Brief window of opportunity opens for property investors

The latest borrowing stats from the Australian Bureau of Statistics (ABS) show investor borrowings have risen to their highest levels in more than two years, as investors return to the housing market at a stronger rate than owner-occupiers.

The June quarter saw a 30.7 per cent rise in investor finance. Over the 2023-24 financial year, excluding refinancing, loans to investors rose to $117.9 billion, official figures show. Brisbane, Perth and Adelaide have driven much of the recent growth, while Melbourne and Hobart acted as drags and Sydney is sitting around the middle of the pack.

Mish Tan, ABS Head of Finance Statistics, said, “investor lending growth continues to outpace the growth of owner-occupiers in August.”

Beyond question, the past four years that were best described as the “pandemic boom” were driven by owner-occupiers.

While there is no shortage of investors wanting to buy, history has always shown us that a home buyer is driven by various motivations, such as the desire to own their own home and to live in a home of their style and choice. They will, from an emotive point of view, pay a higher price than an investor who is far more pragmatic and somewhat yield-driven.

As such, investors were priced out of the market through that boom period.

In what could be just a temporary phase, the real estate market has levelled out due to the extended period of higher interest rates, a sharp decline in housing affordability, cost of living pressures, and the uptick in the number of properties on the market for sale. This has led to a decline in the home buying confidence.

With so much focus on interest rates there has been an easing of home buyer activity but with increasing speculation that interest rates have peaked and the next move is down, the softening of the home buyer activity is likely to be temporary.

We also see an upswing in the number of properties coming to the market.

While that’s not unusual in the spring selling season, there’s growing evidence that a good proportion of the increased listings are homeowners suffering substantial mortgage stress, forcing them to sell their properties.

It’s reported that in the past year, more than 20,000 Queenslanders who sold their properties were from this group of people.

Window opens for property investors

As we look around the country, we see a change in market conditions vary from area to area.

Markets such as South East Queensland, Western Australia and Adelaide are all still recording price growth, while most other markets are seeing price declines.

Much of this has to do with population movement. What is evident is that many buyers are now waiting to see the first downward movement in interest rates.

There is much speculation and belief that the time is right for a rate drop now, which is why we are seeing so much discussion in the media at present.

Consensus among leading economists is that it’s possible there will be a rate drop before Christmas, but most likely in February of next year, with a total of four 0.25 per cent drops in 2025.

The belief, of course, is that these interest rate drops will reignite the real estate market as the fundamentals of supply and demand are still set firmly in the favour of more price rises.

As such, there is a brief window of time for investors to take advantage of the current, more favourable conditions, by locking in their real estate investment with less competition from owner-occupiers before the next wave of price rises.

Again, the key to real estate success is to go where the population growth is. Buy with the head and not the heart, which more times than not means avoiding the tendency to buy an investment close to where you live, in favour of an investment thats going to provide the best yield and the best capital growth.