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.

Michael Marquette michael@marquetteturner.com.au

You Might Be At Risk of Losing Thousands of Dollars - Vendors Beware!

In the last 24 hours I have been contacted by a real estate agent who had an issue with Marquette Turner. Well, the issue wasn’t so much with us as it is self-serving. See, the agent who will remain nameless was not actually thinking of his client’s interests at all. He was far from being client focused and had only self-interest at heart. I will summarize the situation which really begs the questions – Is this person really doing the best by his clients? Is he really trying to achieve the highest sale price for every property? How do you deal with a person like this in the industry?

This is a true Story:

I received a telephone call yesterday from a well-known real estate agent on the Lower North Shore threatening to report myself and Christine Watson to the NSW Office of Fair Trading for speaking to a client of his. I am quite serious when I say this and am I discussing the Lower North Shore in Sydney – not North Korea. He was furious that we had spoken to his client who has been trying to sell her property for quite some time and she had noticed the hugely successful auction that we had conducted just a couple of doors down from her property – in fact the two properties are extremely similar and in terms of price are also quite similar. The lady had called our office to ask about the sale and had requested to meet with us. She also had no idea if she was in an exclusive agreement as she believed it had run out. To further complicate the situation she is based in Melbourne and the property had been leased for over twenty years.

I recently met with her on a trip to Melbourne and discussed her situation and also resolved the issue that she was still under an exclusive agreement with the other agency. She had signed an agreement for 90 days after auction – taking the agreement to a staggering 4 months! At Marquette Turner this would just not happen as we consider that length of time to be quite excessive. In the real estate industry an agent is not allowed to approach a client whilst he or she is in an exclusive agreement with another agent, however the client is most definitely able to make contact and ask questions. If the client employs a second agent during an exclusive sales agreement with another agent and the property is sold then the client may be forced to pay two commissions. I explained this situation to the lady and gave her the advice she required.

During the phone call to me the agent in question un-leased a barrage of personal insults about his client, including that she had been a shocking client for some twenty plus years – in his words “ a slum landlord”. He went further to say that he had arranged for the renovation of the apartment at considerable time cost to him and that the sale did not require another agent just a realistic vendor who would accept an offer of $530,000. This by any account is well below what I believe the value of the apartment to be and well below the price expectation of his client. In other words he was only worried that he might not get his commission as the agreement is almost over, and he had failed to sell the apartment and had lost the confidence of his client who was looking to us (Marquette Turner) for an answer to her predicament.

The sad thing about this situation is that the agent was only interested in getting a sale – not a sale at the highest price – but a sale at any price. This is surely not in the best interest of his client and is the sort of behavior that we can only hope is rare. Unfortunately he also claimed to have been in the industry for over thirty years so I was left wondering how many other sales he has adopted this approach and attitude toward? This story is incredibly important in informing would be vendors of the underlying motive that might be driving their agent in giving them what is supposed to be professional advice. At what price is this advice really coming at? When considering the total commission paid to the agent and the lost money in a low sale price it could amount to tens of thousands of dollars – vendors beware!

Michael Marquette