First home boost to be dropped: our tip
So the Reserve Bank dropped official rates yesterday and we now have a cash rate of 3%, the lowest since 1960. What’s next from the government for property? We all know confidence remains low but (while not wanting to talk things up) the worst may be over for real estate. In March the major property web portals had another big jump in traffic. Almost 5 million visitors went to realestate.com.au, up 11% on the same time last year.
Some markets (but not all) are witnessing more sales. In making the rate cut announcement the Reserve Bank’s Governor confirmed there’s been more activity. “Demand for credit is weak overall, though credit for owner‑occupied housing is picking up”, he said. The chatter about the market right now is getting more positive. The big surge of course has been from first home buyers, keen to take up the $7000 boost to the usual grants. In the last quarter of 2008 the govt handed out 7,659 FHOG giftbags, up a whopping 39% on the previous 3 months. And we can’t help wondering if Swan and Rudd will feel that when the boost offer expires on June 30th it’ll be time to shift their support to another market.
Reserve Bank deputy Ric Battellino might agree. He last week told a Brisbane seminar the grant’s benefits could quickly be eroded. “By all accounts the bottom end of the housing market has picked up a lot in recent times and it doesn’t take long for the average house price to increase by $20,000 and leave the homebuyers no better off than they were before.” Market analyst Michael Matusik is opposed to the grant. “The FHOG is inflationary, distorts the normal cycle and creates few new homes over the longer term.” He argues in a time of undersupply we should have incentives to build new housing.
Some commentators worry that removing the first home boost will punish the lower end of the market. But our view is there’s a whole bunch of forgotten buyers on the sidelines getting closer to acting. Investors might just be the next busy audience as they recognise the opportunities on offer.
How should the government support the housing market? We’d love to hear your comments…