We’ve been getting lots of questions lately about the state of the property market – particularly with regards to interest rate expectations, level of buying activity and housing affordability.
Here we answer the questions many of you have been asking us, as supported by property market data recently published.
So, what’s going to happen with interest rates?
The RBA reports that inflation is low and it’s expected it to remain low for some time.
Forecasts suggest the RBA cash rate will increase towards the end of this year. This is supported by market expectation as seen in ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve.
Whilst there’s anticipated change to the cash rate, it’s important to note that rates offered by the lenders are not as closely correlated with the cash rate as they once were. This could be a result of increased funding costs post GFC or costs incurred to implement APRA’s restrictions. Whichever the case, it’s likely that lenders will continue to change rates independently of the RBA’s monthly cash-rate decisions. Make sure you’re following us on Facebook for our commentary following the RBA’s monthly meetings.
In terms of fixed rates, there are some good fixed rates available at the moment. Give us a call if it’s something you’re thinking about, or something you would at least like to discuss.
What effect has APRA had on the lending environment?
Lending figures for 2015/16 show a 17% decline in the level of investment lending volume across Australia. However, the number of upgraders (and downsizers) has increased.
Despite the decline in Australian investment lending volume, there has been a significant level of foreign investment in NSW and VIC. Recent reports suggest foreign investors purchased the equivalent of 25% of new housing supply in NSW and 16% of new housing supply in Victoria.
Lenders have recently tightened their lending criteria even further in this area – particularly with regards to reliance on foreign income. It will be interesting to see the effect of these changes in market data over the coming months.
Is there still a housing shortage?
When demand for housing increases, construction activity increases in an attempt to satisfy the demand. But since it takes time for new construction to be approved, funded, built and then sold, there’s generally a time lag before the level of housing supply meets the built up demand.
2017-19 forecasts suggest the supply of new dwellings will reach expected demand across all states – except for NSW. This is in part due to the additional supply of apartments expected to hit the Eastern capital cities over the next few years.
In 2015/ 16 year, Canberra saw approximately 1,600 new individual house completions, comparable to the long term 15 year average of 1,300 new house completions/ year. In the same period, 2,700 new units were completed. This figure is significantly higher than Canberra’s long term 15 year average of 1,000 unit completions/year.
Due to the high number of unit completions, Canberra’s current property stock predominately consists of units and townhouses.
Buyer demand in Canberra is high – particularly for houses – as evidenced by strong auction clearance rates seen in Jan 17 quarter. We’ve also seen strong demand for the former Mr Fluffy blocks.
Canberra’s population and employment growth are expected to remain stable over the next few years, suggesting no significant changes to property demand as a result of these underlying factors.
What’s happening with housing affordability?
Unless you’ve been living under a rock, you’d be aware that Sydney and Melbourne property prices have experienced extremely strong growth in recent times. The Australian Bureau of Statistics property price index for March 17 shows Sydney prices increased 6.1% in the Dec 16 quarter alone. With household incomes for the quarter increasing no where near this amount (if at all), it’s not hard to see why housing affordability is getting worse.
Canberra is still reportedly the most affordable Australian city to buy a house with Dec 16 figures indicating Canberrans spend 19.7% of our household income on mortgage repayments (compared to the national average of 30.4%). Whilst this is largely explained by our comparatively high monthly household income, we know it doesn’t provide much comfort when you’re finding it hard to save the deposit you need to buy your first home.
Housing affordability will continue to be a big issue for the nation and one that’s expected to garner lots of attention this year. All eyes will be on the Treasurer’s ‘housing affordability package’ due to be announced as part of the Federal Budget in May.
Further Reading:
- BIS Shrapnel’s “Australian Housing Outlook 2016-19 Report.”
- Allhomes.com.au, but more specifically:
- http://www.allhomes.com.au/news/strong-result-for-canberra-auction-market-despite-rate-rises/
- http://www.allhomes.com.au/news/strong-results-for-former-mr-fluffy-blocks-at-march-auctions-20170325-gv6gei/
- http://www.allhomes.com.au/news/canberra-still-most-affordable-for-housing-but-larger-share-of-income-spent-on-rent-report-20170307-gut5kz/
- Australian Bureau of Statistics, but more specifically:
- Reserve Bank of Australia, but more specially:
- https://www.businessinsider.com.au/foreign-investment-in-australian-housing-2017-3
- The ASX 30 Day Interbank Cash Rate Futures
- http://www.skynews.com.au/news/top-stories/2017/03/05/housing-package-slated-for-may-budget.html
