Homes being sold at a loss

Property analyst Residex reports that a quarter of properties sold recently that had been bought since start of 2005 fetched less than their earlier purchase price! Neutral Bay seems to have copped it worst, with a house median value of $2m selling for an average 12% less than purchase price, so the unlucky owners lost some $275,000 on the property not counting all the other expenses such as taxes, duties, and interest. And Residex CEO John Edwards forecasts the number of people losing money on their houses will increase.
Mr Edwards says a major part of the problem is poor valuations. Usually there are no very similar houses that have sold in the area recently, and valuation has to be based on experience and judgement.
Actually wise estate agents don't claim to "value" properties because they are not qualified valuers. Estate agents offer an opinion only. Legally, valuers are allowed a 15% margin of error.

Hornsby Housing Strategy - BOB Meeting

The inaugural meeting of Businesses of Beecroft (BOB) met yesterday in the Beecroft Bowling Club, with over forty people in attendance.
After introductory talks by Paul MacDonald and Robert Sawtell, Mr Michael Hutchence, Ward C Councillor, was introduced to discuss the current state of the Hornsby Shire Council's Housing Strategy document.
He explained that there is not yet an approved second version of the plan. The proposed amendments listed on the Shire website on 8 December have yet to be ratified and the Shire needs approval to publicise the new modified plan. Of course, those amendments include the incorporation of Beecroft Village into the list of precincts to be approved for 5 - storey development.
Mr Hutchence explained that there will be many other associated documents, covering such major issues as car parking and traffic. The complete strategy will be put on display in mid March, and CDs containing the entire suite of documents will be posted through the community.
Apparently the original plan was just to display the plan for a couple of weeks, but this has been extended to a full month, probably starting on 15 March.
This blog will provide updates as more information becomes available.

Buyers Beware!

The Money magazine of the Sydney Morning Herald has a powerful article about the risks of buying into property at the present time! Interest rates are rising, and lots of first home owners are already coming under mortgage stress. Of 251,000 houses purchased under the first home owner scheme in the 18 months since the government introduced it, almost 40% are experience some mortgage stress, with 30,000 of them in "severe" mortgage stress!!
Severe stress is defined as those who are behind on their repayments and are trying to sell or refinance or are being forced to foreclose.
A report by Demographia says "the median-income household would be expected to pay more than 50% of its income to service a new mortgage on a median-priced house in Sydney".
Fujitsu expects interest rates to increase 0.75% this year, which would increase the number of households reporting stress from 40% to 47%.

Australian Mortgage Funds are being closed

Commonwealth Bank's plans to close two troubled mortgage funs have sparked concerns that many other frozen funds across the sector may soon follow. Colonial First State has been hit by rising lending losses in its underlying investments, which have wiped out its ability to pay distributions of the fund. The CEO Brian Bissaker states "the logical conclusion is to give investors their money back as soon as they can while the fund is a going concern". It may take four years for investors to be fully paid out and Mr Bissaker could not guarantee that investors would get all their money back.
In a separate article in SMH Business Day, Carolyn Cummins reports that CFS Retail Property Trust and Commonwealth Property Office Fund are both confident that the worst of the global financial meltdown is behind them and that vacancy rates and shop sales will move into positive territory this year.

Housing Bubble about to Burst???

A scary article in Saturday's Sydney Morning Herald reports on the possibility that Australian house prices could collapse, under the weight of mortgage defaults! The Economist magazine recently estimated that Australian house prices are over-valued by a terrifying 50%, artificially buoyed up by confidence in the influx of immigrants and a prospering economy. But is that confidence, or blind optimism? In November 2009 it is estimated some 200,000 households were having such difficulty servicing their mortgages that they might have to sell up or have the bank foreclose.

Apparently that number is rising rapidly. Fujitsu consultants estimate that by end of this year 637,000 Australian households will be under some form or mortgage stress. Even so Fujitsu estimates house prices will rise by 10% this year.

So where is this all leading? Steve Keen, associate professor of economics and finance in UWS, forecasts this possible path:

The volume of house sales falls as buyers hold off to save the larger deposits now being demanded by the banks.

Sellers, optimistic and accustomed to higher prices, won't take what they are offered.

Housing speculators start to take losses in order to invest their money more profitably elsewhere.

House prices fall!!!

Three years ago the American housing market was booming and nobody was forecasting anything other than prices increasing endlessly. People with no hope of paying mortgages took out loans on the assurance they could sell up at a profit in a year. And look what happened. To quote the SMH, half a million Americans have just learnt their lesson in the hardest possible way. Here in Australia, all those eager first home owners bought under the Government's (reckless?) encouragement and many are now struggling to cope as interest rates rise. Where will it end?

