Residential Rental Vacancies Dip Slightly In September - SQM

Figures released by SQM Research reveal that the level of residential property rental vacancies dipped slightly during the month of September, recording at a vacancy rate of 2.1% and coming to a total of 58,977 vacancies nationwide.

In terms of the number of vacancies, this month’s figures reveal the third straight monthly decline on a national level.

Although September was an abnormal month as far as the property market goes, with a federal election and the AFL Grand Final interfering to a certain extent on the sales market, SQM Research does not believe that these events has any direct effect on the rental market, or are in any way responsible for September’s decrease in vacancies.

A closer in depth look at the figures however, reveals that each capital city is telling its own story where vacancies are concerned. Perth has recorded its first decline in vacancies for 2013, whilst Canberra’s vacancies are skyrocketing on a year-on-year basis. Brisbane is gradually creeping up whilst Adelaide stays relatively steady. Hobart is now recording falls in vacancy rates while Melbourne is still recording elevated vacancies, however there is no longer an uptrend in rental listings. Darwin – although still without a doubt, extremely tight, is beginning to ease slightly where vacancies are concerned. Sydney appears to have been declining over the past six months.

Louis Christopher, Managing Director of SQM Research says “Currently there is no one national trend in the rental market; rather the national market is very much segmented with each city recording completely different trends and results. However, with a vacancy rate of 2.1%, it does suggest that the rental market remains mildly in favour of landlords and would suggest rent increases would be running at close to the general inflation rate or just above it at this point in time.”

Nationally asking rents have been flat for the past 12 months, falling by just 0.7% for houses and rising by 1.5% for units.

SQM’s calculations of vacancies are based on online rental listings that have been advertised for three weeks or more compared to the total number of established rental properties. SQM considers this to be a superior methodology compared to using a potentially incomplete sample of agency surveys or merely relying on raw online listings advertised.

Please go to our methodology page below for more information on how SQM’s vacancies are compiled-

http://www.sqmresearch.com.au/graph_vacancy.php?region=nsw::Sydney&type=c&t=1#terms

Key Points

·         Nationally, vacancies dipped slightly, recording a vacancy rate of 2.1% during September 2013, coming to a total of 58,977 nationally.

·         Melbourne has recorded the highest vacancy rate of the capital cities, revealing a vacancy rate of 2.7% and a total of 11,764.

·         Darwin has recorded the tightest vacancy rate of the capital cities, revealing a vacancy rate of 0.9% and a total of 224 vacancies.

·         Canberra has recorded the highest yearly increase in vacancies, climbing 1.1 percentage points to 1.6% since the corresponding period of the previous year (September 2012) and coming to a total of 1,135 vacancies

·         Hobart was the capital city to record the largest yearly decrease in vacancies, falling by 0.5 percentage points to 1.8% since the corresponding period of the previous year (September 2012) and coming to a total of 499 vacancies.

·         Canberra was the only capital city to record a monthly vacancy rate increase, rising by 0.2 percentage points during September 2013.

·         Sydney recorded the largest monthly vacancy rate decline of the capital cities, falling by 0.2 percentage points during September 2013 and coming to a total of 9,225 vacancies.

Look beyond your monthly repayments when looking at refinancing!!

Many people look for cheaper interest rates out in the market place. It makes perfect sense, yet many only give importance to the monthly repayments. You should really look at the overall picture and by that I mean the 25 or 30 year commitment you are making when taking out a home loan, or recommitting to another lending institution when refinancing.

Let's use some very basic figures for the purpose of this example. I am going to use the figure of a $300,000 mortgage. This seems to be the figure the media like to use when there is a shift in interest rates up, down or neutral.
So here goes;

Mortgage $300,000 x 30 years x 7.5% (average over 30 years)
= $2,097.64 per month 
= $755,151.67 in repayments over 30 years 
= $455,151.67 in interest repayments over 30 years 

The industry average tells us that customers refinance their loans every 4 years. There is nothing wrong with refinancing, in fact since the introduction of the "No Exit Fee" legislation; it makes perfect sense to shop around and continue to shop around throughout the period of time you have a mortgage.

