Housing Boom

Continuing to be a major story - Property owners are happy! House prices are booming. So much for ‘expert’ predictions of a 40% collapse!

Interest rates at 2% are a major driver. Despite low wages growth, housing interest payments have dropped from over 10% of income, to now only being 5% of income, the lowest since 2002. Affordability of repayments is no longer such a problem.

Market activity is primarily from owner occupiers, with significant numbers of first home buyers supporting the lower end of the market. This is further good news for market stability, with previous problems of booms being driven by too many investors not being evident at this time.

What next?

The four major banks are forecasting house price rises between 8 and 10 per cent in 2021.

The Reserve Bank has signalled it is unconcerned by the current strength of the property market. It has also stated an intention to maintain interest rates at current levels until 2024.

But something has to give.

Most likely?

We see interest rates remaining stable in the short to medium term. With high debt levels across a world recovering from a pandemic they cannot be increased too much without major economic implications. At least not until there is sustained wages growth and inflation.

Current growth in the housing market is unequivocally a good thing, with first home buyers active and driving the market. However if it continues too far, the regulators will intervene. That would most likely be via lending controls on banks, not interest rates.

Australian regulators will be watching New Zealand real estate markets closely, where markets are considered overheated. Bank lending regulation changes are being made there now, including limiting new investor loans to 60% of property valuation.  Their target is to cool the market, without causing a crash.

Our advice to Australian property purchasers remains – If you are wanting to buy and are in a position to do so, do not wait. If you have specific questions as to your own individual situation, give us a call.