New Party wants Population Debate

William Bourke is proposing a new political party to question the wisdom of the Kevin Rudd plan to increase Australia's population from 22 million to 35 million by 2050. He believes that the Prime Minster's plans are out of touch with the feelings of most voters. He is concerned that the only debate on the population issue is on how to deal with the consequences, whereas the important question is whether such growth is desirable.
This relates very closely to the recent interest in the Hornsby Shire's Housing Strategy, which proposes to build five storey residential blocks all around Hornsby Shire to accommodate all the new immigrants due to arrive here. As reported elsewhere in this blog, the residents of Beecroft and Cheltenham seem to be questioning the viability of an explosion of small appartments on what is now Beecroft Village.
An interesting comment by Dick Smith was "all governments encouraged high levels of growth because that was what big business wanted, especially property developers, who depended on an ever-increasing demand for accommodation to maximise their profits".

Bankers Now Splashing the Cash

A report in Sydney Morning Herald claims that the bonuses recently paid to bankers are driving up top end property prices. "The recovery at the top end of the market is coming from executives who are in the financial service sector, which is again producing bonuses for their higher discretionary expenditure," says John Symond of Aussie Home Loans.

"House Prices on the Boil"

That was the headline in the Sydney Morning Herald announcing that most people now predict house prices will rise 5%. Is 5% "on the boil", while current mortgage rates exceed this and are confidently forecast to rise during this year?
The NAB has changed its forecast of house price trends from a forecast 5% drop this year to a 5% rise this year and next, based on the higher than forecast employment figures.
"The combination of lower unemployment, low interest rates, undersupply of houses and the first home owner boost acted to increase house prices and hence consumer wealth," says Alan Oster of NAB.
The SMH says "the consensus is for house price growth of between 5 and 10 percent".
Shane Oliver of AMP Capital suggests low-end house prices could fall modestly but predicts average prices rising 5%.

Interest Rates NOT RAISED

To most people's surprise and in defiance of most predictions, the Reserve Bank did NOT raise interest rates this afternoon!
In the flurry of postings explaining this the dominant reason seems to have been that business confidence was quite badly damaged by last month's rise. Obviously the Reserve Bank decided all those first home buyers now having problems with their mortgages needed a break!

House Prices - the latest

The Bureau of Statistics released figures for their capital city house price index that show Sydney house prices jumped 5% in the last quarter, 12% in the last year. However JPMorgan's Ben Jarman believes this just reflects a rush to exploit the cheap cost of borrowing before rates started going up, and the first home owner grant before it was phased out.
Housing research firm Bismak says the Bureau's measurement inflates the price rises.
It seems certain that the Reserve Bank will raise rates again today.
So, who wants to guess where house prices are really going?

Hornsby Shire Housing Strategy Update

A number of people have asked me to help them locate the updated housing strategy on the Hornsby Shire website. And indeed it is not easy to find. The original housing strategy document is still presented on the website as though it is the current document, and I can find no reference to the fact that there is a new version.
To find the latest version, you have to go through quite a complicated path. Go to https://businesspapers.hornsby.councilsonline.com.au/, and select December 2009, then select the "planning" line and click "view". Go right to the bottom of this document and you will find the amendments to the Strategy Document, including the key line "Beecroft Road - Allow 5 storey, part residential, part mixed use development."
One problem is that it doesn't seem possible to print out individual pages of the document, which is about 200 pages long.
At the very bottom are links, one of which finally opens up a new document Planning Proposal Hornsby Shire Housing Strategy Version 1 December 2009. Oddly, it starts by saying "This is the first version of the Hornsby Shire Housing Strategy Planning Proposal", which makes one wonder how it relates to the earlier and subsequently modified document.
The introduction says "After consideration of submissions, Council has resolved to amend the Strategy. The precincts proposed for rezoning for increased densities previously identified in Volume 2 of the Strategy have been amended and are now identified in the draft zoning maps attached to this proposal."
One wonders why the original and now obsolete document is still on display on the council website, and why the amended version is so hard to locate.
About one third of the way through this document you will find the map showing the area proposed for redevelopment in Beecroft - the entirety of Beecroft Village between Chapman Avenue, Beecroft Road, and Wongala Crescent, down as far as and including the fire station.

Businesses of Beecroft

A group of businesses in Beecroft Village are getting together to create a forum for Beecroft commercial issues. It is proposed to have an inaugural meeting on 23 February at 6pm in The Beecroft (Bowling) Club.
Watch this blog for more details, or contact Paul Macdonald on 0407 414 261 at The Children's Bookshop, email staff@thechildrensbookshop.com.au.
Paul will be issuing an agenda in a couple of days, one item that will be discussed is the Hornsby Shire's decision to include Beecroft Village in their latest draft of the Housing Strategy, as a candidate for 5 storey mixed commercial and residential development.

