2008/2009 - Market Activity & Price Direction
Investors take note - The market is moving!
Level of Market Activity
From January 2007 to September 2007 there were buoyant conditions with strong demand. From October 2007 to January 2008 demand was still in excess of supply especially at ‘entry levels’ of the market, albeit it was easing somewhat from mid February 2008 for those sections of the market above ‘entry level’. After the second interest rate rise in March 2008, generally there has been a cooling effect in the market, across all price sectors. Demand decreased and in turn, competitive pressure amongst buyers eased. Supply began increasing. Selling periods were extending. Activity slowed as there was a gap between expectations of buyers and sellers. From early September 2008 there initially was an increase in activity as pent up demand that had been waiting for an interest rate cut plus changes to Stamp Duty assessment thresholds materialised. From Mid September 2008, activity slowed again as a result of a loss of confidence and uncertainty, relating to the ongoing unravelling of the Global Financial Crisis becoming more apparent. The Global Financial Crisis resulting in an increased Cost of Funds and reduced liquidity, has seen unprecedented moves from October 2008 with the US Federal Reserve approving the ‘bail out package’ and subsequently reducing interest rates to between 0-0.25%; European Union countries dropping interest rate in unison and the Australian Reserve Bank slashing interest rates by 1% plus further 0.75% on the 4th November 2008, 1% on 3rd December 2008 and 1% on 3rd February 2009.
Extensive journalist (and “churnalistic”) coverage of deteriorating economic conditions in many developed economies around the world and slowing economic conditions of the previously booming ‘developing economies’; coupled with well publicised declines in other asset classes (shares particularly through the last quarter of 2008, to March 2009) and uncertainly pertaining to the prospects of Australia maintaining positive economic growth rates unsettled market participants. This was in spite of falling interest rates in many economies including Australia; extensive economic stimulus packages being initiated in major economies (EU, Britain and USA announced in the last week of November 2008); The US confirming their $787 billion stimulus package/ ‘Recovery Act’ 18th February 2009; The Australian Federal Government commitment to stimulating the economy to maintain positive momentum with $10.4 billion stimulus package in December 2008; the proposed $42 billion stimulus package approved by the Senate 13th February 2009; the 2009 – 2010 Federal Budget released 12th May 2009 indicating $22 billion to be spent on infrastructure; and the micro outlook of the ‘Greater Brisbane Region’ seeming comparatively well placed.
In October 2008 buyers were cautious, activity slow and the market favoured buyers. From November/December 2008 and to January 2009, activity generally continued to be slow. A lack of confidence persisted. From February 2009 there was an increase in market activity compared to the fourth quarter of 2008 (particularly in the affordable and first home buyer price categories as stimulated by the Government’s First Home Buyers Grants and low interest rates), and this sustained through to July/ August 2009.
Buyer intensity levels increased noticeably through the last 3 weeks of August 2009. There was strong demand and reducing supply levels through this period and this continued through into September and October 2009. In some instances, agents were reporting multiple offers on listed properties. These increased activity levels were being felt through most price brackets i.e. from entry to upper levels.
There were two challenges to maintaining these increased activity levels post October 2009. Namely, the boost to the First Home Buyers Grant was halved from October 2009 to the end of December 2009, before it returns to $7,000, and the Reserve Bank of Australia Board decision to continue to raise the cash rate. The Reserve Bank of Australia (RBA) acknowledged, in late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. The RBA’s view in October 2009 is that the basis for such a low interest rate setting has now passed. As at December 2009 the RBA believe the risk of serious economic contraction in Australia had passed. The RBA anticipates growth likely to be close to trend over the year ahead, and inflation close to target. Adding in December 2009 that the downturn in Australia was relatively mild, and measures of confidence and business conditions suggesting the economy is in a gradual recovery. The RBA predicts that overall, growth through 2010 looks likely to be close to trend, and they note unemployment peaked at much lower levels than expected.
Business borrowing was declining (deleveraging) through 2009 albiet this is moderating in 2010. Credit for housing is expanding and share markets have recovered significant ground.
The RBA states in April 2010 the global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011. The expansion is still hesitant in the major countries, due to the continuing legacy of the financial crisis. In Asia, where financial sectors are not impaired, growth has continued to be quite strong. Global financial markets are functioning much better than they were a year ago.
As at October 2009, the RBA was the first and only central bank of any advanced economy to lift interest rates. Subsequently, it has now made five consecutive increases. Interestingly, at the RBA meeting 2nd February 2010, rates were left unchanged. The RBA have recently raised cash rates by 25 basis points to 4.25%, effective 7th April 2010, stating the risk of serious economic contraction in Australia had passed sometime ago and they were moving to lessen the degree of monetary stimulus. Generally, confidence in real estate markets continues. Levels of activity have generally continued, albiet the interest rate rises have had a moderating effect.
