There are many reasons to explain the current housing market boom however one thing often overlooked is the current lending rates. Current reports are indicating that buyer demand is up 58% year on year. Of course, at this time last year we just starting to experience a downturn in demand due to the COVID Pandemic however even considering this, buyer demand is soaring.
Right now, buyers have more money as we are spending less on travel and saving more. Last year, due to the pandemic we saw the saving rates increase to 22% which is $187 billion more than the combined total of the 3 ½ years prior to 2020. According to the Australian Bureau of Statistics (ABS), Aussie wealth is up 7% a year ago.
This money is now being absorbed by many other industries, including real estate, as buyers can increase their borrowing capacity. Firstly, when taking out a loan, buyers need a fairly sizable deposit to reduce their borrowing risk. With more saving comes bigger deposits which generally means buyers can lend more and purchase property at higher prices.
The other consideration is that the bank’s assessment rate or “floor rate” has reduced. Banks will normally add 2-3% above their standard variable rate (SVR) which is based on the Reserve Bank of Australia’s (RBA) current cash rate, currently sitting at 0.10%. I believe pre-pandemic this floor was closer to 7% but now sitting closer to 5%. An assessment rate is required to make sure customers can make mortgage payments even if interest rates go up. A good indication that interest rates will remain low for a few years ahead.
For example, for a household with a combined income of $150,000, the borrowing capacity would have been up to $820,000 pre-pandemic now with the banks’ lending larger amounts the same household could get a loan up to $1,050,000. One explanation why right now the property is selling at record levels however this will hit a ceiling soon if not already. From here, buyer demand will decrease as fewer people will be able to afford new prices and more new listings will flood the market as homeowners try capitalising on the buoyant market. This may mean the heat will be taken out of the market and property prices stabilise.
So, what’s to come? Here is what John Linderman, leading property market researcher suggests:
- The number of home buyers entering the market will start to fall.
- Loan size limits set by the banks’ lower floor rates will be reached.
- More current homeowners will be motivated to “cash in” and try to sell.
Keys Statistics this week.
- Brisbane: New listings 4,422, up 2.8%. Total listings 15,503, down -28.8%
- Nationally: New listings 28,285, up 9.4%. Total listings 84,858, down -17%
- Demand nationally is up 58.6% year on year.
- Capital cities overall property price growth is 4.7%
- Auction clearance rates remain high with Sydney reporting its fifth consecutive week above 90%
- Savings levels this year reduced to 12% down from 22%
If selling is your objective this year please call me on 0490 812 205 for a confidential discussion around how we can help you. Now is a great time to sell!!!
