End of housing boom
PROPERTY has been on an incredible run in this country in the past decade but we’re ready to go out on a limb and call time.
That doesn’t mean panic. And it doesn’t mean property is a bubble that’s about to pop.
We just believe the days of breakneck growth in property prices are coming to an end . . . as we’ve seen in Perth, Brisbane and Adelaide, residential property prices can fall. 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 in 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 to stimulate economic growth, which means right now it’s as cheap as it’s ever been to borrow money.
But while that increases demand and drives price growth, 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 before they return to their longer- term average of about 5 per cent.
And that’s the official cash rate, which means bank loans upwards of 7 per cent. This would 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 past 12 months, according to the latest Core Logic RP Data figures.
To put the brakes on the manic buying we’re seeing in Australia’s two largest cities, the Australian Prudential Regulation Authority ( APRA) has demanded banks tighten lending standards. In response, many banks have reduced or removed interest rate discounts on investment loans and clamped down on loan- tovaluation ratios for investors. This will have a flow- on effect as it becomes harder for property investors to borrow money. INCREASED HOUSING SUPPLY Building of new homes is at record levels, with ABS data showing $ 57.1 billion of new homes approved in the past year compared with $ 49.6 billion the previous year.
This building boom is positive news for the economy
but it’s also a sign house prices may start to ease. With so much new housing on the market the imbalance of supply and demand that has driven prices will be rectified and even reversed. This could also have a softening effect on rents.
And if something’s making less money, it’s worth less, so that means lower property prices too.
A SLOWDOWN IN CHINA The recent turmoil on China’s sharemarket has revived speculation about the state of its economy.
With so much Chinese investment money coming into our property market, a slowdown there would, again, take significant demand out of real estate.
And if the Chinese economy does hit the skids, the flow- on effects would impact our economic prospects too. WHEN you take all of these factors into consideration, it’s clear a lot of forces are stacking up against property prices.
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.