Black and White Finance update - October 2017
Welcome to the Black and White Finance update for October 2017. We’ve summarised for you what rates to expect, the market outlook as predicted by the experts, and recent trends in the finance and property market. We look at the main question being asked, are we really heading for a crash?
Population growth in NSW continues to support the state’s economy. The largest quarterly increase since 2009 in net overseas migration was recorded in October 2017 by the Australian Bureau of Statistics. Victoria and Queensland are slowly catching up with experts attributing these results to employment opportunities and the cost of living. Experts believe that our population growth could contribute even further to the housing shortages in some parts of Sydney and therefore contribute as a stabiliser to the housing market in the event of a downturn.
Our treasurer Scott Morrison this week during a speech in New York reassured many that Australia is not heading for a crash and simply said, the system is ‘safe as houses’. Mr Morrison during his speech acknowledged Australia’s household debt was high and said, “this is a real risk, if not managed properly, and we get it”. He went on to explain how the industry regulator, the Australian Prudential Regulation Authority (APRA) and their decision to tighten the banks’ lending parameters has been introduced to “smooth the landing in housing markets” - it appears it is working.
Over the last three months and to the end of September, Domain reported that the city’s median house price has fallen by 1.9% to $1,167,516. Those inner city and eastern suburb prices tumbled by 6% to a median of $2.17m.
APRA’s initiatives have definitely had an impact as you can see with prices pulling back. If you’re looking to buy real estate and it’s for investment purposes, don’t be surprised if the banks aren’t able to lend you anymore than what you borrowed last time or what you were approved for say, 6 to 12 months ago – they’ve tightened.
This is also why home loan rates for owner occupiers paying principle and interest are as low as 3.69% with some banks, and those home loan rates for investors are much higher at 4.29%. If you’re paying interest only, then expect to be paying even more for each of the two different home loan purposes, being owner occupied or investment. These changes are all attributed to APRA’s changes to control the level of investment growth because it is believed that in the event of a downturn, people sell their investment properties before selling their homes which could trigger a fire sale. All these different rates are continuously changing as each bank adjusts to comply with APRA's regulations.
The major banks reduced their interest only lending by $4.5 billion over the past year according to findings from the Australian Securities and Investments Commission. Other smaller banks however, have had slight increases in their interest only lending books so it’s merely only being shifted as each bank balances out what types of loans they have on their books to comply with APRA’s regulations.
According to the Australian Bureau of Statistics, house prices have skyrocketed by 44% across our capital cities since 2012 and yes, they are high. For this to crash however, a lot of highly unlikely things need to occur including a collapse in our prudent banking system, high levels of unemployment and defaults causing rapid sales, much higher interest rates, a recession and an oversupply of property. The ‘crash’ notion is one that we at Black and White Finance find it challenging to support as the state’s economic foundations are relatively sound - for the moment.
Peter Vassilis