Housing affordability improves as home prices edge higher

August 25, 2011 - 12:18PM

There’s good news for house hunters with lower mortgage rates and higher wages helping to improve affordability even as house prices edged higher.
A separate report, meanwhile, shows that people are staying put longer, underscoring how the property market has cooled in recent years.
The Housing Industry Association-Commonwealth Bank housing affordability index rose by 0.8 per cent in the June quarter, to 56.2 from 55.7 per cent.

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Lending data from CBA, used in the index, showed an 0.8 per cent increase in the April-June period of Australia’s median home price to $471,400.
“Earnings growth and a small decrease in mortgage lending rates worked to improve housing affordability over the June 2011 quarter,’’ said HIA senior economist Mr Andrew Harvey. ‘‘These factors more than offset a small increase in the median house price.’’
Other recent reports point to stagnating or falling home prices in many regions around the country as concerns about the wider economy deter some people from the property market.
Still, unemployment levels remain low, at just above 5 per cent, and commercial banks have been trimming their fixed-term mortgage rates in recent weeks.
The Reserve Bank may also cut its key cash rate in coming months to reflect softening demand in the economy and reduced inflation risks
“Improved affordability is good news for home buyers,’’ said Mr Harvey. ‘‘If we look through the (global financial crisis) period which was skewed by unprecedented cuts to interest rates, we have not seen affordability reach its current level since 2006.’’
The home prices used in the HIA/CBA index are median loans financed by the Commonwealth Bank.
"They cannot and do not take account of changes in the mix of size, location and quality of dwellings financed," the report said.
"Quarter-to-quarter variations therefore reflect any changes in the composition of housing financed, as well as changes in the price of a dwelling of a given size, location, and quality.
Home price trends
By most measures, however, home prices have been sinking in the new year. RP Data-Rismark information shows capital city home prices down 2 per cent in the year to June, on a seasonally adjusted basis. Home prices fell 0.2 per cent in June, according to RP Data-Rismark.
Borrowing for and building homes has slowed in 2011 while affordability remains constrained for many would-be buyers.
The pace of building has stalled amid uncertainty about the economy and about the direction of interest rates to come. Residential construction work fell by 4.1 per cent in the June quarter to $11.4 billion, the Australian Bureau of Statistics said yesterday.
The RBA will meet September 6 to decide on interest rates, with the market currently pricing in a 55 per cent chance of a 25 basis point cut.
Staying put
The slowing conditions in the property market, combined with higher transaction costs, are also keeping Australians in the same home longer, RP Data said today.
In 2001, the average hold period for a property between sales was 6.8 years. Now, it is 8.6 years, RP Data said today, with Melbourne residents the slowest to leave. By Chris Zappone

Source: http://news.domain.com.au/domain/real-estate-news/housing-affordability-improves-as-home-prices-edge-higher-20110825-1jbdl.html 

AUD outlook: AUD/USD Daily Fundamental Analysis

The Australian currency has held a three-day advance against the American counterpart on prospects Asian stocks will extend a global rally in shares, boosting demand for higher-yielding currencies.

Moreover, the Australian dollar continues its downside movement versus the US dollar on concerns the global economic recovery is slowing during the period.

Asian stocks dropped as financial and information technology companies recorded a heavy drop, while the Standard & Poor’s 500 Index also fell after the U.S.equity benchmark rose by the most in almost two weeks amid speculation a slowing economy will force the Federal Reserve to boost stimulus efforts.
On Thursday at 12:30 GMT, U.S. economy will issue its weekly initial claims numbers, where the number of people filing for first-time claims for the state unemployment insurance increased to 408 thousand last week.

source: http://www.fxstreet.com/fundamental/analysis-reports/crosses-fundamental-outlook/2011/08/25/ 

Investing in Australia: Sharemarket downturn presents opportunities for long term investors

To take advantage of the economic downturn, advisers should scope for stocks that currently trade under the average price-to-earnings ratio, pay good dividends, and hold a high international ranking, according to Chan & Naylor.

David Hasib, a partner and head of financial planning at the national accounting firm, identified the key factors to look for when deciding which shares present the most viable opportunities.
The first is price-to-earnings ratio (PE ratio). "The markets suggest that 15 to 16 per cent PE ratio is the average. So when you have a stock trading under that average, say around 10, then you've got yourself a bargain," Hasib said.

Another indicator is good dividends. "If the company is making tremendous profits yet their share prices are depressed because of the link to the global economy, then that should be a very good sign that you will get good dividends from holding that company's stock," he said.  "And often, in Australia, dividends are either partly or fully franked, so, in effect, you get paid to watch stocks grow," he added.
Companies that have been well ranked internationally are also worth looking out for. "If you look at Australia's 'big four' banks, they are in the top twelve in the world," Hasib said.
Advisers and investors should also pay attention to the shrinking market. "The banks seem to be gobbling up just about every financial services entity that we can think of. There aren't too many independents left. So that in itself - either unfortunately or fortunately, depending on whether you own shares in that company or not - should give the investor some confidence," he said.
So how should advisers approach the situation with their clients?
Hasib said communication is crucial. "The first thing advisers need to do is communicate with clients. They cannot just hide under a rock. They really need to communicate and reinforce the strategy from day one.

"I use a simple analogy that if you're on a plane and you go into turbulence you don't jump out of the plane, you ride it out, because it's all part of a much bigger long-term picture that you have to be reminded of."
Advisers also need to ensure that the right asset allocation is within the client's mix of investment, and that the investments are relative to the risk tolerance, he noted. "If someone is very risk averse and they have, shall we say, a very volatile portfolio, then perhaps the adviser needs to recalibrate that so it is in line with the client's risk tolerance, as this dictates behaviour" Hasib said.
When asked how careful advisers and investors need to be in the current market environment, Hasib said, "Every step needs to be a cautious step; it needs to be a calculated step. So, perhaps an adviser and a client should consider a dollar-cost averaging into the market, as opposed to going in with a lump sum. That way, if it's a dollar-cost average then you start to flatten the volatility curve, in most cases."
"Finally, don't make fundamental mistakes - avoid panic and knee jerk reactions, such as selling at a bad time and then going in when the market has already gone up. These are mistakes that a lot of advisers - and particularly more investors - are making, and these erode your potential."

They say that if you miss the top five days of the sharemarket in a year, that could indeed result in a significant loss in the end result of the financial year. "For this reason, you really need to be in the market rather than timing the market," Hasib said. "Timing the market is a bit of a fool's game unless you're a day trader, an analyst, or a fulltime expert in the field," he explained. "What's more important is having the right asset allocation, which is critical, and having the right mix in those allocations relative to your risk tolerance."

Hasib reminded advisers and investors that "Australia has one of the best, one of the strictest systems of corporate governance in the Asia-Pacific, and we are often seen for compliance around the world".

Source: http://www.moneymanagement.com.au/news/sharemarket-downturn-presents-opportunities-for-ad 

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