No Rate Move As First Home Buyer And Investor Property Battle Looms
RBA
Commentary for November 2019
The official cash rate remains at 0.75% as:
·
Inflation sits around 1.6%;
·
The Australian dollar is hovering around 0.69c
US; and
·
Unemployment rose to 5.2%.
The Reserve Bank of
Australia (RBA) left the official cash rate on hold for November, as a battle for
property looms between Australian first home buyers and investors.
Low property prices,
reduced lending criteria and the lowest home loan rates since the 1950s are
encouraging both first home buyers, and investors to make a move now to purchase
property.
Investor Home Loan Activity
Investor
home loan commitments rose markedly since June 2019. Over June, July and
August, investor mortgage committments jumped by 11.6%. Given that investor
activity dwindled from a peak of 43% in mid–2015 to a low of 25.8%, the change
is significant.
Economists indicate
investor market decline links directly to capped interest–only lending. Investor
limits imposed on lenders also reduced investment capital, making it difficult
for investors to purchase property.
According to data, on
average, investor home loan rates sat at 0.58% higher than owner–occupier
loans. However, credit policies have relaxed, and investor home loan rates are falling
in comparison to owner–occupier mortgages, further boosting investor market
interest.
Changes in home loan
rates and rental yields are also making buying property more attractive for
investors. In September 2019, the average interest rate for an investment loan
was 3.8%, just 0.1% higher than the average rental yield of 3.7%. This margin makes
property investment more attractive as investor outlay is less with higher
returns.
So, how does investor
activity compare to first home buyers?
First Home Buyer Activity
First home buyer
activity increased in all Australian states and territories. Recent data
suggests that first
home buyers make up the largest segment of owner occupier home loan activity
recorded since early 2012.
Australian Bureau of
Statistics (ABS) data indicates that first home buyers make up 29.8% of the
national mortgage market for owner–occupier home loans, which is 5% above the
decade average. Similar trends occurred in states and territories, with first home
buyers making up the largest portion of the market.
Why has this change
occurred?
Economists indicate
that home affordability has risen due to falling property values, and a
decrease in home loan rates has given first home buyers the financial boost
needed to break into the market. For instance, the highest home buyer activity
is occurring in the Northern Territory (45%) and Western Australia (37%). Home
values in these areas have declined by 27% and 23% respectively.
The introduction of
the First Home Loan Deposit Scheme in January 2020 is expected to make marginal
difference to the market due to scheme capping to the first 10,000 home buyers.
This number of buyers makes up less than 10% of first home buyer numbers over
the last 12–months.
So, what’s happened to
the Australian housing market since recent cash rate drops?
Australian Housing Values
Home values in Australia
bottomed in June 2019. However, CoreLogic
RPData suggests that since then, these values have climbed with 2.9% growth
realised over the last four consecutive months. The best performing capital is
Melbourne with a 5.5% rise, while Perth is the weakest with a 1.7% decline.
The increase in
Australian home values is the most significant month–on–month gain since May
2015. Consequently, the Australian property market is 5.7% below its peak
making its current value similar to 2016 levels.
Dwelling Values October 31, 2019
|
|||||
All Dwellings
|
|||||
City or Suburb
|
Month
%
|
Qtr.
%
|
Year
%
|
Total Return %
|
Median Values
|
Sydney
|
1.7
|
5.0
|
-2.5
|
1.0
|
$817,886
|
Melbourne
|
2.3
|
5.5
|
-1.0
|
2.3
|
$650,197
|
Brisbane
|
0.8
|
1.1
|
-1.3
|
3.3
|
$493,426
|
Adelaide
|
0.4
|
0.1
|
-0.9
|
3.6
|
$433,140
|
Perth
|
-0.4
|
-1.7
|
-8.7
|
-4.7
|
$435,119
|
Hobart
|
0.9
|
1.0
|
2.6
|
7.8
|
$460,033
|
Darwin
|
0.3
|
-1.2
|
-9.2
|
-2.3
|
$394,132
|
Canberra
|
0.6
|
2.4
|
2.0
|
6.6
|
$601,487
|
Combined Capitals
|
1.4
|
3.6
|
-2.4
|
1.2
|
$610,645
|
Combined Regional
|
0.4
|
0.5
|
-1.9
|
2.9
|
$378,495
|
National
|
1.2
|
2.9
|
-2.3
|
1.6
|
$529,860
|
Source: CoreLogic
Property values across
most Australian capitals were higher in value. Although the most robust occurred
in Sydney and Melbourne.
