The ‘Government-Backed’ Investment Opportunity: Buying a House

COVID-19 Investing Opportunity - Buy a House

Interesting analysis came out from CoreLogic last week.

It shows that the current property downturn is nowhere near as bad as the last one in 2018 — at least not yet.

We’ve had two monthly declines in the median value recorded so far.

That’s a cumulative 1.3% drop nationally.

You can see this on the graph below…

Profit Watch

Source: CoreLogic

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The black line is for the years 2017–20. It demonstrates how severe the downturn over 2017 and 2018 was — and where we are currently in comparison.

The royal commission into the banking sector caused the big drop in house prices.

As Renegade economist Michael Hudson says ‘a house is worth whatever a bank is going to lend.

The market fell around 10.2% from peak to trough in 2017.

In the early 1990s, the median fall was about 6.2% from peak to trough.

And although we weathered the GFC better than most, the property market did not come out totally unscathed.

The chart below showing the level of decline for each state.

Profit Watch

Source: CoreLogic

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Whether property prices will eclipse the 2017 drop this year is a hard call.

The latest mortgage lending figures showed a double-digit plunge.

However, for those that can access finance, the banks are not as tight with their lending policies as they were during the royal commission.

One thing’s for sure however, despite an ‘eye-watering’ deficit, 480,000 Australians emptying their super account, and Australia’s deepest economic downturn since the Second World War, both state and federal governments still want you to go out and buy a house.

Home Buyer Benefits for Support

The raft of home buyer benefits is monumental.

Each state offering an assortment of grants, stamp duty savings, savings programs, and lending schemes…

In WA for example, first home buyers (FHB) have over $70,000 to play with.

They include…

– The federal government’s $25,000 HomeBuilder grant

– An extra $20,000 from the WA state government for a new home build

– WA’s $10,000 first home owner grant

– And WA’s stamp duty concessions for FHBs

Add to that the federal government’s deposit scheme allowing FHBs to purchase with just 5% down.

Not to forget the super saver scheme, allowing FHBs access to a potential $30K.

Add it up; we’re looking at over $100,000 all up.

You may have concerns stepping in at the moment. Especially considering the double-digit plunge in the latest mortgage lending figures.

It’s usually a leading indicator for turns in the housing market.

Profit watch


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However, Scott Morrison also had an answer for that when questioned about it in a recent news conference. Confidently stating that the housing market in Australia has always been driver by ‘an undersupply of housing and oversupply of demand.

And lest you have any doubts about that, considering studies by Prosper Australia show a potential 80,000 homes in Melbourne alone, sitting vacant for a year or more.

Morrison assures that ‘It hasn’t been driven by speculative investor bubbles or speculative credit, things like that, which we’ve seen occur in other countries.

Of course, you’d have to be blind Freddy to fall for that one.

Buyer incentives and tax benefits (negative gearing and capital gains discounts etc) proving that landowners are preference above renters.  Leaving Australians with the stark choice of being a renter or rentier.

It’s only speculative investment that one could argue has government backing.

Reports today showing well over 4,000 of the 10,000 places made available for the First Home Loan Deposit Scheme (FHLDS) effective 1 July have been reserved. And it happened in less than four weeks.

We all know what’s going to happen. I guarantee it.

With some of the incentives being there for a limited period of time, there’ll be a first homebuyer stampeded.

It’s already happening in some states.

Reports from agents showing that land sales have soared by more than 300% in WA.

Land is going to take the gains of the massive stimulus and Frydenberg’s ‘eye watering’ deficit.


Catherine Cashmore Signature

Catherine Cashmore,
For Profit Watch

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