The biggest mistake people make when refinancing is refinancing for another 30 years. Of course the monthly repayments look attractive - they are meant to look attractive. Take a look at this example below assuming you had of locked in a fixed rate at 7.5% some 5 years when many panicked and fixed their home loan during the years when we were experiencing interest rates rising.

Mortgage $300,000 x 30 years x 7.5% (5 year fixed)
= $2,097.64 per month
= $109,710.92 interest paid over 5 years 
= $16,147.69 principal paid over 5 years 

Now, you may be starting to see where I am coming from. For the $16,147.69 paid off in principal over a 5 year period, you pay close to $110,000 in interest. To be able to make the absolute most in refinancing your mortgage, you should really refinance the amount that is owed for the number of years left on your original mortgage so that the $110,000 does not go to waste.

If you were to refinance the remaining amount owing over 30 years of say $285,000, the repayments per month would be $1,688.62, a difference per month of $409.02. The monthly difference would be very welcomed by the vast majority of families, however,  if you were to refinance for 25 years (taking in to account you have already paid 5 years worth of interest), the repayments would be $1,817,14.

The difference in total interest paid between loans at 5.89% over 25 years compared to a loan at 5.89% over 30 years is $62,758.67. That is a hell of a lot of money people should be taking in to consideration when looking for a cheaper monthly repayment. Of course the likelihood of seeing interest rates stay neutral over a 25 or 30 year period is 0, but the point of this example is to demonstrate just how much money people are willing to give away by constantly refinancing for a further 30 years. The only true beneficiaries of people refinancing for another 30 year term are the shareholders of banks.

Forget The Advertised Rate - Look At The Comparison Rate

http://youtu.be/gJqRN_yBWD0

Elections, RBA & Cash Rates

http://youtu.be/kGKQ6Eo9bHE

Election campaigns are always strange. Once a federal election is called, it literally does leave the country in an indecisive state. For those of us that follow politics, property markets, share markets, local and international news, 2013 has been a rare species. In fact the Election Day that was announced by Prime Minister Rudd being 7th September 2013 is in fact the National Protected Species Day.

When it comes to Prime Minister Rudd during election campaigns, he has a close history with the movement of the official cash rate by the RBA. Before the election campaign in 2007 against former Prime Minister Howard, the RBA decided to put the cash rate up by 25 basis points on 8^th August and a month later Kevin Rudd became the new PM.

The last time the RBA cut rates was 2 months ago on the 7th May. The Australian dollar was US$1.0241 - and here we now are with it below 90c – this has been a great win for the RBA. It is important to note that the RBA has only ever moved the cash rate during an election campaign on 2 occasions; in fact it is the only time the RBA has dropped the official cash rate during an election campaign. This current rate easing cycle has been going now for 18 months (begun on the 2nd Nov 2011) & we have seen 7 cuts totalling -2.00% {from 4.75% to 2.75%}

The previous rate hike cycle saw rates increased by +1.75% over 11 months (from 3.00% to 4.75%) – that followed the previous RBA rate cut cycle, where they cut rates by -4.25% (from 7.25% to 3.00%) over just 8 months.

With the cash rate and the retail lending rates at these unprecedented levels, it actually increases the borrowing capacity for property buyers, first home buyers and in particular property investors. There are 1.8 million property investors in Australia. What that means is that there is no way, no chance at all of any political party making a decision of abolishing negative gearing. It would mean political suicide for either major political party. No political party will make the mistake the Hawke government made in 1985.

In July 1985 the Hawke/Keating government quarantined negative gearing interest expenses (on new transactions), so interest could only be claimed against rental income, not other income. (Any excess could be carried forward for use in later years.)

The result was a considerable dampening of investor enthusiasm; although the new capital gains tax introduced shortly afterwards (September 1985) may have contributed too. After intense lobbying by the property industry, which claimed that the changes to negative gearing had caused investment in rental accommodation to dry up and rents to rise, the government restored the old rules in September 1987, thereby once again permitting the deduction of interest and other rental property costs from other income sources.