Recent Market Direction
From January 2007 to September 2007, the market was rising with bias favouring vendors. Strong demand and limited supply continued placing upward pressure on prices. From October 2007 to early 2008 demand was still in excess of supply, with competitive market conditions resulting in bias continuing to favour vendors especially at the ‘entry levels’ of the markets. Moderating demand in the remaining market saw bias closer to neutral, but remained as favouring vendors as supply was still relatively tight. From mid March 2008, the easing in Market Activity, saw a cooling effect in pricing. This cooling effect and easing in prices was most apparent from September 2008 up to Christmas 2008. That scenario was unusual compared to the historical perspective of the past 20 years which shows a tendency for prices in Brisbane to ‘flatten-out’ for extended periods rather than falling, leading up to substantial and rapid price rises in booms, (when taken over time this scenario reflects a ‘rising graph’ of prices when plotted through the peaks). Clarity as to the market direction from September 2008 to January 2009 was hinging on the reactions to the ongoing unravelling ‘Global Financial Crisis’, and response to unprecedented actions being initiated by Central Banks, Governments and Markets throughout world economies, balanced to the micro-market of the Greater Brisbane Region with the stimuli of ongoing major public infrastructure spending programs and continued population increases.
From late January 2009 to July 2009, the sub $500,000 bracket was relatively buoyant, while above this was weak. “Willing buyer/willing seller” sale scenarios were experiencing a lengthening selling period compared to 2007 (or a return to a normalised/traditional time frame) whilst “Forced Sale situations” offered most downside risk to price. A reduction in actual sales volumes accentuated these scenarios.
Up until July 2009, in spite of low interest rates, a latent albiet tentative buyer base, low vacancies and a strongly contested rental market, an environment for downside pressure on prices existed. The sub $500,000 bracket was stimulated by the Government First Home Buyers Grant which was published to expire June 2009. The 2009 – 2010 Federal Budget confirmed the First Home Buyers’ grant boost was extended until September 2009 and before then being halved between October and end of December 2009 before returning to $7000. Generally, there was expectations of rising unemployment plus a lack of business and consumer confidence.
From August 2009, dynamics within the residential real estate market turned more positive. Increased levels of market activity (i.e strong demand), reducing supply and increased buyer competition saw some upward pressure applied to prices. From August 2009 there is improved optimism in general within the economy, based on further signs of global and domestic economic recovery.
Level of Market Activity
From January 2007 to September 2007 there were buoyant conditions with strong demand. From October 2007 to January 2008 demand was still in excess of supply especially at ‘entry levels’ of the market, albeit it was easing somewhat from mid February 2008 for those sections of the market above ‘entry level’. After the second interest rate rise in March 2008, generally there has been a cooling effect in the market, across all price sectors. Demand decreased and in turn, competitive pressure amongst buyers eased. Supply began increasing. Selling periods were extending. Activity slowed as there was a gap between expectations of buyers and sellers. From early September 2008 there initially was an increase in activity as pent up demand that had been waiting for an interest rate cut plus changes to Stamp Duty assessment thresholds materialised. From Mid September 2008, activity slowed again as a result of a loss of confidence and uncertainty, relating to the ongoing unravelling of the Global Financial Crisis becoming more apparent. The Global Financial Crisis resulting in an increased Cost of Funds and reduced liquidity, has seen unprecedented moves from October 2008 with the US Federal Reserve approving the ‘bail out package’ and subsequently reducing interest rates to between 0-0.25%; European Union countries dropping interest rate in unison and the Australian Reserve Bank slashing interest rates by 1% plus further 0.75% on the 4th November 2008, 1% on 3rd December 2008 and 1% on 3rd February 2009.
Extensive journalist (and “churnalistic”) coverage of deteriorating economic conditions in many developed economies around the world and slowing economic conditions of the previously booming ‘developing economies’; coupled with well publicised declines in other asset classes (shares particularly through the last quarter of 2008, to March 2009) and uncertainly pertaining to the prospects of Australia maintaining positive economic growth rates unsettled market participants. This was in spite of falling interest rates in many economies including Australia; extensive economic stimulus packages being initiated in major economies (EU, Britain and USA announced in the last week of November 2008); The US confirming their $787 billion stimulus package/ ‘Recovery Act’ 18th February 2009; The Australian Federal Government commitment to stimulating the economy to maintain positive momentum with $10.4 billion stimulus package in December 2008; the proposed $42 billion stimulus package approved by the Senate 13th February 2009; the 2009 – 2010 Federal Budget released 12th May 2009 indicating $22 billion to be spent on infrastructure; and the micro outlook of the ‘Greater Brisbane Region’ seeming comparatively well placed.
