How to Manage Change in a Turbulent Real Estate Market

Twomey, a retired CFO of a major financial services firm, and Ferrell, owner of a nearby homewares store, are retiring to a property in Noosa on the Sunshine Coast, north of Brisbane.

Their plans for a six-month retirement vacation to Europe were canceled after COVID-19 travel restrictions.

Ready for auction: Michael Ferrell and Wayne Twomey. Rhett Wyman

Twomey moved from a private sale to an auction after online advertising generated a “massive response” with more than 2,500 online visits in two days.

“There’s so much interest and such a shortage of properties,” he says. “I decided to stock up on pigs and have an auction.”

Catch-up season

Property specialists say there is a rush in the market as sellers are encouraged by agents to ramp up marketing campaigns to take advantage of huge demand and record prices for quality properties.

“It’s time to catch up,” says Emma Bloom, director of buyer’s agent Morrell and Koren, of the delayed start to the nation’s peak real estate sales season.

Spring sales traditionally start at the beginning of September and continue until Christmas.

For the past two years this has been delayed by COVID-19 closures, particularly in Melbourne, until October and continued into the new year.

This weekend, national auctions rose by more than 20% and more than doubled in Melbourne to around 780 from the previous week.

Bloom says traditional four-week sales campaigns are being cut in half as agents try to clear the backlog of properties for sale caused by the pandemic and restrictions on buyers’ access to inspect properties.

“Two is the new four,” she says of the shorter sales period. “In some cases, properties come online and sell within a day.”

Patrick Bright, a Sydney-based buyers’ agent, said there had been a sharp turnaround in demand and supply for properties offered at auction since the NSW state government reported that some restrictions would be lifted in October.

Regulatory threat

Economists, however, point to weaker house price growth as macroprudential tightening reduces lending and begins to squeeze the housing market.

Shane Oliver, chief economist at AMP Capital, which manages $190 billion, said: “We assume national house price growth will slow to around 7% next year from around 20% this year due to the deterioration of financial accessibility. on the demand of first-time buyers and the hypothesis of setting up macroprudential controls.

“If that doesn’t happen, we’ll probably have to revise our house price forecasts.”

Brendan Coates, an economist at the Grattan Institute, says the biggest threat to home buyers and sellers are the proposed lending restrictions. “It will have a bigger impact on prices because buyers won’t know immediately how much they can borrow and sellers won’t know how much they can get. There is a chance that it will cause a rush of buyers and sellers.

Price growth is fueled by historically low mortgage rates, incentives to buy a home, an economic and employment recovery, pent-up demand, activity associated with a desire to “escape the city” and an item of FOMO (fear of missing out) at auction, economists say.

AMP’s Oliver says mortgage lending is growing at a faster monthly rate than when the Australian Prudential Regulation Authority (APRA) last launched macroprudential controls in 2014, with more than 20% of new loans granted to borrowers with a debt-to-income ratio above six. time.

Eliza Owen, head of research at CoreLogic, said home sales in Sydney in the year to August were up an “extraordinary” 42% on the previous year. Home prices have risen more than 18% in the past 12 months.

New home loans granted on a debt-to-income ratio of six times or more were around 22% in the June quarter, down from 19% in the previous quarter and 16% from the same period last year , according to CoreLogic.

Vanessa Rader, head of research at Ray White, said lenders approved loans totaling more than $32 billion in July, double the loans from May last year and about $10 billion more. than the previous peak during the housing boom of 2017.

Lenders are offering general rates below 2% and other incentives to encourage borrowers, a Canstar analysis of the best rates and deals reveals.

Some lenders, such as Westpac, are fine-tuning their deals by extending the offer period for $3,000 refinance cashback and cutting certain residential investment, interest-only loans by 20 basis points.

Impact on prices

Mortgage broker Chris Foster-Ramsay, director of Foster Ramsay Finance, said borrowers would be rushing to get their loans approved to meet the regulatory crackdown deadline.

Expected controls aim to manage financial stability risks and typically involve limiting debt and tightening lending standards. APRA is responsible for their administration in consultation with the Reserve Bank.

Any attempt by regulators to rein in house prices could have an immediate impact on homeowners, serial property investors (who may need to watch their debt levels) and first-time home buyers looking into expensive areas as they will need larger deposits.

AMP’s Oliver adds: “Investors are playing a lesser role in the housing boom this time around, so macroprudential controls should be aimed at owner occupiers.”

Economists say measures being considered include:

  • Introduce lower loan-to-value ratios (LVR) for loan applicants. “That means you need a bigger deposit,” says Foster-Ramsay. “That means you may have to save more. Alternatively, buyers can approach the Bank of Mum and Dad for help, or apply for a family guarantee loan,” he says. Those considering family funds should seek legal and financial advice to avoid the possibility of litigation. LVRs are generally higher for high-cost housing and lower for riskier ZIP codes, such as mining towns and some inner-city suburbs.
  • Impose a larger interest rate cushion when assessing the repayment capacity of new loans. This is based on the applicant’s disposable income. Two buyers on the same income could be valued differently based on their weekly, monthly, yearly commitments, such as tuition and personal loans. It will also depend on whether someone is looking for lower interest repayment loans or principal and interest loans. “You may need to review your spending and your lifestyle,” Foster-Ramsay warns. More and more lenders will target “liar loans” issued on overstated income and understated expenses that can undermine underwriting standards and increase borrowers’ vulnerability to sharp economic corrections. Many lenders should also replace generic statements of basic expenses with specific, detailed tracking.

Martin Schiller, a Savills Australia sales officer specializing in Sydney’s most expensive postcodes, says the macroprudential changes will have little impact on the high end, which continues to be a seller’s market with strong demand for quality properties.

Many high-end properties are sold off-market, through private negotiations rather than a public listing. For example, Rosemont, a historic Woollahra mansion recently sold in an off-market deal for $45million, which agents said was a benchmark price for a Sydney trophy home without harbor views .

Seller’s Peak

Data from Ray White Real Estate, the nation’s largest real estate company, reveals an increase in the number of potential sellers who have registered with an agent as foreclosure conditions ease.

The number of sellers ready to sell nationwide with the agent in the past month compared to the same period last year increased by more than 13% to around 6,000.

Activity in Victoria/Tasmania was up around 50% and NSW and the ACT were up around 6%, according to Ray White’s analysis. The other states and territories are at the same level as last year.

“There is a strong demand for family homes,” says Karen Firth, estate agent for Bourkes in Perth. “But there are a lot of apartments for sale and you can negotiate.”

Paul Moran, director of Moran Partners Financial Planning, believes that short-term supply chain bottlenecks caused by COVID-19 shutdowns are driving up the prices of goods and services, and that the economy at broad sense is within the RBA’s inflation and wage target ranges.

AMP’s Oliver adds: “Normally, higher interest rates would be warranted to help slow the housing market, but this is not possible given the weakness and uncertainty hanging over the rest of the economy.

Certain types of properties, such as family homes, are considered good inflation hedges, assuming rising interest rates don’t cause repayment problems, economists say.

But other types, including offices, retail buildings and other commercial properties, can lose value if landlords can’t raise rents to match rising interest rates.

Penny D. Jackson