Low rates drive investors into property rush By business reporter Michael Janda Link Here Australia's biggest real estate market continues to lead national property prices higher, with Sydney posting another weekend where the clearance rate was around 80 per cent.
Analysts say the high clearance rates in Sydney are due to a shortage of properties on the market at the same time that buyers are starting to respond to record low interest rates with increased demand, especially from investors.
Real estate research firm SQM's managing director Louis Christopher says Melbourne has twice as many properties currently on the market as Sydney, where only 23,000 homes are for sale.
He says Brisbane has more properties listed for sale, at 26,000, even though Sydney is a far bigger city.
"The reality is is that over the past 12 months, listings have come down fairly quickly in Sydney. So stock has been absorbed as buyer demand has increased," Mr Christopher said.
The latest figures from RP Data show that the average house in Sydney is spending just 30 days on the market before sale, while apartments are going even quicker at 28 days.
Melbourne is just behind at 40 days for houses and a bit longer for apartments, while Perth sales take a little longer still, Brisbane properties spend more than two months on the market on average, Adelaide around 70 days and Hobart sales take almost three months.
The quick selling times in Sydney have fed through to steep price growth, with home values up around 2 per cent in July alone according to RP Data, nearly 4 per cent over the past quarter and nearly 7 per cent so far year.
Mr Christopher says Sydney's real estate market is clearly on the boil.
"In Sydney prices are accelerating, and we believe the current tempo is about a 9 to 12 per cent price increase per annum," he said.
I'm really interested to see how much lower we can push rates since I think house price growth will probably be fairly proportional to how cheap we make borrowing money. Is Llewellyn-Smith correct in arguing that an OCR floor is probably only about 75bp below where we are now, else we risk trashing our currency? Perhaps we'll get the opportunity to find out? Or perhaps not.
I've thought about fixing - while the floating rate I'm on is pretty damn low, some of their fixed rates are lower still. But I think I might hold off a while longer yet.
It doesn't cost much to service my mortgage at these rates and honestly, I can't see them rising all that much if they do rise - we only need to look back a short while to see what happened when the RBA tried to return the cash rate from emergency GFC lows to a more historically normal setting. It didn't even make it that far before the housing market nosedived. House prices are rising solidly again, I think the glass ceiling for interest rates might have come a bit lower, or is in the process of doing so.
I'm really interested to see how much lower we can push rates since I think house price growth will probably be fairly proportional to how cheap we make borrowing money. Is Llewellyn-Smith correct in arguing that an OCR floor is probably only about 75bp below where we are now, else we risk trashing our currency? Perhaps we'll get the opportunity to find out? Or perhaps not.
I've thought about fixing - while the floating rate I'm on is pretty damn low, some of their fixed rates are lower still. But I think I might hold off a while longer yet.
It doesn't cost much to service my mortgage at these rates and honestly, I can't see them rising all that much if they do rise - we only need to look back a short while to see what happened when the RBA tried to return the cash rate from emergency GFC lows to a more historically normal setting. It didn't even make it that far before the housing market nosedived. House prices are rising solidly again, I think the glass ceiling for interest rates might have come a bit lower, or is in the process of doing so.
Interesting stuff.
Lets face it leftee, the RBA is inviting people to indulge, and when you do that there is a burden of responsibility on the RBA to not hike rates for a long time. They will know how that will affect new market entrants.
That doesn't mean they can't or won't rise, but I see rates above that 6% to 7% range as highly unlikely in the next decade. That to me is probably the upper limit, with current rates at or close to the lower limit.
Rates in 1950 were about 5% and they didn't rise above 6.5% until 1974.
Any expressed market opinion is my own and is not to be taken as financial advice
Lets face it leftee, the RBA is inviting people to indulge, and when you do that there is a burden of responsibility on the RBA to not hike rates for a long time. They will know how that will affect new market entrants.
That doesn't mean they can't or won't rise, but I see rates above that 6% to 7% range as highly unlikely in the next decade. That to me is probably the upper limit, with current rates at or close to the lower limit.
Rates in 1950 were about 5% and they didn't rise above 6.5% until 1974.
I posted that rates wouldn’t rise pass 7% for at least a decade some time ago, and they wont.
Any bear hoping to see rates crush their "Bubble" are wasting their time.
I posted that rates wouldn’t rise pass 7% for at least a decade some time ago, and they wont.
Any bear hoping to see rates crush their "Bubble" are wasting their time.
Well, according to the boss Brit central banker at least, there's potentially more than one way ta skin a cat BP me ole feline:
""The Bank is acutely aware of the risk of unsustainable credit and house price growth and will be monitoring it closely," he said in Nottingham on Wednesday.
"The important thing to recognise is that we now have tools other than interest rates that can be used to contain risks in the property and financial sectors. We are now fully prepared to deploy them if that were needed."
