Will the next IR drop force property prices up?
- Thread starter The_Bludger
- Start date
Yes i can relate to that. I've told my wife for years that i'm a little bit crazy as it keeps me from going totally crazy. LOL
The govts objective with FHOG is to temporarily support the housing market in order to maintain the 'wealth effect', ensure that the main investment for retirement maintains its value and to prevent a deflationary spiral.
The govt doesn't really care all that much about individuals, it cares about the vast majority. And it's currently achieving its objective - minor price falls in some areas, big drops from v. lofty heights for a tiny minority.... and most people still happy.
It doesn't really matter if it's demand brought forward or pent-up demand being fulfilled. The govt is likely to continue with its support for the bottom end for as long as necessary. When confidence returns, it will withdraw FHOG support. It currently has a deadline to encourage FHB to buy NOW, if there was no deadline there's not much reason to buy now. It's likely the deadline will be extended for another 6 months if^H^Hwhen things continue to look grim.
The RBA is trying to engineer a similar outcome - it's objective is to control inflation & ensure growth - and low IRs is its only tool. When confidence returns, it will raise IRs. Those FHBs who buy now assuming that low IRs are the norm, may suffer if they don't fix rates or get reasonable wage increases. Even if they become forced sellers the rest of the (generally confident) population is likely to ensure prices don't fall.
An acquaintance just bought a house for $340K, he got $14K FHOG & paid no stamp duty. He's borrowing 95% ($323K), paying $2000 LMI I guess and $1000 legals.
So $17K deposit plus expenses is $20K, less $14K FHOG means he needs just $6K cash to buy it.
And to service the P&I loan over 25 yrs it will cost him $486pw (at 6%). I'd guess they take home around $52Kpa and currently rent for around $360pw. If he chose to fix for 15 yrs (Commbank 15yr rate today is 6.84%) it would cost him an extra $40pw. If rates go down to 5% next month (as many expect) then it'll cost him $440pw - less than $80 more than his current rent.
I'd say those figures are enough to cause a lot of FHB to support the market. Would've been nice to have that sort of help to buy my first property... but like most here, had to do it the hard way
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So to answer the original question.... I feel prices at the bottom are likely to be supported regardless of falls in rates, tho they probably won't rise until general sentiment improves. And the middle bands won't move much either until sentiment does improve - most people will sit tight unless they are forced sellers. As unemp rises there will be some forced sellers. The upper bands are likely to see more price falls.
The govt doesn't really care all that much about individuals, it cares about the vast majority. And it's currently achieving its objective - minor price falls in some areas, big drops from v. lofty heights for a tiny minority.... and most people still happy.
It doesn't really matter if it's demand brought forward or pent-up demand being fulfilled. The govt is likely to continue with its support for the bottom end for as long as necessary. When confidence returns, it will withdraw FHOG support. It currently has a deadline to encourage FHB to buy NOW, if there was no deadline there's not much reason to buy now. It's likely the deadline will be extended for another 6 months if^H^Hwhen things continue to look grim.
The RBA is trying to engineer a similar outcome - it's objective is to control inflation & ensure growth - and low IRs is its only tool. When confidence returns, it will raise IRs. Those FHBs who buy now assuming that low IRs are the norm, may suffer if they don't fix rates or get reasonable wage increases. Even if they become forced sellers the rest of the (generally confident) population is likely to ensure prices don't fall.
An acquaintance just bought a house for $340K, he got $14K FHOG & paid no stamp duty. He's borrowing 95% ($323K), paying $2000 LMI I guess and $1000 legals.
So $17K deposit plus expenses is $20K, less $14K FHOG means he needs just $6K cash to buy it.
And to service the P&I loan over 25 yrs it will cost him $486pw (at 6%). I'd guess they take home around $52Kpa and currently rent for around $360pw. If he chose to fix for 15 yrs (Commbank 15yr rate today is 6.84%) it would cost him an extra $40pw. If rates go down to 5% next month (as many expect) then it'll cost him $440pw - less than $80 more than his current rent.
