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Thursday, January 10, 2008

Is 2008 Set To Be A Year To Forget?

Unemployment is now at 6.1% nationally - the second consecutive quarter that this has increased. Should we be blaming the new Rudd Labor Government? Should the knives be at the ready? Will interest rates reach the heights of the early 90’s and what does all this mean for property in 2008?

In the last few Marquette Turner e-magazines I have looked closely at what 2008 will bring for property owners and with only 10 days gone in 2008, we can already see the validity of the predictions I made for 2008 at the end of last year.

As interest rates increase and inflation stays above 3%, fuelled by the pressures of high oil prices it’s inevitable that unemployment will increase. Employers are tending to play a waiting game or are battening down the hatches and getting ready for what comes next. But what will come next?

At the end of 2007 I predicted interest rates to hit somewhere between 9-9.5% and with the Banks increasing rates even before the Reserve Bank announces its decision on official rates this is looking very likely.

Is the Rudd Government to blame? The answer to this is no. The Australian economy is now into its seventeenth year of growth which is remarkable and home owners have been able to cope on the most part (only just in many cases) with recent rate hikes. Interest rates increased 6 times under the former Coalition Government and it was inevitable that further increases would occur in 2008 regardless of which party formed Government. The price of oil filters through every area of the economy with the result being higher prices for consumers. Higher prices result in inflationary pressure which means higher interest rates.

What does this mean for property in 2008? Marquette Turner's first open home for 2008 was run in Neutral Bay last weekend and to our amazement we were inundated with over 30 groups of buyers all eagerly searching for property.
Buyers are still very much in the market, however the attraction to fixed interest rates has increased and I am urging all those that ask to lock in rates as quickly as possible - this is by far the best way to bullet-proof yourself and ensure that you are not feeling undue financial pressure as 2008 rolls on.
Rental demand is extremely strong and rental returns have increased but these gains will quickly be swallowed up by increased interest rates with the result being that many landlords will find the situation too tough, forcing them to sell. 2008 is going to be a year where property prices are steady and those that are willing and able to take advantage of distressed sales will benefit greatly.

The property outlook is mixed – rents will continue to be high, housing affordability is now at its worst point in over 20 years and this is likely to become even worse as interest rates and unemployment continue to increase.
The likelihood of a US recession is high and the sub prime (Lo Doc) mortgage market has caused significant damage in the US and this will likely result in tougher lending criteria for Low Doc products in Australia. The Australian economy has stood firm against the Asian Economic Crisis and we can get through a US recession.
With over 40% of our National exports coming out of mineral rich Western Australia and with demand for our natural resources greater than the rate at which we can supply them we may just sneak through when other countries stumble.
My advice for 2008 is lock in your interest rates and be sensible when spending. Ensure there is plenty of money in the tin for a rainy day and do everything possible to cut excess.

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