In October 2008 buyers were cautious, activity slow and the market favoured buyers. From November/December 2008 and to January 2009, activity generally continued to be slow. A lack of confidence persisted. From February 2009 there was an increase in market activity compared to the fourth quarter of 2008 (particularly in the affordable and first home buyer price categories as stimulated by the Government’s First Home Buyers Grants and low interest rates), and this sustained through to July/ August 2009.
Buyer intensity levels increased noticeably through the last 3 weeks of August 2009. There was strong demand and reducing supply levels through this period and this continued through into September and October 2009. In some instances, agents were reporting multiple offers on listed properties. These increased activity levels were being felt through most price brackets i.e. from entry to upper levels.
There were two challenges to maintaining these increased activity levels post October 2009. Namely, the boost to the First Home Buyers Grant was halved from October 2009 to the end of December 2009, before it returns to $7,000, and the Reserve Bank of Australia Board decision to continue to raise the cash rate. The Reserve Bank of Australia (RBA) acknowledged, in late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. The RBA’s view in October 2009 is that the basis for such a low interest rate setting has now passed. As at December 2009 the RBA believe the risk of serious economic contraction in Australia had passed. The RBA anticipates growth likely to be close to trend over the year ahead, and inflation close to target. Adding in December 2009 that the downturn in Australia was relatively mild, and measures of confidence and business conditions suggesting the economy is in a gradual recovery. The RBA predicts that overall, growth through 2010 looks likely to be close to trend, and they note unemployment peaked at much lower levels than expected.
Business borrowing was declining (deleveraging) through 2009 albiet this is moderating in 2010. Credit for housing is expanding and share markets have recovered significant ground.
The RBA states in April 2010 the global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011. The expansion is still hesitant in the major countries, due to the continuing legacy of the financial crisis. In Asia, where financial sectors are not impaired, growth has continued to be quite strong. Global financial markets are functioning much better than they were a year ago.
As at October 2009, the RBA was the first and only central bank of any advanced economy to lift interest rates. Subsequently, it has now made five consecutive increases. Interestingly, at the RBA meeting 2nd February 2010, rates were left unchanged. The RBA have recently raised cash rates by 25 basis points to 4.25%, effective 7th April 2010, stating the risk of serious economic contraction in Australia had passed sometime ago and they were moving to lessen the degree of monetary stimulus. Generally, confidence in real estate markets continues. Levels of activity have generally continued, albiet the interest rate rises have had a moderating effect.
Recent Market Direction
From January 2007 to September 2007, the market was rising with bias favouring vendors. Strong demand and limited supply continued placing upward pressure on prices. From October 2007 to early 2008 demand was still in excess of supply, with competitive market conditions resulting in bias continuing to favour vendors especially at the ‘entry levels’ of the markets. Moderating demand in the remaining market saw bias closer to neutral, but remained as favouring vendors as supply was still relatively tight. From mid March 2008, the easing in Market Activity, saw a cooling effect in pricing. This cooling effect and easing in prices was most apparent from September 2008 up to Christmas 2008. That scenario was unusual compared to the historical perspective of the past 20 years which shows a tendency for prices in Brisbane to ‘flatten-out’ for extended periods rather than falling, leading up to substantial and rapid price rises in booms, (when taken over time this scenario reflects a ‘rising graph’ of prices when plotted through the peaks). Clarity as to the market direction from September 2008 to January 2009 was hinging on the reactions to the ongoing unravelling ‘Global Financial Crisis’, and response to unprecedented actions being initiated by Central Banks, Governments and Markets throughout world economies, balanced to the micro-market of the Greater Brisbane Region with the stimuli of ongoing major public infrastructure spending programs and continued population increases.
From late January 2009 to July 2009, the sub $500,000 bracket was relatively buoyant, while above this was weak. “Willing buyer/willing seller” sale scenarios were experiencing a lengthening selling period compared to 2007 (or a return to a normalised/traditional time frame) whilst “Forced Sale situations” offered most downside risk to price. A reduction in actual sales volumes accentuated these scenarios.
Up until July 2009, in spite of low interest rates, a latent albiet tentative buyer base, low vacancies and a strongly contested rental market, an environment for downside pressure on prices existed. The sub $500,000 bracket was stimulated by the Government First Home Buyers Grant which was published to expire June 2009. The 2009 – 2010 Federal Budget confirmed the First Home Buyers’ grant boost was extended until September 2009 and before then being halved between October and end of December 2009 before returning to $7000. Generally, there was expectations of rising unemployment plus a lack of business and consumer confidence.
From August 2009, dynamics within the residential real estate market turned more positive. Increased levels of market activity (i.e strong demand), reducing supply and increased buyer competition saw some upward pressure applied to prices. From August 2009 there is improved optimism in general within the economy, based on further signs of global and domestic economic recovery.