From property values to interest rates, we look at where we’ve been and where we’re headed with insight and analysis from industry experts and forecasters. Most importantly, we look at what the ever-changing property market conditions could mean for you in the year ahead.
States of the nation. What’s happening in yours?
In the 2016-2017 financial year, Sydney continued its run as Australian property market’s golden child. According to data from CoreLogic, with 18.9% annual value growth to March 2017, Sydney continues to outperform all state capitals, followed closely by Melbourne with 15.9% growth, Canberra 12.8% and Hobart at 10.2% rounding out the only four capitals with double digit growth in the same period.
Values have increased more modestly in Brisbane (3.7%) and Adelaide (3.5%) while they have fallen in Darwin (-4.4) and Perth (-4.7%).
The change in values is driven by a number of factors including demand, the continued low cost of borrowing, population growth, jobs growth and economic trends.
Not surprisingly, Sydney and Melbourne lead the way in demographic and economic factors that are continuing to drive demand. In 2016-2017 Sydney attracted some 1,100 new arrivals every week. It’s interesting to note that 57% of Australia’s population live in NSW and Victoria, with 54% of the country’s economic activity accounted for by these two states.
Look to the post-boom mining states where home values are falling, and it’s easy to see the impact that challenging employment availability and broader economic trends are having on housing demand and values.
The new construction boom
As property values have generally increased and demand is still high, the level of housing construction has risen, particularly in eastern states. The surge in unit construction is not only changing the property landscape, it has already led to units increasing in value at a slower pace than houses across a number of capital cities and a concern of over-supply in some capitals.
In January 2016, CoreLogic head of research Tim Lawless said, “Capital city growth rates have also shown a growing divergence between the broad housing product types. The divergence in growth rates is the most distinct in Melbourne and Brisbane, where concerns around unit oversupply have eroded buyer confidence.”
If you’re in the market for an apartment, 2017-2018 could be the year to take advantage of easing prices and make your move.
Will low interest rates stay low?
On July 4, the Reserve Bank of Australia (RBA) announced that the official cash rate would remain on hold at 1.5%. This all time low official rate has been in place since August 2016. The official rate is used as a guide by lenders to set interest rates on their own products including home loans.
In their announcement, the RBA noted that economic housing market conditions vary considerably across the country and there is some concern that the growth in household debts has outpaced growth in household incomes.
The RBA’s concerns are also shared by APRA, where in March 2017, they announced new measures around residential mortgage lending with a particular aim of moderating growth in investor lending.
What can existing home owners expect?
Will standard home loan rates come under the same pressure as investment loan rates? Despite the hold on official rates, some home lenders have already begun to edge variable rates higher, though these are not expected to rise as much as investment loan rates.
While economic indicators such as inflation and employment remain relatively benign, economic forecaster BIS Oxford Economics predict that the RBA is likely to cut official rates to 1% in the year ahead. Whether that translates to savings for existing mortgage holders, is yet to be seen.
Local factors such as job and population growth and supply and demand ensure the property market will continue to be fragmented, however most experts agree that Sydney and Melbourne will continue to outperform other areas in the year ahead. That said, according to CoreLogic-Moody’s Analytics Australian Home Value Index Forecast, rising interest rates and housing supply are likely to push Australian home prices lower in 2018, and they won’t rise again until 2021.
Will first home buyers finally get a break?
It was the view of APRA and other industry analysts that the high demand from property investors in markets such as Melbourne and Sydney was pushing prices to the point where ‘non-investors’ including families and first-home buyers were finding it more and more difficult to get a foot onto the property ladder.
The new restrictions on investment lending are intended to help soften property values. With affordability the challenge shared in most markets, there has been an increasing push for governments to do more to help reform the housing market and help first home buyers in particular.
In the 2017 Federal Budget, the Government announced the First Home Super Saver Scheme. The scheme uses the structure of super funds to allow members to make additional contributions – for the specific purpose of saving a home deposit – and receive the same tax benefits on those contributions as super. The Government estimates that “the concessional tax treatment and the higher rate of earnings often realised within superannuation” will typically boost deposit savings by around 30%. Read more about it here.
In addition to Federal measures, some State governments have also introduced new measures to help first home buyers into the market.
Challenging times for investors
Over the last few years, APRA’s measures aimed at moderating housing prices and increase affordability for owner-occupiers have required that lenders tighten eligibility and cap growth in property investment lending.
In March 2017, APRA announced new measures that require lenders to limit interest-only lending to 30 per cent of all new residential lending. Within this limit, lenders are also required to limit lending at high loan to value ratios. Most lenders have already increased investment loan rates and adopted stringent new requirements around loan eligibility and serviceability. This is making it more challenging for many would-be investors to secure finance, so keep in mind that there will be more hoops to jump through.
Happy new year?
For every prediction of what the future holds, it seems there’s always a contrary viewpoint, too. That’s why it’s important to talk to someone like your local Aussie broker who makes it their business to keep on top of changing conditions, market regulations and lender requirements. With their understanding of the bigger market picture, they can be a valuable ally in planning your next move.
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