The Residential Property Market
Vision cannot tell you when the current volatility in the Australian economy will end, but there is one thing we can tell you without any doubt. In our 9+ years in business, we have never been busier with first home buyer enquiries. The last 6 months of 2008 was one of the quieter periods we have had. It has been a significant turnaround though in the last 6 months. The reasons we put behind this surge in new loan enquiries is an overall change in market conditions – specifically
- Lower interest rates –variable rates have dropped over 4% over the past 12 months
- Rising rents – due to vacancy rates being much lower than normal
- Stability in property values - ie, they are not rising sharply which can deter first home buyers
- First home buyers taking full advantage of the government grant increase (which is now being scaled back)
The Australian housing market has proved to relatively resilient during this economic downturn compared to the share market. Prior to its recovery over the past few months, the ASX 200 Index had fallen over 50% since its peak in November 2007.
Property prices may have dropped but nowhere near this level. Additionally, there are significant earnings downgrades from many ASX listed companies, meaning that dividend payments will fall.
According to John McGrath’s Autumn Review
“The key factors that will affect real estate predominantly are interest rates and unemployment. One is looking rosy and one is looking scary. My summation is if you have stable, secure employment it’s a great time to be buying a new home or investment property – perhaps the best since the early 1990’s. Rising unemployment and a subsequent drop in consumer confidence will affect property in a couple of ways. Some homeowners who lose their jobs may struggle to meet mortgage payments, resulting is forced selling. The knock on effect of this is that prices may soften further and provide great buying opportunities, particularly in premium suburbs.”
Rent or buy?
The rent v buy decision is now heavily weighted in favour of buying. Nationally rents have increased by 12% or $40 per week in the last year.
Speaking in real numbers, if you are a first home buyer in Parramatta where the median price for a unit is $306,000, your weekly interest payment based on a 95% loan with a 5.15% interest rate would be $288. The average weekly rent for a Parramatta unit is $335 (source: RP Data).
In many areas, it is now cheaper to buy than rent. Call us if you know someone who wants to try and break the rent cycle.
