Black and White Finance update - June 2018

Tell me, where’s the property market going? What’s happening out there? How do I look back in 5-10 years’ time and say, “I got it right”! June’s Black and White Finance update looks at these questions and much more – enjoy!

Where are we at?

Yes, the news is real and things are cooling down. The latest figures from CoreLogic, one of Australia’s leading property databases, just revealed that on a national basis we recorded the first annual fall of -0.4 percent in Australian dwelling values. This annual change from May 2017 to May 2018 into negative territory, is the first annual fall we’ve had in six years.

Tim Lawless, one of Australia’s leading property commentators from CoreLogic, in his most recent update explained how weakening conditions in Sydney and Melbourne, given their large size and effect on the data, is what is contributing most to this fall.

He went on to explain that Hobart on the other hand, the city we’ve paid particular attention to over the last 12 months in our blogs, is continuing to outperform the nation. Hobart jumped 0.8 percent from last month, and 12.7 percent higher over the year. Regional dwelling values such as those in Newcastle, Shoalhaven, and Southern Highlands have also continued to tick slightly higher.

See the results below from CoreLogic's most recent research:

Where are we going?

We’re not clairvoyant here at Black & White Finance. History will prove to you that the property market goes around in cycles and it is likely that we’re in that stage of the cycle where values could fall further in some parts of the country – but not crash.

The main banks have been tightening for a while now making borrowing a bit tougher and the banking royal commission isn’t going to improve this landscape. APRA (the banking regulator), announced in April that it would be looking to relax its pressure on the main banks although it will maintain a firm grip on them for the foreseeable future.

So, from a borrowing perspective, things are going to continue being a little tighter than what they were – mainly for investors. Especially when looking to borrow from the main lenders like the big four banks, or even the second tiers, such as Macquarie, Bankwest or ING just to name a few.

The third tier banks such as Pepper, La Trobe, Bluestone, while we don’t have specific data on their market share, have claimed to see an increase in their level of new applications received given their unique ability to look at investment lending through a slightly different lens. Sometimes at a slight premium to the borrower.

Yes, borrowing is slightly tighter for investors with some banks but for owner occupiers and first home buyers looking to get into the market, the landscape actually improves, especially in those areas that are now a little cheaper.

Tim Lawless and other leading economists believe low mortgage interest rates will remain for some time, population growth will continue and these factors alone will ensure we don’t see values decline significantly. Other experts believe the level of infrastructure being invested will support these prices, and there’s plenty of it going into NSW.

The future

I don’t think many of us will be able to look back in 5-10 years from now and say, “Yep, I got it all right and had it all together”. No one can pick the bottom; most experts will tell you this. Credit is a little tighter, the market has cooled and may a little more. We can look at the landscape and understand the point in time we’re at and understand the cycles.

From a buying perspective, as long as you have a long term view, of 5-10 years, and buy in a suburb close to trains, buses, shopping centres, schools, major infrastructure, stay on top of the news and international affairs and stay close to your trusted professionals, you should be set for long term gains. History will repeat itself and you should be aware of it. There will be another time where property prices rise 44% over 5 years as they did over the more recent years.

If you can find a property in a suburb which ticks some or most of these boxes, it has room for you to add value, the risk is acceptable for your household and your financial circumstances are accommodating, then jump onto it. You may even be able to get it at a slight discount as the recent data suggests. It’s an investment you make for your future, for your family’s future, so go for it, play the long game. Warren Buffett says, “Buy when others are fearful and sell when others are greedy”.

We're keen to hear what you think about our monthly updates. We're keen also to receive your questions and if you want to know more about each banks requirements, or of some great terms, or rates on offer at the moment, please send a note to peter@blackandwhitefinance.com.au. Once again, thank you for reading.