As always, buyer sentiment is heavily influenced by the combination of local area market conditions and the overall macroeconomic environment. Last week, interest rates remained top of mind after the European Central Bank’s radical decision to push the official cash rate into negative territory.
The Sydney Morning Herald reported the decision has now opened the way for Australian banks to borrow more cheaply than at any other time since the Global Financial Crisis and is likely to result in either an increase in bank profit margins or cheaper mortgage rates for consumers.
But even prior to the move, the Australian Prudential Authority was already concerned that rising house prices and fierce competition amongst lenders has resulted in an increase in higher risk lending. News.com.au reported financial institutions are offering 30 year loans to borrowers up to age 75, meaning the loans would not be paid off until the recipient was 105. Rate City has released a report saying about 90% of loans currently on offer have no age restriction.
Meanwhile, the latest data from the International Monetary Fund (IMF) shows that Australian house prices are among the most expensive in the world, after incomes and rents are taken into account. Houses are now selling for more than four times the average annual income and 28 times the average rent, which is well above the long term average. The IMF has recommended governments of several counties including Australia implement radical policies to deflate what they describe as emerging housing bubbles, including stamp duty on foreign investment and strict government imposed controls on bank lending for housing.
News Corp reported the national property market chalked up $12.2 billion worth of profits during the first quarter of the year. In spite of this, the RP Data profit/loss report shows that 9.8% of all properties sold during the period traded for less than what they were purchased for, with a total loss of $381 million. Sydney had the fewest sales at a loss at just 3%, while Hobart had the most at 14.8%.
The latest finalised auction results from RP Data show the clearance rate in Sydney at 67%, Melbourne 62%, Brisbane 37% and Adelaide 59%. Volumes in other capital cities were too low to yield meaningful averages.
With the future as difficult to predict as always, we encourage you to carefully review all activity around your property this week in light of the current environment.