Housing undersupply drives price gains
MARKET ANALYSIS
Loan Market Excel Finance Broker Adam Wallace-Harrison explores the current market and predictions for property prices.
As the year draws to a close (I know, can you believe it?) it’s the perfect time to take a breath, reflect on the year that was, and glance ahead to what’s coming. Let’s kick back and dig into this year’s real estate trends, because if there’s one thing Australians love more than a good barbecue, it’s property.
A national obsession: The $11 trillion milestone
Here’s a fun fact: CoreLogic’s data shows that Australia’s total residential real estate value has cracked the $11 trillion mark for the first time. Yep, in just 12 months, property values shot up by $900 billion. That’s nearly three times the value of our superannuation funds and over three times the value of all the shares on the ASX.
As Tim Lawless from CoreLogic puts it: “property is becoming almost a national pastime for Australians”. No kidding! More than half of our wealth is tied up in real estate, so even if you’re not a homeowner yet, chances are you’re keeping a close eye on those house prices.
After hitting a low in January 2023, national house values have surged by 14.3% in 20 months. And here’s the kicker: we’re seeing this boom despite high interest rates, record household debt, and rising living costs. It seems like nothing can slow down the Aussie property market.
What’s next for property prices?
So, what’s driving this unexpected rise? According to the experts, a big factor is the undersupply of new homes. When there’s not enough to go around, prices tend to hold steady or even climb. And with whispers of a run of interest rate cuts on the horizon, we could see a boost in consumer confidence and borrowing power, which may just keep this property party going.
A debate over mortgage stress tests
In the world of mortgage broking, there’s been growing discussion about the “stress test” applied to new home loans. Currently, lenders add a 3% buffer to the actual interest rate when assessing a borrower’s ability to make repayments if rates were to rise. For example, if the actual interest rate is 6.04%, lenders assess your loan at 9.04% (6.04% + 3%).
With the belief that we’ve reached the peak of the interest rate cycle, brokers are questioning whether this level of stress testing is still necessary. Some lenders have already reduced the buffer to 1% for refinancing like-for-like loans. This change has made it easier for borrowers to qualify for refinancing, and many brokers are advocating for the same reduction to apply to
first-time buyers and those looking to move into better financial situations.
Reducing the buffer could allow more first-time homebuyers to enter the market, as they are often the most affected by these high assessment rates. Additionally, with interest rates unlikely to reach the 9.04% levels that some lenders currently use for stress testing, it makes sense to revise the buffers and allow more creditworthy borrowers access to financing.
“If you’re in the market for a new home loan or thinking about refinancing, why wait for rates to drop? Lenders are hungry for your business.”
The rate debate
Now, let’s talk interest rates because we’re all watching them like hawks. Don’t wait for rates to drop – shop around now!
If you’re in the market for a new home loan or thinking about refinancing, why wait for rates to drop? Lenders are hungry for your business, especially after investing heavily in technology and staff during the pandemic. It is now a great time to shop around for the best deal.
To read Adam’s views on the RBA’s November rates decision, visit coastalbuysmagazine.com.au.
