Recently the media has been full of stories stating that we at the top of market. But are we really?
There are also stories predicting price collapses over the next few years. How accurate are they?
There is no doubt that property in the eastern states has had a dream run. And everyone knows that, at some point it will come to an end. The general view is that if Brisbane, Sydney or Melbourne are not at the top now, they are pretty-near.
But, to understand what happens next, we have to understand whether the market will collapse or simply run out of steam. And we need to understand why.
We have all seen the headlines about the lenders tightening the screws on the banks’ lending practices. But what Joe Blow does not get is just how scared the banks are on incurring the wrath of the regulator.
I have just come back from a hob-knobbing retreat with some of the banks’ senior managers and all told me ‘our CEO has made it very clear that we must not exceed the guidelines set out by APRA (the Australian Prudential Regulation Authority).’
As a result, we are going to see lenders making it increasingly tougher to get a loan (especially for investors).
Now, it will be a disaster for the banks if there is a price crash; the last thing they want is to have a loan against a property which is for more than the property is worth. So, gradually, the banks are likely to either increase rates or have tougher assessment policies such that marginal applicants can’t afford the finance or simply can’t get a loan.
This means that there is a bit more life left in the property markets of VIC, NSW and QLD. As one senior economist said, “People might want to rush to call the top, but the trends are for gradually decelerating growth.”
I migrated to Sydney just before the 2000 Olympics, then the skyline was dominated by cranes building apartments. But since then, the property market has gone sidewards.
Once Sydney, Brisbane and Melbourne reach their peaks this is what is likely to happen this time too. Expect a period of consolidation or sidewards movements.
But the future remains positive, this week the Reserve Bank (RBA) slightly upgraded its forecasts for the economy in coming years.
But don’t expect there to be a rush of irrational exuberance either, with the RBA forced to wildly jack up rates. Any increase in interest rates will modest and slow.
Banks making it tougher for investors to get finance will also provide opportunities for other potential buyers. And there are already some tentative signs of this with one mid-tier bank launching a dedicated loan for first home owners.
The media may want you to believe it’s either boom or bust from now on. It’s neither – and that’s a good thing.