We’re in the downward phase of a typical market cycle that won’t last perpetually. The rate rise has been blamed for the lower clearance figures; however the drop in market activity has much more to do with buyer sentiment than affordability.
BY CATHERINE CASHMORE
Rate rises only have a major influence on first homebuyers who find it difficult to absorb high loan repayments. However, it’s not first homebuyers who affect clearance figures. After much activity earlier in the year, they’re no longer a major competing force in our market and they certainly aren’t prevalent in the inner and middle ring suburbs where most properties are auctioned. The average first homebuyer loan is approximately $280,000 and most are only able to purchase in outer Metropolitan areas.
However investors and second homebuyers do have an effect on clearance figures and they’re in no hurry to buy into a market that’s attracting negative press, which may indicate prices will drop.
Let’s not forget, this year has been unprecedented. We’ve had a long run out federal election with no clear outcome, resulting in a hung parliament. A Victorian state election is around the corner, which also looks set to reach another ambivalent 50/50 spit. There’s talk of a double dip recession in the United States, inflation worries surrounding the Government’s ongoing stimulus and the Aussie dollar at parity. We’re not out the woods yet, and none of this is instigating any sense of security. Considering all the above Melbourne’s market has been resoundingly resilient!
Uncertainties surrounding bank ‘regulation’ and potential stamp duty cuts are also putting the brakes on the market.
Neither party will be drawn on what they’ll do regarding stamp duty. Ted Baillieu has described it as “a very painful payment” but refused to outline any plans he may have to improve affordability. John Brumby has promised a cut for pensioners, but on the other hand cuts for anyone else were ruled out with the blank statement “we’ve got a limited pot of money”.
The market won’t move while issues like this are still on the negotiating table and none of this bodes well for vendors.
Buyers can step in and out of buying whenever they perceive conditions to be advantageous; however vendors are committed to follow through with a sales campaign once they’ ve enlisted an agent.
Therefore at present we have reduced buyer activity whilst still maintaining a high surplus of stock.
However any vendor thinking about putting their home on the market in the new year will see conditions aren’t favourable and will no doubt hold off. As the above ‘sticking points’ are resolved and buyer activity once again resumes, stock supplies will have started to decline, and we could expect to see a swing back towards a seller’s market around March or April of 2011 as demand once again outstrips supply.
Although sharp hikes in rates have an initial stagnating effect on the market, historically the effects are not felt long term. As inflation rises, property prices rise and this results in increased equity for homeowners with a greater ability to leverage into other investments. However, rates moving upwards push asset poor first homebuyers, who rely on income alone, back into the rental market – which in turn puts pressure on the limited supply of available rental accommodation and subsequently yields rise. The flow-on effect improves cash flow for investors covering higher mortgage payments, making further acquisitions appealing.
While our market and economy looks good for savers and investors who have purchased wisely and reaped the rewards, we must make it a priority to encourage and enable Gen Y to step back into the market. This can only be done if we make the move outwards a lot more appealing than it is at present. Improved transport facilities to the outer suburbs coupled with significant incentives for first homebuyers willing to commute into regional locations should be top of the list if we don’t want to end up with increased homeless issues as rents and bills rise. For those not able to move into regional areas, a much better first homebuyer savers scheme would provide a leg up and also encourage sensible saving for a credit loving generation. Our population is ageing and it should concern us all that home ownership really is just a ‘dream’ for a growing number of potential buyers.
As for investors and existing vendors – there is a brief window of opportunity to take advantage of the lacklustre sentiment surrounding the market now before it starts to take off again next year.
Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiates over $100m worth of property each year for clients. http://www.jpp.com.au