When the ALP came to office on the 24th November 2007 the RBA cash rate was 6.75% today it is 2.50%, so in the ALP term we have seen rates drop by -4.25%. It’s also worth noting that the ASX 200 when the ALP came to office was 6330 vs. today 5110, so since the ALP came into power the Australian market has fallen -19%

Over the past few months, in original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose slightly to 14.3% in April 2013 from 14.2% in March 2013. However, in real terms, it is the property investors that are out bidding the first home buyers.

Whilst the increased number of property investors in the market place may seem like a social injustice to first home buyers, it is a reality of the current times. There is no doubt about the fact that it is increasingly more difficult to get into the property market for first home buyers, however common sense tells us that it makes perfect sense for property investors to enter the market.

Property investors will always outbid first home buyers because interest repayments are tax deductable. Investors, meaning self funded retirees will also become a part of the property investment market, with the low term deposit rates currently on offer, it should not be a surprise to anybody that property investments are the flavor of the month (and then some)..

First home buyers remain stuck at a 14.9 per cent share of new loans, around half the levels seen during the Federal Government's First Home Buyers' Boost scheme, which lured many into bringing their first purchase forward. The results were particularly weak in New South Wales and Queensland, where there were just 773 and 750 first home buyer loan approvals respectively.

That was the lowest number of first home buyer approvals for either of those states since the Bureau of Statistics started publishing those figures in 1991. When the ALP came to office on the 24th November 2007 the RBA cash rate was 6.75% today it is 2.75% (and maybe 2.50% tomorrow) so in the ALP term we have seen rates drop by -4.00%. It’s also worth noting that the ASX 200 when the ALP came to office was 6330 vs today 5110, so since the ALP came into power the Australian market has fallen -19%.

So, when you analyse the figures outlined, it is clear that people feel more comfortable in investing in property rather than the ASX that is still currently showing a loss of 19% after a 6 year period. 

Stock Levels Plunge Even Further - SQM Research

Figures released by SQM Research reveal that the level of residential property listings around the nation plunged even further during the month of July, with national stock levels decreasing by -2.1% and coming to a total of 351,487.

Year on year, the country also witnessed another decline in stock, falling by –2.5% nationally, with every capital city besides Canberra and Melbourne recording yearly decreases.

These decreases potentially point to a pick-up in the Australian housing market, although with over 350,000 online residential listings still being recorded, SQM Research still believes the level of stock to be elevated when analysing the data at a national level. However when broken, each capital city appears to be telling a different story. 

Adelaide, Hobart and Perth all experienced substantial monthly declines of over -4%, whilst the only capital city to record a rise during July was Darwin, increasing by a mere 0.9% - 12 listings.

Melbourne experienced no change during the month of July, still possessing the highest amount of online residential sales listings of all the capital cities and one of the only capital cities recording an increase in stock levels since the corresponding period last year (July 2012) – climbing by 2.8%.

Sydney is still showing signs of significant stock absorption, with not only a -2.1% decrease in stock levels month on month, but a substantial -17.0% decrease since July 2012. It is becoming more and more evident that the housing market is beginning to pick up in this capital city and SQM Research believes that this will continue into the Spring selling season.

Louis Christopher, Managing Director of SQM Research says, “Nationally, listings are still elevated. However, there is now a large contrast between the readings of certain cities. Take Melbourne as an example - Despite apparent high clearance rates at auction, there is still too many listings on the market, creating headwinds for a Melbourne housing recovery.

“In contrast, Sydney is clearly experiencing a shortage of listings in the market, which is putting upward pressure on real estate prices. This is particularly the case in the inner ring where listings have fallen by approximately 25% over the past 12 months.” 

Deposit Levy - Christopher Joye sums it up....

CHRISTOPHER JOYE

The Rudd government’s new deposit levy – or, more precisely, “insurance premium” for guaranteeing the value of deposits under the Financial Claims Scheme – will raise between $350 million and $700 million per annum immediately after its introduction. The precise sum depends on the size of the premium, which is slated at between 0.05 per cent and 0.10 per cent.

