The Tide Could Be Turning
It's done. It's over. It's time to get back to normality. My key takeaway from this recent election is that no one can predict the future and there's no point sitting on the fence worrying about something that might never eventuate.
It’s done. It’s over. It’s time to get back to normality.
My key takeaway from this recent election is to re-confirm that no one can predict the future and there’s no point sitting on the fence worrying about something that might never eventuate.
I permanently migrated to Australia in 1997 and virtually every year since then (and probably before I arrived), everyone’s been debating negative gearing and what would happen if they took it away.
I’ve also noticed that every time an election is announced, everyone sits on the fence and does nothing. Even if the outcome is unlikely to change anything major, they still sit on the fence.
Well, the time for fence sitting is over I believe, and I think this was the final big thing in the way of the property market turning to a flat and then a rise. It’s not just the election, it’s a number of factors:
So, what’s happening
- The peak of the market was in August 2017 and so we’re almost 2 years down the track already. The market doesn’t rise forever, but at the same time it doesn’t fall forever and 2-3 years is typically the length of time you see in a downturn.
- The Royal Banking Commission seems to have been forgotten about and not many people are talking about it these days – it’s last year’s news. Sure, there are some changes coming up, especially around interest-only loans changing to principal and interest (P&I) in the future, but for many, that’s a few years away and so it’s not on our short-term worry horizon.
- The RBA is talking about interest rates dropping which excites most people with a mortgage. Even if the banks don’t pass most of it on (by blaming wholesale funding rates or crying because they’re not making enough money these days), it will still give people a positive feel. That first drop could be seen in the next meeting in a couple of weeks and there’s talk of a second drop after that.
- Banks are saying that the high P&I interest rate serviceability figures they’re being recommended to use are now too high and need to be reduced. The banks need to make money, the governments need the banks to make money to keep their high international risk ratings and so that means they need to lend. No one thinks we’re in danger of being in a bubble as prices have already fallen, so I think there’s a good chance they’ll relax the borrowing criteria and start lending again. Many are already dropping their fixed rates too which is a good sign regarding the short to medium term for mortgage repayments.
- There’s soon to be assistance for first home buyers that can’t save the 20% deposit and were struggling to pay the Lenders Mortgage Insurance (LMI) premium. No one knows what it looks like yet, but everyone loves an incentive and that is just what some of the fence sitters need – a good positive reason to make a move.
In my 25+ years as a property investor I’ve declared many times that I never try and time the market – I buy when (1) I’ve got the deposit (2) I can get a mortgage and (3) when I’ve got the cash buffer to take me through the next few years.
Just ask yourself – “Do I think property is going to be more expensive in 10 year’s time and will I do whatever it takes to hold onto that property until then?”
In my mind, that’s the time when you should buy and hopefully, this negative gearing debate can be put to bed for another 3 years and life can get back to normal.
About Chris Gray: Chris Gray is CEO of Your Empire, a buyers’ agency that buys homes and investments for time-poor people – searching, negotiating, renovating and managing property on their behalf. Chris has spent over 10 years as the host of ‘Your Property Empire’ on Sky News Business channel, where he’s interviewed various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information, visit www.yourempire.com.au and follow Chris on Facebook: @ChrisGraySydney