Rate Rises Spooking Buyers

AFG, Australia's largest mortgage broker, says buyers are rapidly deserting the housing market as interest rates creep up. AFG sold $1.5 billion worth of loans last month, which was the fourth consecutive fall, comparing with $2.9 billion in September 2009. That of course was the month when the Reserve Bank started the progressive raising of interest rates, which is almost certain to happen again tomorrow.

Beecroft in the Best Schools region!

An analysis of the top ten schools in each area, using the Government's new rankings, shows that the Central North region, including Beecroft and Cheltenham, is top of all Sydney.
Lower North, Eastern Suburbs, and Inner Sydney also scored well.
Regarding individual schools, using the overall State Ranking for secondary schools, James Ruse Agricultural of Carlingford came top of all ranked, Arden Anglican School of Beecroft came 40th, and Cheltenham Girls School of Cheltenham came 48th. Beecroft Primary came 31st out all the primary schools in the state.
Using the Government's Index of Community Socio-Economic Educational Advantage, Cheltenham Girls came 12th.
Of course Ray White Beecroft Real Estate know how significant the area's impressive record is for individual top schools, but this top mark for the whole region is obviously a huge boost for the area. A large proportion of people wanting to rent in the Beecroft and Cheltenham areas are seeking to put their children into our excellent schools.

First Home Buyers already in Mortgage Stress

Did the Government's First Home Owner grant really assist young people into the housing market, or did it just entice buyers who were not yet financially ready for home ownership? That's the question posed by Nick Gardner in the Sunday Telegraph. A survey has revealed that 45% of first home buyers who took advantage of the Government's stimulus grant are already experiencing mortgage stress, and those numbers are likely to worsen as interest rates continue to rise.
"The dream of home ownership has turned sour for many thousands of first home buyers now the reality of rising interest rates is kicking in", says Martin North of Fujitsu Consulting, who conducted the survey. The survey found that thousands of young home-buyers are using credit cards and other loans to meet their increasing mortgage payments.
Last year Steve Keen of the University of NSW said that the homeowner grants were a disaster waiting to happen, and already it looks as though his prediction is coming true.

Property Sales fell by a third!

Annual sales of retail, industrial, and office property were down 34% last year, according to an article in the SMH today. Sounds bad, but the accompanying graph shows that they fell to the level they were at in 2000, after peaking in 2007. Looked at like that, the fall is not so surprising.

Bathroom Renovation Problems

We gather that Oxford Bathrooms of Thornleigh still have not offered adequate compensation to the owner of the property whose patio they wrecked with white grout. The owner is now taking out a Statement of Claim against the company.

What would you say is fair compensation for having half the bricks on your patio coated with non-removable white grout?
Here is what it was like before the owner spent many hours with a high pressure Karcher and a Phosphoric Acid Substitute special cleaning compound, which worked really well but couldn't shift the last bits.

Upper North Shore House Prices up 13%

According to Australian Property Monitors, house prices in Sydney have soared, and recently recorded its biggest jump since 2003.
In the area around Beecroft, median house prices moved as follows:

Upper North Shore Dec 08 $660,000, Dec 09 $750,000.
Lower North Shore Dec 08 $1,100,000, Dec 09 $1,337,500.

Of course we know that house prices in December 08 were down because of the financial crisis, so it would be interesting to see the figures for Dec 07 as well.

Inflation Fears leading to Interest Rate Rise

The SMH today says "a rise in interest rates next week is a virtual certainty". CPI rose 0.5% nationally (0.6% in Sydney) in the last quarter 2009, mostly due to fruit, house prices, rents, beer, holiday travel and accommodation. Petrol was down, as were computers, televisions, and pharmaceuticals.
The CEO of the Australian Industry Group called on the Reserve Bank to leave rates unchanged.

Underwater Mortgages

There was an interesting talk from William Weaver of MIT discussing the American housing market.
In America you can just walk away from the mortgage and the bank can't pursue you for the outstanding debt. So the fear is that people will do just that when the house value sinks well below current sale value.
Although a huge number of American home owners now have negative equity in their property ("underwater", in his parlance) Mr Weaver doesn't expect many of them to walk away from the mortgage. A lot of properties have foreclosed in USA, but those are mostly people who have lost their jobs or had margin calls and so on. He believes that those who can afford to pay their mortgage regular payments will continue to pay them rather than abandon the house.
Here in Australia the law is different, and you can't just walk away from a negative equity mortgage. So if Mr Weaver's thinking is right, most people will just hold on until house prices rise, or if they don't think prices will rise soon, they may just cut their losses and sell the property for the best price they can get.