With 2017 half way over, the time seems right to take stock and assess what the market holds for the remainder of the year.
For some time now forecasters have proclaimed a bust is just around the corner after many years of boom. Whilst the real estate market has had a natural slow down over the winter months, it could hardly be seen as a ripple and market prices are remaining solid, with a 1.8 per cent increase to June.
Some pundits are now readjusting their outlook to the market over the short term based on current signs. Whilst overseas interest is strong and interest rates remain low, it is hard to foresee anything greater than than the oft touted ‘soft landing’.
House prices both in Melbourne and Sydney grew by over 10 percent in December 2016. It is expected that price growth will be more moderate in the second half of 2017. This can partially be attributed to a number of lenders tightening their policies, especially with regards to investment loans.
Comparing apples with oranges
It would be fair to say that not all property will fair the same under the same market conditions. As an example of this, display homes in Sydney are reporting increasing traffic as figures come to light that government grants and incentives to first home buyers in the new build market, are working their magic.
New Home Buyers – Grants, Incentives and Exemptions
The measures introduced by the NSW Government, to give first home buyers a leg up into the property market, address a number of crucial areas which have heretofore acted as major hurdles to this market.
Having come into effect from 1 July 2017, new rules mean:
- Stamp duty has been abolished for all homes up to $650,000
- Stamp duty relief on homes up to $800,000
- Abolishing insurance duty on lenders’ mortgage insurance
- First home buyer $10,000 grant when building new home up to $750,000
- First home buyer $10,000 grant for purchasing new home up to $600,000
The Government is also working with councils to increase infrastructure to new developments and initiate policies to boost the housing supply.
Affordability in the housing market is more about variables such as employment, confidence in the economy and interest rates. Of these options, according to the Deloitte Australian Mortgage Report, a jump in interest rates is the most likely scenario which will influence the market.
Since many homeowners will be mortgaged on tight margins, one has to assume even a small jump in interest rates will trigger a jolt. The certain result will be a market suddenly flooded with product and prices will fall as a result.
Whilst the official interest rate has remained at a record low level for some time, there is no indication that the Reserve Bank will make any significant rises at such a volatile time. If rates do increase, it can be assumed it will be a gradual process to allow for the adjustment.
Any action taken to quell the spiralling property prices in Melbourne and Sydney make have undesired consequences for the other states.
Investment lending rule changes
A number of larger lenders have announced rises in interest rates for interest only loans, to rein in the speculative risk these loans present. Investors and homeowners are choosing not to repay their loans but instead rely on market increases to provide the return on investment. For many homeowners, this is their only option to make buying an affordable option.
The expectation from these rule changes is, that borrowers in future will be more inclined to repay their loan, rather than just the interest.
So, will house prices drop in 2017? The answer would appear to be a tentative ‘no’. The good news seems to be, at least for the first home buyers, looking further afield than inner-city suburbs and taking advantage of house and land packages and Government grants, may hold the key to property affordability.
Author: Justin Jersey