So what’s next for the Australian real estate market?

May 23, 2019

The election chatter is behind us and the one question on the mind of many property owners is“what’s next for the real estate market?”.

With the Liberal retention of power we are already seeing signs of boosted confidence in the economy with the Australian Dollar jumping by $0.8 soon after the election result was called. There have also been positive signs are coming out of the stock market and there is little doubt that the property market will also see some strong growth.

The political and economic stability will now allow both buyers and sellers clarity around decision making. The age old adage of “buying and selling at the same time” holds no truer tune as the changeover cost remains relative to any market both good or bad.

Proposed changes to the First Home Buyers grant and the security for investors around the retention of negative gearing laws should also stimulate buyer activity in the entry level price points, while demand for quality homes across the Eastern Suburbs remains high.

Interestingly the Reserve Bank of Australia has indicated that there will likely be an interest rate cut this, or next month and hinted at another in November. We have already seen some banks factor this into their current interest rates, with Bank West offering a 3.48% 3 year fixed rate.

Furthermore the proposal by The Australian Prudential Regulatory Authority to relax their hard stance on serviceability should have a profound impact on both spending capacity and buyer confidence.

At the moment all lenders effectively use an interest rate of 7.25% when assessing an applicant’s ability to repay a loan. By removing the floor at 7% but applying a buffer the regulators have recognised that lenders are now pricing for risk (between owner occupiers & investors and P&I versus interest only). Whilst the buffer is increasing from 2.25% to 2.5% removing the floor means customers will be able to borrow more.

For example, Macquarie are offering a rate of 3.69%, under the current structure the bank uses the 7.25% assessment rate. Moving forward under the new structure the  Macquarie would assess borrowing capacity at a rate of 6.19%. So a couple earning $200k, with no dependents and a $20k credit card go from being able to borrow $1.626m under the current structure to $1.791m under the new structure.

I am anticipating a strong return from buyers in the coming weeks, the current low stock levels will fuel this buyer demand in turn boosting auction clearance rates and an uplift in sale prices.

Many sellers, however, will be tempted to hold back from listing till the Spring selling season in the hope that the warmer weather will further improve their sales result.

As a result I am advising all those who are considering to sell this year to move quickly, to capture the renewed buyer energy and beat the traditional spring time rush of listings where we typically see volumes double.

Those looking to buy should reconnect with their mortgage broker, a reassessment or updated application could mean an increased budget and the opportunity to acquire that aspirational property.

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