearing – where rental income exceeds the deductible expenses and loan interest – is preferred by others. It is an individual decision to make with care.

“Despite the tax benefits and potential for long-term capital growth, it may be tricky to eventually profit from a property that runs at a loss. It is a good move to consult a professional tax adviser and mortgage broker before choosing a loan and buying property, to learn about the tax deductions available on your potential investment and what home loans suit your plans. You may also want to glean knowledge from property research companies, buyers’ agents and financial advisers.”

Mortgage Choice suggests investors review the following aspects of their strategy:

Know what to claim

As an investor you may be able to claim tax deductions for your rental property/ies on expenses such as: travel to collect rent or inspect the property, advertising to attract a tenant, property agent and/or management fees, body corporate fees, council rates, gardening, cleaning, pest control, building insurance, repairs and maintenance, water, home loan fees and loan interest. Check the Australian Taxation Office for a list of claimable rental expenses and/or consult a tax professional.

Don’t forget capital gains tax

Unless there is a capital gains tax exemption when selling your property (ie. it is your principal place of residence), you pay tax on profit made above the original purchase price. Keep in mind capital losses (ie. no profit is gained upon selling it) are not deductible against your ordinary taxable income but they are used to reduce any other capital gains you make from assets during the financial year or any gains in subsequent years. Consult a tax professional for advice.

Pay your interest-in-advance

Interest-in-advance loans are similar to standard fixed-rate interest-only loans but you pre-pay the next year’s interest before 30 June and claim it as a tax deduction in the current year. This means that upon lodging a tax return, eligible investors can effectively receive a portion of their interest back via a tax refund. Keep in mind individual circumstances differ so it’s always clever to seek expert advice from your tax accountant and a mortgage broker.

For home loan tips, trends, facts, data and other information, visit MortgageChoice.com.au,

* Number of Australians who claimed rental property deductions in 2008-2009, according to the latest figures from the Australian Taxation Office.

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Nearly 11 years on since it was first introduced the federal grant for first-home owners still stands at $7000, even though the average house price has more than doubled in that time.

That’s led one leading mortgage broker to suggest it is time the scheme was upgraded.

The residential housing market had changed significantly since 2000 and the $7000 grant was no longer adequate, Loan Market said.

“The economics that drove the original payment are outdated and need to be reviewed as per any government grant,” said the broker’s chief operating officer Dean Rushton on Wednesday.

The First-Home Owners Grant (FHOG) was introduced by the Howard government to help offset the impact of the GST on home ownership.

“For the FHOG to continue to help buyers, it needs to reflect the conditions they face in 2011, not 2000,” Mr Rushton said.

Most recent Australian Bureau of Statistics (ABS) data shows the size of an average home loan taken out by a first-time buyers was $285,400.

Back in June 2000 it was just $137,400.

Mr Rushton said the $7000 grant had been effectively halved.

Other ABS data shows the proportion of first-home buyers taking out a loan in April was 15.8 per cent, slightly more than the near seven-year low of 14.9 per cent seen in February.

But this was still well shy of the record 28.5 per cent set in May 2009 when the Labor government temporarily increased the grant as part of its economic stimulus measures to fend off the global financial crisis.

At that time the grant was $14,000 for existing homes and $21,000 for newly-built homes.

Mr Rushton said first-time home buyers had dropped out of the market during the past 18 months due to a combination of cost-of-living pressures and higher interest rates.

They also face the challenge of paying high rents and saving for a deposit.

The federal government’s $1.2 billion First-Home Saver Accounts scheme, which was introduced in October 2008, had done little to encourage first-time buyers, Mr Rushton said.

“The scheme aimed to assist more than 700,000 people within the first four years but it has attracted nowhere near the amount of the interest anticipated,” Mr Rushton said.

While legislation was passed recently to improve the flexibility of the scheme, it still had a four-year qualifying period, which made it unattractive for many first-time buyers, he said.

Colin Brinsden, AAP Economics Correspondent www.domain.com.au

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