Saturday 15 December 2007

Property Portfolio Update: Dec 2007

The lastest monthly sales figures (November) for the suburbs of our home and investment property have just come out. There continues to be a lot of "noise" in the data, with monthly average sales prices being affected by the mix of properties sold in the month, but the general uptrend in prices is continuing and may be the start of another house price "boom. The only factor mitigating against this is that interest rates continue to rise as the RBA attempts to keep inflation within it's 2%-3% target band. Since we have around half of our property mortgages fixed (rather than at a variable interest rate, which is standard in Australia), inflation would actually be of some benefit as it would push house prices up (as replacement costs increased) while the real value of our outstanding mortgage balance would decline. On the other hand, if inflation moderates as expected in 12-18 months time, and home loan interest rates start to decline, this would fuel demand by first home buyers and investors and start to push house prices up more rapidly.

The average rate of increase in house prices in Sydney has been around 6% pa over the past twenty or thirty years, and it looks like this rate may apply over the coming 5-10 years. Prices remained flat between 2002 and 2006 (after the last property boom collapsed in Sydney), but it now looks as if prices have started to increase again. If the lengthy stock market boom comes to end we are likely to see more investment flow back into the property market, while will help support Sydney property price increases over the next 2-3 years.

The graph of our property portfolio shows how the overall valuation has tracked close to the expected long term rate of 6% pa, reverting to the trend line after the "housing bubble" burst in 2004. Unfortunately after initially paying off extra from our home loans each month (with plans to clear the mortgages by 2020) we have had to start redrawing some of our advance payments each month while DW was on maternity leave, and will continue to do so while DW is only working part time two days a week. Anyhow, after the recent changes to "Simpler Super" it is more tax efficient to salary sacrifice into superannuation and eventually use part of our accumulated retirement funds to pay off any remaining morgage balance, than it is to pay off our mortgages using after-tax dollars.

Copyright Enough Wealth 2007

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