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The #1 question we get asked all the time: “Is it is a good time to buy now?”
Let's look at a number of factors affecting the property market in an attempt to expose the answer to the #1 question we get asked all the time: “Do you think now is a good time to buy?”
Low Interest Rates:
Interest rates have been cut again in April by the RBA. Admittedly, only by 0.25% this time, with less than half that (0.1%) passed on by 3 of the big 4, with the hold-out being NAB which passed none of it on. We believe variable rates will continue to come down. With Westpac saying in their Market Insights Report of April 2009, “We continue to expect the cash rate to fall to 2.0% by year’s end”.
On the flip side, some fixed rates are on the rise because, according to our money market contact, “Interbank swap rate for the 3 and 5 yr products had a bounce and were looking to stay up. This increases the cost of funding to the lender, thus for the lenders to maintain their % margins they must raise by at least the same as the increased cost of funds, or in fact slightly higher”. This of course may just be a bounce.
So, to fix now or stay variable? Most long term investors choose to have at least some of their loans fixed. This gives them certainty and allows them to budget for their mortgage repayments. Choosing to go variable allows you to benefit from falling rates but you have no protection when they rise again. There is no right answer, it is an individual’s choice.
Credit getting tighter:
The major lenders are now requiring evidence of genuine savings and most have pulled back from 100%, 97% and 95% lends that were around a few months ago. 90% LVR’s are still available but it looks to be scaled back to the standard 80% lends for most of us soon. Some investors see this as a good thing, as only those with the ability to save or draw on other equity (and not actually rely on the FHOG & boost for their entire deposit, as per many First Home Buyers) will qualify for finance.
Short Supply:
The HIA, Australia’s largest building industry association forecasts a shortfall of over 46,000 dwellings in 2008/9 and this is predicted to continue into 2009/10 and 2010/11. According to John Edwards of Residex, NSW has 63% of Australia's unmet demand, Victoria has 16% and WA has 14%.
So this must point to NSW being one of the best places to invest in residential property and goes some way to answering the #2 question we get asked : “Where should I be buying?” But you can’t just buy anywhere in NSW and expect to do well.
Huge Demand:
Demand: The Federal Government did announce a cut in immigration in March: The 14% cut in skilled migrant arrivals is around 18,500 people, or an overall cut of 8.7%, as there were 213,000 permanent overseas migrant arrivals in 2007/08. (according to John Edwards of Residex). However, we believe this will have almost no impact on demand. Why? It is interesting to see what the official figures for immigration do not contain. For example, the official figures do not include arrivals from NZ (as we have a pretty much open border policy with NZ) nor do they include foreign student arrivals (many of the wealthy parents of whom, buy property here for their kids to live in while attending university). We are advised the real immigration figure is something more like 300,000! So a cut of 18,500 is just a drop in the bucket.
Unemployment expected to have no effect on the Housing Recovery:
In our last newsletter we indicated that unemployment was “possibly the only dark cloud on the horizon”. Since then Westpac has published its Market Insights Report of April 2009, which states (in part):
The housing recovery arguably is already on track and the last two recessions confirm that the housing recovery will not be derailed by rising unemployment.
We are happy to defer to the Westpac economists’ view in this instance.
Our View of the Market, in Summary:
We are active in the marketplace every day and we observe 3 distinct markets in 1 at present. The lower end, where First Home Buyers (FHBs) are very, very active has experienced price rises of up to 10% in the last few months. Mid-priced properties are holding steady – no falls or rises but sales being achieved. Top end properties $1M+ are taking a hit of 10 – 20% in some instances. Therefore, all things considered, we believe now to be possibly one of the best times to be buying.
End of newsletter.
