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  • Writer's pictureSkyward Financial

Property Finance Update - September 23

We are seeing a surge in new listings of residential properties which is out of the normal for this time of year, and I believe this is a leading indicator that the Spring and Summer months will see lots of properties coming to market. This surge in listings will finally counterweight the in balance between supply and demand, as we have had a low supply, and this will see supply outstrip demand and lead to a lower repricing of properties. Property prices are going to fall because of the recalibration to more supply, and the fact that demand is being reduced along with borrowing power. A key driver of the surge in new listings is a combination of circumstances people might find themselves, they are investors and the negative cash flow on the investment property is too high so they are selling, or they bought when rates were low and can't afford it anymore so need to sell, or have had the property for a while and selling now to take the profits. It is very likely we are only half way through the overall peak to trough cycle that was initiated by the emergency low rates from the RBA as a response to covid, which saw peoples borrowing power explode up by almost 30%. Now, as rates have increased 4% at least over the past year or so we have seen peoples borrowing power decline by about 30%. During that same time as borrowing, and therefore buying power, increase property prices also sprang up close to 30%. The correlation between borrowing power and property prices is not unusual or a mistake. Generally rate cycles determine asset prices, low rates, assets increase, high rates, assets values decrease. This is not all meant to sound to gloomy, it is important to understand the cycle, and it is likely this cycle on the downside has a fair bit to go, but it will come out the other side and improve, it is just about being able to understand and plan for this. It is also likely that rates are not at their peak, and I would not be surprised to see a 5% cash rate in 2024. The reasons for this are because it is clear from spending that rates are not in restrictive territory, that the RBA has not destroyed enough demand to lower inflation enough, yet. Planning for higher rates is prudent, and even if it does not come to pass then you will at least have higher cash buffers and savings. The other reason is that our cash rate is around 1.5% lower than comparable countries, notably NZ, UK and US, and this is weird by historical standards as we tend to follow them, and by having such a large differential in the global cash rates is bad news for the AU economy because it crushes our dollar value, imports inflation, and reduces economic productivity and purchasing power. In every cycle there is opportunity, for those that are in a position to capitalise on the potential upcoming property (and economic) downturn being ready with a pre-approval can mean you are ready to buy when a property comes up. Here are four home loans and property stories that are making news right now:

  • Refinancing jumps 12.6%

  • Interest rate data revealed

  • Rental shortage set to linger

  • Govt sets homebuilding target

Read more below.

“Refinancing activity has remained at record highs in recent months, as borrowers continued to switch lenders amid interest rate rises,” according to the Australian Bureau of Statistics (ABS). Owner-occupiers and investors refinanced a combined $20.2 billion of loans with external lenders in June, the ABS reported. While that was 3.1% lower than the month before, it was 12.6% higher than the year before.

More significantly, the last 14 months have been the 14 biggest months in refinancing history. Unfortunately, interest rate rises are affecting a lot of households at the moment. That’s why refinancing can be such a smart strategy. I can take a look at your existing loan and situation, compare the market and potentially present some options that may save you money. Want to compare interest rates? Let's talk

Despite the interest rate rises that have occurred since last year, rates are lower than one would expect due to “strong competition between lenders”, according to the Reserve Bank. Between May 2022 and June 2023, the cash rate increased by 4.00 percentage points. But during that same period, the average interest rate for outstanding variable-rate loans increased by only 3.37 percentage points. When all outstanding loans (variable and fixed) are taken into account, the average interest rate increased by 2.75 percentage points during the same period. That's because some borrowers still have low-rate fixed loans that were issued before the rate hikes began.

“The share of borrowers rolling off fixed-rate mortgages – taken out two to three years ago at low interest rates – onto much higher rates peaked at just under 5.5% of outstanding housing credit in the June quarter; it will stay high for the rest of this year, before declining in 2024,” the Reserve Bank said. “These expiries will see the average outstanding mortgage rate continue to increase as the effect of the rise in the cash rate since May 2022 flows through to a greater share of borrowers.” Get in touch if your fixed rate is expiring

Property investors in much of Australia are enjoying very low vacancy rates – and one leading property researcher has forecast that is unlikely to change anytime soon. The national vacancy rate in July was just 1.3%, according to SQM Research, which means there are very few untenanted rental properties right now. That makes it relatively easy for investors to find tenants and means renters will often accept higher rents to secure accommodation.

“Clearly, acute rental shortages remain with us. And besides more people grouping together to share the burden, there is no significant solution on the horizon,” SQM managing director Louis Christopher said. Christopher added that the main cause of the tight rental market and fast-rising rents had been strong population growth. “Australia currently has, by far, the fastest growing population for any OECD country and clearly the rampant increases are currently breaching the country’s capacity to house all our people.”

The federal government has increased its housing construction target, in a bid to increase supply and improve affordability. Prime Minister Anthony Albanese, after meeting with the National Cabinet recently, announced a new national target to build 1.2 million well‑located new homes over five years, from 1 July 2024. That replaces the original target of 1 million homes, which was announced last year. Only 10,000 of those homes will be built by the federal government. The vast majority will be built by the private sector. Some will be built by the states and territories. As a result, the government also announced $3 billion of performance‑based funding for states and territories that achieve more than their targets and conduct reforms to boost housing supply. The government also announced an additional $500 million competitive funding program for local and state governments to kickstart housing supply. An increase in the housing supply should lead to a decrease in demand, which should put downward pressure on property prices and make housing more affordable.


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