The Bank could, he said, use its newer tools to recommend that banks and building societies "restrict the terms on which new credit is provided, or even to raise capital requirements on mortgage or other types of lending". "
Lets face it leftee, the RBA is inviting people to indulge, and when you do that there is a burden of responsibility on the RBA to not hike rates for a long time. They will know how that will affect new market entrants.
That doesn't mean they can't or won't rise, but I see rates above that 6% to 7% range as highly unlikely in the next decade. That to me is probably the upper limit, with current rates at or close to the lower limit.
Rates in 1950 were about 5% and they didn't rise above 6.5% until 1974.
Peter,
Banks assess serviceability at a rate higher than the current rate, correct? I've heard +2% back when rates were more like 7%. Is it still only 2% (or whatever), or with lower rates have they increased that margin?
Banks assess serviceability at a rate higher than the current rate, correct? I've heard +2% back when rates were more like 7%. Is it still only 2% (or whatever), or with lower rates have they increased that margin?
ASIC don't set any guidelines, they leave that for banks to work out. Most work on a buffer of 1.5% either above the rate applicable for the loan chosen, or sometimes above another benchmark rate. ING won't reduce their assessment rate below 8% even though they offer rates below 5%
It's a mixed bag but they all have a buffer. It is noticeable that they are not attracted to deals with very tight servicing at the moment, so they are being cautious. IE they don't go as close to the limits as they did when rates were much higher.
Any expressed market opinion is my own and is not to be taken as financial advice
I'm really interested to see how much lower we can push rates since I think house price growth will probably be fairly proportional to how cheap we make borrowing money. Is Llewellyn-Smith correct in arguing that an OCR floor is probably only about 75bp below where we are now, else we risk trashing our currency? Perhaps we'll get the opportunity to find out? Or perhaps not.
Llewellyn-Smith is wrong. Macrobusiness still think we operate under the gold standard. They still think we "fund" the current account. And they still think we have to eventually balance the federal budget. They use to think rates could not go below 2.5% or there would be a currency crisis. They are wrong on all accounts.
History shows many countries with much lower interest rates than ours have seen their currency strengthen (Japan, Canada, Switzerland etc). Australia's currency was at its lowest (Mrch 2001) when the official cash interest rates was 5.5% having risesn from 4.75% a year ealier. In that instance rsising interest rates caused a lower dollar. (its funny how quickly people forget).
There is no operational impediment for interest rates to get to Zero. Sure, the currency may move up or down. Who knows? But history does not give us any roadmap that low interest rates = collapse of Currency. In fact, most recent evidence suggest otherwise.
We are now coming up to the 5 year anniversary of the GFC. And despite all of the experts telling us "money printing" would lead to currency debasement, the US dollar index is exactly where is was on Oct 2008..... http://www.fxstreet.com/rates-charts/usdollar-index/
I don’t think enough thought is given to the concept of ‘security of tenure’ and the role that secure long-term housing options have on the health and well-being of individuals, their families and the community more broadly.
The problem with housing policy in Australia is that our focus on the Australian 'dream' of (owning a quarter acre block) has created a system and culture where renting is treated as a transient, short term option and not perceived as being a legitimate way to create a home. This has resulted in a system where residential leases are predominantly 1 – 2 years and the majority of tenants face the threat of eviction/ rent increases on an annual basis. With housing prices as they are, renting is now becoming the only option for many Australians (particularly if they wish to live in the inner city where there is greater access to public transport and other services) and more and more people are forced to live with little to no long-term housing security.
Unfortunately, there is no currently policy debate or changes in sight for the creation of long term tenanting options, especially ones focussed on the principle and importance of creating 'homes'. Without long-term leasing options, more and more people will continue to be excluded from accessing the benefits of long-term ‘security of tenure’ which currently only home ownership provides i.e. a more permanent location to plan for children’s schooling, work, family doctors and dentists, contribution to community etc.
Until we tackle the current culture and attitudes towards renting (not to mention tax policies such as negative gearing) and start recognising the role renting can play as a legitimate long-term housing option, more and more people will continue to be displaced and disadvantaged by housing stress.
I would really love to see all parties thinking outside the square on this issue and debating solutions that diversify and strengthen the role rental accommodation plays in our communities. And the good news is our political parties needn't look far. Private long-term residential leasing models are in operation all over Europe (and have been for decades) and a number of social housing and housing cooperatives in Australia are already delivering in this area.
ASIC don't set any guidelines, they leave that for banks to work out. Most work on a buffer of 1.5% either above the rate applicable for the loan chosen, or sometimes above another benchmark rate. ING won't reduce their assessment rate below 8% even though they offer rates below 5%
It's a mixed bag but they all have a buffer. It is noticeable that they are not attracted to deals with very tight servicing at the moment, so they are being cautious. IE they don't go as close to the limits as they did when rates were much higher.
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