I'd say those figures are enough to cause a lot of FHB to support the market. Would've been nice to have that sort of help to buy my first property... but like most here, had to do it the hard way
.So to answer the original question.... I feel prices at the bottom are likely to be supported regardless of falls in rates, tho they probably won't rise until general sentiment improves. And the middle bands won't move much either until sentiment does improve - most people will sit tight unless they are forced sellers. As unemp rises there will be some forced sellers. The upper bands are likely to see more price falls.
I think the low end of the market will go up and the medium priced stay the same as sellers would rather pull them off the market then drop prices.
In the top end market it could come down to how many people would want to upgrade now and how many foreign buyers would be tempted to buy if the AUD drops further.
I suspect your integrity and moral standards are beyond the majority of those at the coalface of the realestate industry!
My sister is one of these FHB who is looking to take advantage of the boosted grant, in almost the same example as Keithj gave.
Buying in Quakers Hill, around $320K. This type of property rents for $350-360/wk at the moment.
With a 95% loan and the grant, she will only need $4200 to buy this sort of house, and cost her about $353/wk in interest (at current 6.04%).
Immediately for her the emotive side of the argument weighs in, since Rent = interest costs, the other costs to her are just "the price of owning my own home".
She is planning to lock in a low IR for 3 years.
If i were in her shoes, i'd probably do the same.
There are a large number of people in these same shoes, and that has pushes prices up already in Quakers Hill, and all the other >5% yielding sub $350K suburbs of sydney that i've looked at. I think if rates drop again in Feb, it will get even more competitive in these suburbs.
Buying in Quakers Hill, around $320K. This type of property rents for $350-360/wk at the moment.
With a 95% loan and the grant, she will only need $4200 to buy this sort of house, and cost her about $353/wk in interest (at current 6.04%).
Immediately for her the emotive side of the argument weighs in, since Rent = interest costs, the other costs to her are just "the price of owning my own home".
She is planning to lock in a low IR for 3 years.
If i were in her shoes, i'd probably do the same.
There are a large number of people in these same shoes, and that has pushes prices up already in Quakers Hill, and all the other >5% yielding sub $350K suburbs of sydney that i've looked at. I think if rates drop again in Feb, it will get even more competitive in these suburbs.
Good for your sister!
Next cut will pay for the other home owner expenses and after that - how funny she will be better off than if she was renting!!!!! She just needs to catch the right time to fix after that. How come so many people still can't see the logic in this?
I don't think I'm the mad person after all despite what the mcp chaps on the dark side might think!
Next cut will pay for the other home owner expenses and after that - how funny she will be better off than if she was renting!!!!! She just needs to catch the right time to fix after that. How come so many people still can't see the logic in this?
I don't think I'm the mad person after all despite what the mcp chaps on the dark side might think!
I'll bite
How much lower than the rental yield do interest rates need to be, all things considered, before you're better off buying? 1%? 2%?
Totally agree.
I think the high end has alot more suffering to do and the lower end is where the growth is for a while.
I also think there will be more reno's as building prices are forced to come down and those that have their own homes, are benefitting from low interest rates and secure jobs will add an extension etc.
Regards JO
I personally think that yes, in some areas we will see a price rise coming with low rates such as what Darwin is starting to experience now, whilst still really a supply and demand issue first home owners are seeing some good opportunities to get their foot into the market.
Funnily enough I just got off the phone to a local agent who asked if Id like to sell anything. . lol she said theyre (a local big name REA) running out of stock and have many people looking to purchase, also that reasonably priced, not bargain buys, are getting snapped up locally very quick with alot of interest and the market is quite healthy and looking good here while unreasonably , over priced properties tend to sit and attract less interest and lots of lowball offers FWIW.
Funnily enough I just got off the phone to a local agent who asked if Id like to sell anything. . lol she said theyre (a local big name REA) running out of stock and have many people looking to purchase, also that reasonably priced, not bargain buys, are getting snapped up locally very quick with alot of interest and the market is quite healthy and looking good here while unreasonably , over priced properties tend to sit and attract less interest and lots of lowball offers FWIW.
