The way the economy has developed this year is confusing for people, especially with the property market. When it comes to property, it’s usually the case that either prices are rising so people can’t get into the market; or prices are falling and so home buyers are holding-out, waiting to get in at a low price. But the current market is creating pain for both groups.
If you’re in the market, you are in a cycle of rising interest rates and in many cases, an equal cycle of falling property values. However, this comes at a time when there is a tightening of credit policy at all the major lenders. So a home buyer is being scrutinised much more closely for their ability to repay than they were six years ago. At the same time, a flat property market – where capital city house prices have fallen 1.5 per cent in a year – still doesn’t create bargains for buyers. In fact, many analysts estimate our housing market is over valued.
The OECD says Australian property values are 34 per cent inflated. My tip is this: this is not a time to be thinking about a buyers market or a sellers market. Currently, we are in a lender’s market. Banks are taking applications for mortgages on a person-by-person basis, they’re looking for good repayment ability, they’re wanting 20 per cent deposit and they are building in a margin for more rate rises.
So, the amount the banks will lend is actually the market. In this situation, I suggest you get expert advice from a mortgage broker who can take a look at your situation and plan for the best outcome – and then buy what you can and not wait for interest rates to drop or for property prices to drop further. There’s no point. The tightened lending criteria is here to stay for a while and so the banks are making the market. There’s no more of the old market where you go down the road and get a loan for $50,000 more: they’re all working off the same song sheet. The property market in this country creates steady returns so long as you see it in 10-year terms. If you’re prepared to be in the market, the gains will be there – 7 to 8 per cent per annum, historically – but you must be in the market.
Social demographer Bernard Salt says that Generation Y home buyers will rescue this property market because they are not affected by “post-GFC malaise”. They also don’t recall a time when you could get a mortgage with a five per cent deposit. They think 20 per cent is normal, so they are saving. The banks will reward this approach, so best of luck to the Gen Ys.
In the meantime, we can learn from this: get advice and then be in the market – time will take care of your investment