Working out the revenue raised is a simple exercise. Budget Paper No. 1 states: “As at 28 February 2013, deposits eligible for coverage under the Financial Claims Scheme were estimated to be about $696.9 billion.” Multiplying eligible deposits by the levy gives you the right number, which will naturally grow over time.

A long investigation by John Kehoe and myself late last year forced the Reserve Bank of Australia to publish a treasure trove of 97 pages of documents concerning the possible introduction of the levy.

This revealed internal RBA analysis that suggested that a levy of five basis points per annum would produce fees of about $38 billion over 25 years. The FOI documents also disclosed that the Council of Financial Regulators had written to former treasurer Wayne Swan and recommended he publicly consult on the introduction of a levy. For some bizarre reason Swan ignored them.

The political and economic ramifications of the move are interesting. For years I’ve been calling on governments to price the subsidy the banking system receives through Australia’s free taxpayer guarantee of deposits, which is internationally anomalous and heightens the moral hazard of executives.

After prodding by parliamentarians, the RBA’s governor, Glenn Stevens, said he was not personally opposed to the idea. He even offered up that the price should be about a few basis points.

The Coalition privately says it planned on implementing the proposal after the election. Kevin Rudd and Chris Bowen have now taken that opportunity away from them, which is smart. And they have shown some courage in overcoming the powerful banking lobby.

The fixed nature of the fee means that smaller deposit-takers will benefit much more from the guarantee than the major banks. Defaults and bank failures are more likely among the former.

On the other hand, the majors get to capitalise on their loftier credit ratings and cost of funds advantages in the wholesale bond market, which supposes that they are “too big to fail”. Standard & Poor’s ratings methodology explicitly assumes that only the major banks will get a government bailout. Smaller banks have relatively lower credit ratings and higher funding costs as a result.

At the margin, the levy makes deposits a more expensive source of funds for banks. But to the extent depositors come to think that having a proper price on the guarantee means it is less likely to be lowered or removed by revenue-hungry politicians, then the rate of return they require for lending to banks on an unsecured basis should also fall. It is not, therefore, clear whether the levy will deliver a net increase in the cost of funding. Even if it does, we are talking about pretty trivial amounts.

There are other unpriced subsidies in the banking system that policymakers should turn their minds to. The pricing on the RBA’s globally unique Committed Liquidity Facility, which is expressly designed to ensure banks avoid solvency problems during a crisis, has not been subject to any external scrutiny.

There is currently a flat 0.15 per cent annual fee on the undrawn amounts that banks can tap the CLF for in a calamity. There is a case for applying a (slightly) different price in the low probability event that an institution ever draws on it.

In the long run, pricing subsidies makes all participants in our financial system stronger by mitigating moral hazard.

The Australian Financial Review

CHRISTOPHER JOYE

Christopher Joye is a leading economist, fund manager and policy adviser. He previously worked for Goldman Sachs and the RBA, and was a director of the Menzies Research Centre. He is currently a director of YBR Funds Management Pty Ltd.

Why the Consumer has not reacted to 2% of rate cuts in the last 18 months

Here are some comments from my brother in law, Richard Coppleson from Goldman Sachs... It is worth reading not withstanding the fact one typically does not agree with the in laws, but I DO!!

Its worth highlighting something I had in the Afternoon Report a year ago -as it in some ways continues to explain why the 2.00% cut in rates over 18 months & 1% since this was written a year ago - have failed to stimulate the consumer.  To me its a bit like the electorate stopped listening to the Government a year ago & are waiting until the election to get rid of them. This is the same with the consumer - they have battered down in the bunker   until they are convinced that things are going to get better - the long list below has plenty of additional concerns added to it since then.

Maybe a change in government lifts consumer sentiment - because after 7 rate cuts  over 18 months  with cash rate going  100 year lows of 2.75% & now fall in the currency - if things don't show signs of picking up over the next 3 months - then the Australian economy will be the Titanic - heading straight for the iceberg & despite everyone knowing its going to hit - all we'll be able to do is brace for the impact...  Hence the saving rate remains high & people prefer pay off their home loans and bunker down...  Things are dire & the RBA knows it.

