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With a slew of housing data released recently, some of which came in a little worse than economists expected, people may be wondering what’s happening with the housing market. Warren McCarthy, former CEO of LJ Hooker and founder of McCarthy Business Consultants joins Peter Switzer on his Sky News Business Program - SWITZER - to discuss where he thinks the housing market it headed.

“If we hark back to last year and go back to about February or March when we had those two interest rate rises that we didn’t need to have, and the market came to a bit of a halt, real estate sales and listings certainly froze for a period of time,” he says. “And then they started to just slowly creep up and we saw a little bit of a return from the investor due to the shaky share market woes that we were experiencing at the time.”

Supply and demand

But what is it that keeps the market moving? McCarthy says it comes down to the “supply versus demand equation”, which he believes is applicable to property. In recently released data, demand for new construction was up, which McCarthy believes is a good thing. But is there enough supply?

“One of the issues I find that probably stifles the supply factor is the bureaucracy or the red tape that developers have to go through in trying to get their DAs and BAs approved in order to turn soil to create the new stock,” he says.

McCarthy says this is probably due to local government, but the state government has an effect on the process as well.

“Anything that we can do to fasten that process to enable the ability of these people, the entrepreneurs to get out there and build property that is desperately needed to meet the demands that have been experienced, certainly those first home buyers who want to take up brand new stock and take advantage of the grants and the bonus grants that have been on offer.”

House prices on the rise

So what is going to happen to house prices? McCarthy says in his discussions with a number of agent groups reveals that stock is “very, very tight, right around the country.” He says not only first homebuyers, but also top end buyers are “starting to get very, very active.”

So I would think again this demand versus supply factor is such, especially in the capital cities, that you’ll see a price situation that can only go one way and that will be gradually up,” he says, adding that “it won’t go exploding.”

“There’s always a couple of rules to that game and one golden rule in property investment whether it’s a home purchase to live in or in fact an investment over time, is a long-term hold,” he says. “You can’t expect to get these great returns in a short term grab. They tend to happen over a five to eight and in some cases 10 years of cycle.”

Switzer asks whether someone who holds their home for the long term should be looking at capital growth of 10 to 12 per cent, which McCarthy says historically speaking that has been the case and should be what people are look for. One of the issues though, is when there is too much supply of one type of housing, he suggests.

“That might be a high-rise development where you’ve got a number of the same product for sale,” he says. “The demand starts to get evened out and of course your price is then going to be fairly stifled in that respect.”

In these cases, it’s important to do the research before buying.

“You have to identify what’s behind the scenes, so to speak, with the particular development, he says. “Can the agent help you, can you do your own research from other sales that have occurred, asking particular people that have moved in, what happened in their particular transaction experience. Every investment purchase, you’ve got to do your research and do it properly.”

Big calls

Switzer asks McCarthy what he thinks of expert Steve Keen’s big call that house prices could drop 40 per cent. McCarthy says he can’t see that happening.

“I go back to that earlier answer around that demand-supply factor,” he says. “I think it is so strong in that fundamental that I wouldn’t see the bottom falling out of it, so to speak.”

McCarthy says the banks won’t want to see such a huge fall because of their “vested interest in all of the mortgages associated with property around Australia”.

He also says its not just the first homebuyers that are holding up the marketplace at the moment. An APM report last week revealed that showed that house prices rose 3.3 per cent in the June quarter which “was due in part to the top end going forward.”

“We’re seeing a little bit of movement in that regard, and the waterfronts and the high-calibre properties around Sydney and other capital city positions are certainly holding their own,” he says.

 For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, August 12, 2009

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