The rebound in Sydney
and Melbourne homes values, according to CoreLogic, is due to a tighter labour
market, increases in population and low home loan rates, as well as improved
credit access.
Reductions in stamp
duty, first home buyer bonuses, and other government incentives have boosted
housing demand and increased home affordability. As a result, more first home
buyers are entering the market.
So, how have Australian
home values changed?
Changes in Australian Home Values
|
|||
All Dwellings
|
|||
City or Suburb
|
Past 12 Months
%
|
Past 5 Years
%
|
Since Peak
%
|
Sydney
|
-2.5
|
20.3
|
-10.4
|
Melbourne
|
-1.0
|
27.8
|
-5.8
|
Brisbane
|
-1.3
|
7.5
|
-1.6
|
Adelaide
|
-0.9
|
10.2
|
-1.2
|
Perth
|
-8.7
|
-20.9
|
-21.6
|
Hobart
|
2.6
|
39.1
|
At Peak
|
Darwin
|
-9.2
|
-30.0
|
-30.6
|
Canberra
|
2.0
|
23.4
|
At Peak
|
Combined Capitals
|
-2.4
|
14.9
|
-6.9
|
Combined Regional
|
-1.9
|
11.8
|
-3.1
|
National
|
-2.3
|
14.3
|
-5.7
|
Source: CoreLogic
Melbourne home value
recovery overtook Sydney in October, as property values in this capital
increased by 2.3% during this month. These rises were the most significant month–on–month
gains witnessed in Melbourne since November 2009.
Since May 2019, Melbourne
property values have increased by 6.0%, while Sydney has risen by 5.3% over the
same duration. Rises in home values also occurred in Brisbane (1.0%), Adelaide (0.1%),
and Canberra (2.4%).
Given that property values
continue to rise across most of Australia, and that home loan interest rates
are the lowest they’ve been since the 1950s, it’s likely first home buyer and
investor market interest will increase further. This activity is then expected
to push Australian property prices up further as demand outweighs supply.
For more information
Speak to us if you would like to understand how
this information might impact your financial situation.
Ridgway
Financial Services
101 Neil
Street,
Toowoomba QLD 4350
P 07 4688 9111
F 07 4688 9199
E lending@ridgwayaccounting.com.au
W www.ridgwayaccounting.com.au
Toowoomba QLD 4350
P 07 4688 9111
F 07 4688 9199
E lending@ridgwayaccounting.com.au
W www.ridgwayaccounting.com.au
Important information
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Ridell Pty Ltd (ACN 062 778 670) ATF DHR Trust & T&V Pty Ltd (ACN 603 440 768) ATF OP Trust ABN 88 355 151 729 T/A Ridgway Financial Services is a Credit Representative (475874) of Finconnect. Finconnect (Australia) Pty Ltd, ABN 45 122 896 477 Australian Credit Licence 385888, a wholly owned subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Level 3E, Commonwealth Bank Place, 11 Harbour Street, Sydney NSW 2000. P: 1300 665 676, F: 1300 457 703, E: info@finconnect.com.au www.finconnect.com.au.
Information
in this document is based on current regulatory requirements and laws, which
may be subject to change. While care has been taken in the preparation of this
document, no liability is accepted by Finconnect, its related entities, agents
and employees for any loss arising from reliance on this document.
The advice provided is
general advice only as, in preparing it we did not take into account your
lending objectives, financial situation or particular needs. Before making a
decision on the basis of this advice, you should consider how appropriate the
advice is to your particular lending needs, and objectives.
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