For the non -mining economy  we have already been in a recession for the last 6 months & when the mining economy slows by the end of 2013 the whole country will be dragged into the 1st official recession since the early 1990's.  The hour glass has just been turned over & the sand is moving rapidly through - if it gets to empty by December 2013 - we're all stuffed & going into recession. One thing we can't say now,  is that we haven't been warned..

This list is what we were going through exactly 1 year ago from May 2012 - this is why the consumer has still not responded to the rate cuts...

From May 2012 - this is why the consumer has still not responded to the rate cuts...
The cost of living worries have been seeing people saving with numerous issues seeing the domestic economy under pressure as households across the board are being smashed with at least 25 pressure points ..

 (1) Sydney Water looking to increase the average household bill by 31% over the next four years.
(2) From July, Sydney households can expect to pay 20% more for power.
(3) The average gas bill will hike 8.3 per cent.
(4) The average petrol price paid by motorists at the $1.40 per litre last month, the highest since October 2008.
(5) Home prices: House prices in capital cities have fallen 4.5 per cent in the last year, according to RP Data. (6) Council rates going up with more than a third of councils have applied to raise them past the 3.6 per cent ceiling.
 (7) Fees at top private schools are about to crack the $30,000 mark for Year 12 students.
(8) Tax on super contributions about to be doubled for 15% o 30% (but only those  on over $300,000)
(9) Tolls on motor ways going up again: The average toll for a daily commute is tipped to rise by 6 per cent per year.
(10) Rising coffee prices -  prices could increase by 50c  a cup after heavy rains wiped out crops in Central (11) Increased fuel charges on flights: Qantas increased its fuel surcharge on international flights by up to $30 and domestic flights by about 5%.
(12) Retail spending: National retail sales posted their weakest annual growth in 27 years last year as consumers cut spending in favour of saving and paying off bills.
(13) Falling home sales: Sydney new home sales hit the lowest levels since 1994. The number of contracts signed for new homes was down 9.4% from the month before.
(14) Falling consumer confidence: Pessimism has far outweighed optimism this year, with the Westpac/Melbourne Institute finding national consumer sentiment fell 5 per cent in March
(15)  Falling business confidence: Dun & Bradstreet this week found a third of firms cited the lack of further interest rate cuts since December as the primary influence on diminishing of their operations.
(16)  Cut in private health insurance rebate: One of the nation's biggest health insurers, Bupa, have suggested customers could pay between 10 and 30 per cent more under proposed means-testing changes, which kick in from July.
(17) Carbon tax: From household bills to petrol prices and even the price of a haircut, day-to-day services and products will cost more under the carbon tax
(18) Mining tax: Miners are tipped to boost government coffers by $10.6 billion over three years, with miners warning the tax was putting the industry's strength at risk.
(19)  Train fare hikes: The cost of a single adult rail ticket has risen between 20 and 40c a day, costing an average $144 extra a year.
(20) Highest interest rates in the Western world: While 3.75 per cent may seem like a low cash rate, Australians still pay a high rate when compared to the near-zero rates in Japan, Europe and the US
(21) Alcohol: Taxes on alcoholic products have forced consumers to pay 15 per cent more on average for low-strength spirits.
(22) Struggling retail sector: Department store giant David Jones last year warned it was facing the worst retail malaise in recent history, with customers flocking to online shopping en masse.
(23) Slowing growth in China: With early indicators suggesting China's economy was slowing, economists have warned Australia's economy risks falling into a deeper slump unless Australians start reopening their purse strings.
(24) Flood levy: Australians earning $60,000 have been made to pay $50 a year extra, until June 30, under the government's flood levy changes from last year.
(25) Apple tax: Australians inexplicably pay on average 60 per cent more for iTunes songs than their US counterparts. (thanks to the Daily Telegraph for highlighting many of these)