Welcome to the third edition of The Lending Lowdown; your insight into the trends, issues and opportunities facing home lending.
Having come off a record year in property in 2021, the big question is can the market sustain this momentum or will factors such as looming interest rate increases and federal/state elections halt its growth.
So what is the property outlook for the rest of 2022 and into 2023? Who better to ask than two people at the coalface – Stuart Evans from Marshall White Real Estate and our Director of Lending Jason Kloszynski.
September through to November last year was like the perfect storm. There was all this pent up demand with limited supply. We just saw this incredible competition. We are definitely now seeing the supply and demand level out. The difference is, in October last year a good result was $100-200K above reserve. Now $50K is more around the mark. There’s a little more caution in the market.
The talk about interest rate rises is playing a part in this. The thinking from buyers is, if rates go up by 25 basis points in August and the same in November, well there’s 5% I’ve got to factor that into my calculations. So we might stop our offer there and hold back that $50-100K just in case. So it won’t stop people buying, but may just limit what they’re prepared to spend particularly with more opportunities on the market.
The material shortage throughout Covid has had a clear impact on the types of property people are considering. What we’re seeing more of is the buyer choosing a beautifully renovated property over a renovator’s delight. They would now prefer buying a property to move into today, rather than waiting an extra six to twelve months than expected due to a lack of materials or because the builder is delayed getting through their backlog of projects. This may correct itself as materials and builders become more and more accessible, but buyers also have to weigh up the cost of renovating which has also increased over Covid.
In terms of the federal and state elections this year, it’s certainly a topic we’re discussing with our clients. The timing of the federal election in May means that we’ll see a bit of a softening in the market over Easter with school holidays and in the lead up to the election. But if you look back over the last twenty years, elections have never really had a big impact on the property market. It hasn’t dipped or shot up. All that happens is buyers and sellers hold off just in case there’s something substantial to come out of the election, and shortly after everything goes back to normal.
For the rest of the year and into 2023, I see the market being steady. It won’t fall but it won’t experience the growth of recent times. It will be far more balanced.
If you’d like to speak to Stuart directly, you can contact him on 0402 067 710 | firstname.lastname@example.org
What we’re seeing in the property market is similar to Adam and Stu. We’ve just experienced a period of record-breaking growth – the greatest price growth in the history of the Australian property market. And it appears that we’ve hit its peak. Does that mean prices are going to drop off significantly? No. But even a drop of 10% in some areas is not all doomsday (as the media will no doubt report) when you consider we saw the median Metropolitan Melbourne house price grow by 18.9% in 2021 (27% in regional Victoria).
With the heat of the market now appearing to be slowing, we’ve seen an increase in speculation on investment properties by some clients. The strategy is to pick up a slightly more competitive property price and bank on stronger rental returns coming out of restrictions easing and immigration surging. The important thing here is to weigh up how looming interest rate increases and the rising cost of living may offset any potential returns on investment. Taking a cautious approach is best. So what we’re doing with a lot of clients is saying, don’t just look at the now, let’s fast forward 12 months and stress test the application based on rates and costs going up to a certain point. Do those numbers still make sense for you?
For example, we’ve certainly seen fixed rates start to increase since October last year, and variable rates will soon move too. A rise from 2% to 3% over twelve months might not seem that much. But depending on the size of a loan it could mean that the surplus you had in your hand of $500 a month has now been reduced to $200 as $300 has been taken out in extra interest payments. This is particularly relevant for people who face a rude awakening when their very low fixed rate expires. Throw in rising costs of petrol, food, insurance and that surplus can become even more whittled down.
It’s not about being pessimistic. It’s about being realistic. Being smart brave over dumb brave.
So the three key points we’re talking to our clients at the moment are:
1. Review, review, review
That goes for your mortgage, insurances, utilities. Make sure you’re benefitting from the latest competitive offerings that meets your needs and not assuming that you will be rewarded for your loyalty (because you won’t be!).
2. Save for a rainy day
If you haven’t already, put a plan in place with your advisor so that you have a savings plan setup to have emergency funds available in case of unexpected costs or to take advantage of new opportunities.
3. Choose a lender that’s consistent
It’s not always about choosing a lender with the best rate. It’s more important to work with a lender who’s consistent with their rates, products and service offering. Better to be with a lender that may be third or fourth on the list for competitiveness, but consistently remains third or fourth. Rather than a lender who is number one today, but dramatically increases their rates tomorrow when their ‘special’ offer comes off.
We’re here to help. To discuss your lending situation or to speak to an advisor,
call 1300 388 285.