PROPERTY has been on an incredible run in this country over the last decade, but we’re ready to go out on a limb and call time.
That doesn’t mean panic. And it doesn’t mean that property is a bubble that’s about to pop.
We just believe that the days of breakneck growth in capital city property prices are coming to an end… as we’ve seen in Perth, Brisbane and Adelaide residential property prices can fall. The booms in Sydney and Melbourne are now running out of steam.
If you’re a property owner, particularly in Sydney and Melbourne, we think it’s a good time to step back and evaluate what you want from your property over the next 10 years.
Because if you want to change homes in that time, now could be the best opportunity to sell. Here’s why.
Higher borrowing costs
The RBA has set the cash rate at a record low in an effort to stimulate economic growth, which means right now it’s as cheap as it’s ever been to borrow money and buy property.
But while that increases demand and therefore drives price growth in the short-term, it won’t last forever.
The majority of economists expect interest rates to increase from next year, and once they start rising it’s anyone’s guess how long we have before they return to their longer-term average of around 5 per cent. And that’s the official cash rate, which means bank loans upwards of 7 per cent for borrowers.
This sort of interest rate movement will very quickly soften demand for property and curb prices.
Tighter lending standards
While we don’t think there is a nationwide property bubble, Sydney and Melbourne are definitely looking overheated with prices increasing by 16 per cent and 10 per cent respectively in the last 12 months, according to the latest Core Logic RP Data figures.
In an effort to put the brakes on some of the manic buying we’re seeing in Australia’s two largest cities, the Australian Prudential Regulation Authority (APRA) has demanded banks tighten lending standards and not increase their investor loan books by more than 10 per cent a year.
In response, many banks have reduced or removed the interest rate discounts available on investment loans and clamped down on loan to valuation ratios for investors.
Increased supply of housing
The building of new homes is at record levels, with ABS data showing $57.1 billion of new homes approved over the past year compared to $49.6 billion the previous year.
This building boom is positive news for the economy, with obvious benefits for industries tied to construction, and flow on benefits to business that can thrive around these new dwellings such as supermarkets and services.
But it’s also a sign that house prices may start to ease.
This could have a softening effect on rents. And if something’s making less money, it’s worth less, so that means lower property prices too.
So if you’re lucky enough to own a property that has appreciated during the recent boom and you intend changing houses in the next couple of years, now may be a good opportunity to think about bringing those plans forward. sell at the peak and take your time finding a replacement.
He makes a good case but he's being very conservative on the consequences. Understandably too. No one wants to call a bust and be poked fun at.
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
I am sure the FHB's will carry the market forward now that the property investors are not buying although minus first home buyers grants and baby bonuses might make it muted.
FHB's won't come back into the Market until homes are being sold at 2012 prices.
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
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