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Home owners warned!

Interest rates set to rise?

The Chief Economist for Deloitte Australia, Chris Richardson, recently reported that within the next 4 years Australians are looking at a 2% interest rate increase, with the earliest prediction of a small rate increase by the end of 2018.

Chris Richardson predicts that this will affect most people who are barely scraping by, such as young families who get help from their parents to secure a loan and to afford their mortgage repayments.

Mebank’s 13th edition of ‘Household Financial Comfort Report’ presents findings and trend changes conducted in December 2017 and provides in-depth and critical insights into Australian households based on 1500 different Australian households bi-annually.

The high levels of mortgage payment induced stress are set to increase, with over half the households that are renting or paying off a mortgage (56%) reporting that they are contributing over 30% of their disposable household income towards these costs. Furthermore, 38% of households reported they were worried about their level of debt in the past month, with some households unable to pay such things as their utility bills on time (16%), some seeking financial assistance from family members or friends (19%), or requiring to pawn or sell something to buy necessities (13%).

Of all households, 7% reported that they could not always pay their mortgage on time during the past year and 7% of those who were renting also reported they could not pay their rent on time. If this trend continues and rises further with a possible 2% mortgage rate increase mortgage defaults may escalate, particularly among vulnerable low-income households already dealing with the rising cost of necessities.

The number of loans has increased and recorded a strong growth in the recent months. This is mainly due to the changes in the first home buyers’ grants laws, which abolishes stamp duty on homes up to $650,000 and gives stamp duty relief on homes up to $800,000.

This has led to a strong confidence in first home buyers and in particular, those under the age of 35 without children as they are looking to take loans out to purchase their first home under the belief they are more financially comfortable, with their ‘overall financial comfort’ rising by 8%. This trend might fall if an interest rate increase of 2% is introduced in the next 4 years and those first home buyers purchasing now might not be able to afford their repayments in the years to come.

When surveyed, households with a mortgage reported that 47% excepted to be worse off financially if the Reserve Bank of Australia raises the official cash rate by even 1% from its record low 1.5%. With this in mind, the prediction by Chief Economist, Chris Richardson, is that the future for Australian seems uncertain. With possible rises in mortgage rates and the cost of living increasing many Australians with mortgages may be unable to afford their mortgages and may have to sell their homes.

 

References:
  1. The Mebank
    Household Financial Comfort Report. Sourced from https://www.mebank.com.au/getmedia/ce8faccb-4301-4cf7-afd7-871f9c45305e/13th-ME-Household-Financial-Comfort-Report_Feb-2018-FINAL.pdf
  2. Ten News. Sourced from https://www.facebook.com/tennews/videos/1822155217854777/
  3. The Australian Bureau of Statistics. Sourced from http://www.abs.gov.au/ausstats/abs@.nsf/0/05DBCE56402EC566CA25723D000F2999?Opendocument
  4. The New South Wales Government First Home Buyers Projects and Initiatives. Sourced from https://www.nsw.gov.au/improving-nsw/projects-and-initiatives/first-home-buyers/

Negative gearing is not the property price growth problem!

There does not appear to be any concrete evidence that ending negative gearing will reduce property prices, in fact, most of the evidence has heuristics biases.

If negative gearing ends the number of properties available for tenants to occupy will decrease. This will push rents up. When rents increase this attracts other types of property investors into the property market, who are interested in higher yielding investments which will, in turn, put pressure on property prices to rise. All that happens, is you replace one property investor with another type of property investor and the rents go up!

Most of the current investors who use negative gearing are middle-income earners. By ending negative gearing and replacing it with yield-driven investors you will make the rich, richer and the poor, poorer!

It is unlikely that either political party will lower the immigration intake to try to slow down property price growth.

The final elephant in the room which is unspoken about is the huge amount of property that has been purchased by overseas buyers. There is a number, who are able to bend the FIRB rules. Think of this, if the Australian dollar is low and you expect it to rise in the medium term, as an overseas buyer you have dollar capital growth, along with property price growth, they win two ways. The Sydney property market is a safe bet for most overseas property buyers, unfortunately, this pushes the locals out of the Real Estate property market.

Sydney Market Update October 24 2015

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Sydney Market Update October 24 2015
As reported in popular media articles The Sydney home auction market continues to drop, with nervous buyers being increasingly cautious by interest rates rises.

Sydney has reported its lowest clearance rate of the year on October 24 2015, with the market now heading towards its lowest levels since the spring of 2012. The 64.4 per cent weekend result was below the 65.1 per cent recorded the previous weekend and significantly below the 78.9 per cent reported during the same weekend in 2014.

The Sydney Real Estate market is now on course to record auction clearance rates of below 60 per cent this spring.

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Real Estate Sales Results 2015

Fusion Realty Real Estates “best kept secret!” 

Sydney’s Inner West and Inner City Real Estate Sales Results 2015

9 Clara Street, Newtown NSW 2042   Sold $1,065,000
86 Lord Street Newtown NSW 2042   Sold $780,000
9 Park Road, Erskineville   Sold $966,000 
105/362 Mitchell Road, Alexandria   Sold $1,065,000

 

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May 2015 Rental Growth Slow

On June 11 2015 CoreLogic released its RP Data monthly rental review for May 2015. It confirmed that in May 2015, rental rates rose at their slowest pace on record.
The May data showed that capital city rents rose on an average of 0.1% in the month and only 1.5% over the year.
Investors are not interested in rental returns but are simply targeting capital growth.
Record low interest rates are enabling tenants to enter the property market, a long with the completion of new residential developments are contributing to the softening in the rental yields.

60 Billion dollars worth of new apartments for Sydney

According to channel nines news on March 2015 Sydney is in the midge of high rise invasion has 60 billion dollars apartment firm that will change the look virtually every suburb. In just one year the number of high rise under construction has increase dramatically and there are many more.

Source: http://www.9news.com.au/sydney