Finance Market Update - 13 September 19
With at least one more rate cut happening this year and people able to borrow a bit more than before, in this update lets look at where property prices might be going as we head into the busy Spring season.
Peak to trough in Sydney saw a ~15% drop in property prices and we have definitely passed the bottom.
I wrote back in back in May this year that the boom might be back if two very specific things happen, and both of those things have come to fruition.
The first thing was cash rate cuts.
We saw cuts of 25 bps in June and July which brought the countries cash rate down to 1%. The lowest ever on record.
Another one or two cuts will happen this year which could bring average mortgage interest rates down to 3%. Given people were paying 18% rates a few decades ago, and low rates will be here for another five or more years, these low cost of funds makes buying (more) property pretty appealing.
The second thing was a change in banks assessment policies.
Banks have adopted the recommendation wholeheartedly from APRA to (move the goal posts) change how they assess mortgage applicants ability and capacity to borrow.
The changes mean people can borrow around ~10% more than they could a year ago.
Realistically this largely offset the decline in people borrowing power that slid down between 5%-20% in certain cases during the royal commission, but the increase means people will be able to buy more expensive property and that will aid in market activity and price recovery.
So now these two things have happened, what is going to happen to property prices?
In the short term we will see a spike.
This is already being reflected in the market as buyer confidence picks up leading into the traditionally busy Spring season, with auction clearance rates hovering just under 80%, which is the kind of levels we saw at the peak of the boom in 2017.
New home loan lending in July increased by 3.9%. Directly followed by the spike in auction clearance rates and improvement in prices in August.
Refinancing was also busy with a 5.4% increase in July because of the cuts and very competitive rates available. If you have not looked at refinancing any debt you should talk to us or someone about your options.
One major factor is that new property listings, that is to say the number of people now looking to sell their property, is down by around a fifth or more than even last year. That helps to spur demand for those willing and able to buy and subsequently inflate prices as people compete for a smaller number of properties.
In the medium term, that is to say two years or more, we could recover the entire property losses seen over the past year.
(if things keep on keeping on as they are and we don’t hit a recession).
Always the right time to buy
People always try and pick the best time to buy and sell property, the issue is humans just are not good at figuring out complex things like that, we are not good to picking timing.
This is a gross generalisation of course, but it is rooted in psychology.
So, when clients ask me when should I buy, I tend to say – ‘now’.
Well our slightly evolved monkey brains aren’t good at sophisticated statistical and qualitative analysis to determine objective reasoning in complex markets with myriad permutations and potential outcomes and pick the best one –simply put, we just aren’t good at figuring it all out and picking timing.
But I say ‘now’ mostly because if you are looking at property as a long-term investment, 15 years or more, then being in the market sooner than later is the better option.
There will be a lot of bumps and dips over the next 15 years but if you bought today and ignored it all for fifteen years you would likely look at the property value then and be pleased to see it worth significantly more.
Of course, you shouldn’t just ignore it for 15 years. By having an ‘active’ mortgage strategy or a broker like Skyward Financial can save you tens of thousands of dollars over your mortgage by regularly reviewing your mortgage to ensure it is competitive and fit for purpose.
But now is a good a time as any to be buying property if you are playing the long game.