Defeating Ruddonomics a pile of money at a time

May 26, 2009


So finally we’ve signed a contract to buy a house, or to be more precise a Town House in Mont Albert, some 15 months after we moved to Melbourne. We would have liked to live a bit closer in, but you take what you can get (well, what you can afford), and we’re close to transport and still in Zone 1 (just, Mont Albert is the last station). The pool is pictured above….no, it’s not our pool alone, but any pool is a good pool as far as I’m concerned 🙂 The double bonus is that the mortgage is going to be around $800-$1000 a month less than our current rent. Guess I might be taking a holiday this year then 🙂

We started seriously looking for houses about 5-6 weeks ago. I’d watched prices in Melbourne tumble from their highs last year, and when I say tumble I mean at the height of the boom, a little 2 bedroom apartment in an old complex just down the road from us in Burke Road Camberwell sold for $840k in May or June last year (I was at the auction.) I’d think that would be worth maybe $600k today, give or take.

With the economy going into recession, I thought this was the right time to buy, but I didn’t count on one thing: Kevin Rudd. In particular, the “first home buyers grant” of $21k.

The program was due to end June 30, and prior to the budget first home buyers were flooding into the market to beat the cut off. It was subsequently extended until the end of September, then offered at 50% until December 31. The problem though is that the extension didn’t stop the flood. Auction clearance rates in Melbourne 6 weeks ago were around 60% and heading south. For the last two weekends they’ve been 81 and 82%, which is as high as the top of the last boom. Our credit union manager also confirmed with me that they’d been inundated with first home buyers looking to borrow money.

Clearance rates don’t mean much though, because it’s the price that counts. I don’t have hard figures, and we’ve only really been looking in a 5-10km arc around Hawthorn (sons school), but here’s my guess: prices have gone up in the last month in the vicinity of $50-$100k in the inner Eastern, and Eastern suburbs of Melbourne, particularly at the lower end of the market (say $400-$800k)

Example: we looked at a place in Abbotsford, 3×1, near the river (no views), massive complex, and it didn’t appeal. List price was around $440k. It sold for $515k. We went through a very cool, indeed too trendy 3×2 apartment in Richmond, just off Swan Street, amazing views to the City. Listed at $540-$580k. Sold for $680k. That’s only two examples, but I’ve seen more again. Yes: real estate agents to tend to under price properties to get people in, however the gap between expected price range and actual sale price at auction has grown significantly in the last month.

Which begs the question: where’s the sanity in offering a $21k Government grant when the demand the grant causes pushes prices up by $50-$100k?

But wait, there’s more. Victoria has possibly the worst (and by that I mean highest) stamp duty in the country. The purchase of a $600,000 property attracts stamp duty of $31,070. So your $21k first home buyers grant really is just wealth transfer from the Federal Government to the State Government.

Now first home buyers could head out to the outer suburbs where the prices are less, but then you have the social aspect: do you want more people on the roads? Can public transport handle it (if and when available?). Even then, you’re still looking at $300-$400k for a house, although it would be an actual house.

Enough of my rant now. We beat Ruddonomics with a liberal dose of money. I’ll be sure to post pictures from the pool if and when we move in early July.

10 responses to Defeating Ruddonomics a pile of money at a time

  1. Ross Gittins commented in the SM earlier this year on the same problem. However, he saw it as having a 'politically correct' outcome; It loks like Rudd is doing something to help the first home buyer, but by maintaining the prices of existing housing stock, he lessens the loss of confidence (and the attnendant risks of defaults or foreclosures) due to people loosing equity in their houses.

  2. In some regard, you're right. Well, specifically economically you're right, but I'm not sure that as a political message that is getting through (and hence the only real advantage from it for the Government). My deep concern, and I've really rolled the dice here, is what will be the effect on the market post first home buyers grant. The play is: will the economy have bounced by the end of the year or not. If it has, there will be no move. If it goes dramatically backwards, there's going to be a correction…and that screws me buying now (although we've bought a new property further out, so I'm hoping the impact would be lower vs something more expensive closer in).

    We'll know about November 🙂

  3. Property prices are crazy in Australia. The pool likes nice. If it's shared by everyone at least you don't have to bother with the cleaning.

  4. Its not only ur problem. Its becomes a common problem today and no solution for it the only solution is hanging around in search of house and waste money and time.

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