Grey cloud gathers over housing market - by Leith van Onselen

The retirement of the baby boomer generation over coming decades will be a major influence on prices.

…. According to the ABS, household income typically peaks between the ages of 45 and 54, before dropping sharply. … Likewise, household spending increases until the same top age and then begins to decline, while retirement saving tends to accelerate until the end of one's working life

… baby boomers collectively moved into the wealth accumulation phase of their working lives, as they began investing heavily in houses (both owner-occupied and investment) and financial assets (e.g. shares and superannuation), in the process helping to stoke asset values. Now … entering the retirement phase, those assets will be sold or drawn down to fund their lifestyles…

Well, that's the theory. What does the data say? .......The overwhelming majority of Australian household assets - 61 per cent as at March 2011 - are held in property versus only 39 per cent in financial assets. However, not everyone owns their properties outright. In fact, there is about $1.2 trillion of mortgage debt supporting about $4.1 trillion of housing assets. As such, housing's share of household net worth (household assets minus liabilities) is 52 per cent. … baby boomer households hold the highest amount of housing assets, both owner-occupied and other (i.e. investment properties and holiday homes). Despite representing only 25 per cent of Australia's population and 38 per cent of households, the baby boomers collectively hold 49 per cent of Australia's housing assets …

So Australia finds itself in a situation where the baby boomers, who represent one-quarter of Australia's population and own about half of the nation's assets and net worth, are headed into retirement. It is, therefore, highly likely that many baby boomers will look to free up the equity in their housing assets to finance their lifestyles in retirement.

There are several ways that the baby boomers might do this:
• Sell investment properties and/or holiday homes; as shown above, the baby boomers hold more than half of the nation's non owner-occupied homes.
• Downsize - sell the large family home, buy a smaller/cheaper residence, and pocket the difference.
• Sell and rent.
• A reverse mortgage - effectively a loan whereby the bank provides 40 per cent of the home's equity, with the principal and interest repayable upon the death of the mortgage holder or sale of the residence.

....there is … the risk that the baby boomers will soon switch from net buyers to net sellers of investment properties due to the low yields on offer (about 3 per cent after costs) and, in the case of boomers who are negatively geared, the inability to claim tax deductions against other income once they cease working. The incentive to sell out of their investment properties could intensify if the boomers come to the realisation that there is little prospect of continued high capital growth. Selling an expensive home and buying a cheaper home (i.e. "downsizing") could also put downward pressure on house prices, although the impact would most likely be less severe. …….

Read more: http://www.smh.com.au/business/grey-clo ... z1bwZwQVPC

benthonic wrote:...full article is quite interesting. the basic direction is more than likely to happen, but I suspect inertia (staying on in existing place) and being asset rich/ income poor will continue for many.

Home construction slump nears GFC level
Clancy Yeates
April 3, 2012

A PLUNGE (its always a plunge isn't it - Judd) in building approvals has sparked warnings that activity in the high-employing house-building industry could fall below the lows reached during the global financial crisis.

In more evidence of the two-speed economy before the Reserve Bank board meets today, the Bureau of Statistics said yesterday building approvals fell 7.8 per cent in February to their lowest level in almost three years.

As separate figures showed national house prices remained subdued, analysts (from guess who - Judd) said there was a growing case for a cut in official interest rates.

Building approvals, which provide a guide to future activity in construction, have now slumped almost 8 per cent in three months.

The chief economist at the Housing Industry Association, Harley Dale, said the ''woeful'' figures pointed to further falls in the number of new home starts, which dropped 13 per cent last year. ''The level of approvals over the three months to February implies annual housing starts hitting a level lower than the GFC trough of 2008-09," Dr Dale said.

The surprise figures were heavily influenced by NSW, where the number of approvals fell 41 per cent to 1962, the lowest since May 2009.

Conditions in the housing industry are watched closely by economists because construction is a driver of growth, which also employs almost 9 per cent of the nation's workers.

The chief economist at Citi, Paul Brennan, said the fall in approvals, alongside feeble employment growth, would put more pressure on the Reserve to cut interest rates ''soon''.

Markets are betting there is a 40 per cent chance the Reserve will cut official interest rates by 0.25 percentage points today, but most economists think it will wait until next month.

Figures from RP Data-Rismark showed house prices were flat over the March quarter. Sydney's market was the strongest of the capital cities, with prices rising 1.1 per cent in the quarter, while the value of a typical Melbourne home fell 0.8 per cent.

Capital city home values fell 0.8 per cent in April, offsetting slight gains in February and March, property analysts RP Data said.

For the year to date, values have fallen across Australia's combined capital cities by 0.7 per cent, seasonally adjusted

All cities, apart from Canberra, Adelaide and Darwin, experienced price falls. Sydney was down 0.3 per cent in April, Melbourne's slid 1.7 per cent and Brisbane lost 1.3 per cent.

‘‘On a 12 month basis capital city dwelling values have fallen by 4.5 per cent, with the weak conditions in Melbourne (-7.0 per cent) and Brisbane (-6.4 per cent) dragging the weighted average down,’’ RP Data property analyst Tim Lawless said. Sydney's home values were down 2.6 per cent, seasonally adjusted, from April last year. ..........

In a separate report out today, official house price figures from the Australian Bureau of Statistics reinforced evidence of the drop in home values.

Australian capital city house prices fell 1.1 per cent in the March quarter, the figures showed, more than twice the 0.5 per cent drop predicted by economists. Melbourne again featured with one of the bigger falls among the cities, with prices down 2.2 per cent for the quarter and 6.6 per cent from a year earlier. Sydney posted a 1.8 per cent drop for the March quarter, while house prices in Australia's biggest city slid 4.6 per cent from a year earlier.

The March quarterly drop compares with a revised 0.74 per cent fall in the December quarter. In the year to March, the house price index fell 4.5 per cent, the ABS reported.....

Read more: http://www.smh.com.au/business/home-pri ... z1ta2gLvtq