So just what’s in store for the Aussie housing market this year? We take a look.
Last year marked the beginning of the end of the Australian housing boom. After a five-year winning streak, prices in Australia’s two biggest property markets of Sydney and Melbourne, finally started to slow down. Now several trends are predicted for the year ahead. Here are five of them.
In good news for those seeking to buy, house prices in both Sydney and Melbourne will continue to slow down in 2018.
Throughout January, Sydney prices dropped by 0.9 per cent according to CoreLogic data and were down 2.1 per cent the last quarter. This is a stark contrast to the five-year surge when prices rose around 75 per cent between February 2012 and the last peak in July last year.
Australia’s second biggest city, Melbourne, also recorded a decline for the second straight month in January, albeit with a small fall of just 0.2 per cent. This was a marked change from the last quarter when Melbourne recorded an increase of 0.5 per cent in October.
Meanwhile national property prices fell 0.3 per cent, and are fairly flat in other states.
Analysts say that that banking regulators want to see a slowing down in housing prices and that’s what’s expected to continue throughout 2018.
With investors now taking a step back due to tighter regulations, and prices somewhat lower, first home buyers should find more opportunities to buy this year. Competitive interest rates, fewer foreign investors, certain concessions and increased apartment stock in many areas should also ease conditions. However now, more than ever, discipline is needed.
"We do have a lot of discussions with first homebuyers about ways they can actually get into the market due to the size of deposits being prohibitive," says State Custodians’ general manager Joanna Pretty. "We’ve been hearing for some time now that it’s all about giving up smashed avocados, but of course it isn’t that simple.
"First homebuyers need to save up as much of a deposit as they can afford and take logical measures such as consolidating any expenses, making sure they know where their money is going with outlays, getting rid of any superfluous debts and getting rid of credit cards.
"With 2018 set to be a good opportunity to perhaps finally crack the market, these things need to be undertaken sooner rather than later before the market changes again."
There’s still a way to go, but financial markets are predicting that the RBA will lift the official cash rate from its current record low sometime late in 2018 or early 2019.
The first meeting of the RBA for 2018 saw no change in the cash rate. Rates have now held steady for a record 17 meetings.
However the general consensus is that a 25 basis point rise is expected by February next year. This means that there will be an extra $58 per month payable for every 25 basis points based on a $400,000 loan. Whether or not interest rates rise in 2018, it’s fairly clear that mortgage rates won’t be decreasing significantly anytime soon.
With fewer investors now looking for finance due to mortgage repricing last year, it now means owner occupiers will be more out in force. Due to limits on interest only and investor demands, lenders have re-strategised and there are now some good deals available for owner occupiers.
A State Custodians research survey, published last year polling 1,000 Aussies nationwide found that the jitters for investors were already starting to happen. A large 65 per cent of Australians said they were anxious about whether property investing was actually do-able.
Some 35 per cent of people felt it was too hard to come up with enough money for a deposit, 33 per cent said they were worried about taking on too much debt, and 23 per cent said it was too expensive to find an appropriate investment property in the city they live in.
It is understandable that people are nervous about investing in property at the moment considering growth in wages has not kept pace with rising dwelling prices and cost-of-living.Joanna Pretty, General Manager, State Custodians
"Despite this, an investment property remains a favourable investment choice. For many it has delivered solid returns over a sustained period of time."
Given the punishing stamp duty taxes, more Aussies are expected to stay put in their current homes throughout the year, rather than choosing to move.
In Sydney 20 years ago stamp duty on a median-priced dwelling adjusted for inflation was around $10,000. Nowadays it’s a hefty $50,302.
As a result, there will be an expected rise in the number of home renovations being carried out, as people remodel their homes to suit their changing needs. Many people are taking advantage of lower interest rates and using the extra equity in their properties to refinance renovations.
State Custodians’ senior manager Anouska Linz says it’s not surprising so many people are opting not to move. "Finding another house has its own costs – it is a huge amount of money," she says. "There’s also a lot of work involved like finding another property, moving costs, the disruption to your household, finding new schools and disrupting the kids. It’s not as easy as it sounds.
"It can be a really tough time. Most people can’t afford to have two loans going at the same time so they need to sell one house before buying another one. Then they have that gap in between wondering where they’ll live."
However on the flip side she cautions anyone contemplating a renovation to fully be prepared for everything that’s entailed.
"Renovating can also be quite difficult," she says. "It’s also a disruptive process that’ll take many months to complete. You’ve got to put up with all the noise and dust throughout house, which is a pretty big ask. Whenever you contemplate a renovation, you need to talk to lenders and also have money put aside for unexpected costs which often arise. Done right, you can add great value with a renovation and grow your investment. It’s a good option particularly if you are not in a financial position to move."
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