DOOM, gloom and caution has plagued the property market over past years, but national property editor Kylie Davis looks at why the time may be right to see through the pessimism and buy in 2013.
Confidence – or a lack of it – has been a major factor in the property market over the past two years. With the economic news from Europe miserable and the US threatening to fall off the fiscal cliff, consumers steadfastly refused to believe talk of Australia surviving the global economic slowdown and instead, paid down debt and put off as long as possible the decision to buy or sell a home.
Slowly but surely however, the fundamentals in most local property markets are changing. It doesn’t mean that were about to see prices take off, far from it, but it does mean that the risk of catastrophic price falls are subsiding.
So if you have been thinking about getting into the property market, have a long term goal and are prepared to do the research into your local area, here are seven reasons why 2013 should be the year when you feel the fear, but do it anyway.
1. Rates are at a 25-year low
The recent cut by the Reserve Bank of Australia took the official cash rate to 3 per cent. Variable interest rates on mortgages range between 5.27 and 7 per cent from the big banks while fixed interest rates can be locked in for between three and five years for less than 5.4 per cent.
Clive van Horen, general manager home loans at Commonwealth Bank, says fixed rate loans are becoming increasingly attractive for customers looking for certainty and who want to plan ahead.
“With some fixed rate home loans now the lowest they have been in over 20 years, it is a good time for customers to consider this as an option,” Mr van Horen said.
“We are seeing more customers splitting their loan with both fixed and variable components, as they choose to get the best of both worlds and take some of the guess work out of rate changes.”
The governor of the Reserve Bank of Australia, Glen Stevens flagged at the December meeting of the bank, the bank is unlikely to continue to drop rates, saying that there were signs in the economy of “easier conditions” created by recent cuts to the cash rate.
2. Prices have bottomed
If the market is a clock, and the top is 12 and the bottom is 6, then the market, if it is not at half past, is at about 27 minutes past, says Tim Lawless, head of research at RP Data, the country’s largest supplier of property market information.
The RP Data-Rismark Hedonic Daily Index for November, shows values across the combined eight capital cities are unchanged for the month at 0.0 per cent, while across the quarter, values rose by 0.4 per cent nationally.
Markets such as Darwin, Perth and Sydney have already come through the worst and have started recovery, while Melbourne, Hobart and Adelaide are still easing.
Recovery doesn’t mean leaping prices (except perhaps in Darwin) but more a gentle drift upwards. These numbers however are capital city macro numbers.
There are suburbs and areas in each capital that are behaving differently – both better or worse – than the capital, so research the area you want to buy in carefully and use the capital city as your comparison point.
According to the ANZ, housing affordability has now improved significantly.
3. You can take your time
Quieter markets are great to buy in because you can take your time says the host of Selling Houses Australia, Andrew Winter.
Without the stress of prices leaping week by week and strong competition for places, all the fear of missing out on your dream home dissipates and you can take your time to find the right place, look at it as many times as you need to and make an offer, Mr Winter says.
What you lose on the swings, you will also gain on the roundabouts, he says.
“f you sell a home that you thought was worth $450,000 for just $410,000 you have taken a 10 per cent hit on the price. But if selling that house means you can now afford to buy a place that used to be on the market for $600,000 at the peak for $540,000, then you have got your $10,000 back plus another $10,000 for your trouble, and seriously upgraded,” he says.
“I see many sellers hanging on for an extra $10,000 on their sale price, when really they should take the hit and get that money back on the saving they make on their new home.”
4. Power to negotiate
Residential property sales are running at 17-year lows according to ANZ and most vendors in today’s market understand that property prices are considerably down from their peaks in 2008 and there is a shortage of buyers out there.
Buyers agent Patrick Bright says in a quieter market, negotiating tips include having your finance ready to go, and understanding what settlement period will work for the vendor.
If the property has been on the market for a long time, offering a fast settlement can shave thousands off the price. And then there is the tip of “showing the money”.`
“An excellent way to make your offer much more attractive to the vendor is to staple a cheque for the deposit to a signed contract,” Mr Bright says.
“It costs you nothing as the vendor’s solicitor or agent can’t bank the cheque until the vendor countersigns the contract but a signed contract with a 10 per cent deposit cheque is an extremely powerful incentive to sign.”
5. Stable employment
Labour Force figures from Australian Bureau of Statistics show unemployment is currently at 5.2 per cent and despite some big headlines about company closures and redundancies mainly in manufacturing – that number has been fairly consistent all year. How do you feel about your job? If you’re in an industry that is relatively stable and your prospects of remaining employed are good, you should not let negative sentiment scare you off from taking out a modest mortgage and buying sensibly.
6. Access to finance
National savings rates are close to the highest levels in 25 years as people pay off their credit cards and their mortgages and start putting money into savings. Year on year however, the number of people apply for mortgages nationally had grown by 0.6 per cent according to Veda, the country’s largest supplier of consumer and commercial data.
The RBA however reports that Australian banks have had no difficulty accessing funding, including on an unsecured basis, and recent changes by the Federal Government to introduce positive credit reporting could offer more good news for those wanting to take out a loan.
The reform, the biggest credit reporting reform in a generation, means banks and lending institutions will no longer just see where your credit history has been bad, but see records of positive and consistent payments which in many cases outstrips the negative.
The change brings Australia into line with other OECD countries and Veda are predicting that the changes will lead to more people being offered credit and banks being able to better assess bad credit risks.
7. A strong economy
Our economy is tied to China more than the US or Europe.There have been a host of international experts arguing that Australian property is highly overvalued compared to the US and Europe. US real estate analyst Jordan Wirsz, and American economist Harry Dent, both visited Australia claiming the market was overvalued and prices would plummet by 60 per cent or more by the end of 2012.
The end result was a lot of scary headlines which sold a lot of the books they were spruiking – but the cataclysm never came. And according to local economists and the RBA, it’s not going to. Reserve Bank governor Glenn Stevens said recent data suggests that the US economy is recording moderate growth.
Internationally growth in China has stabilised and the stability of the Australian banking system has protected us from the worst excesses of Europe and the US. Just because it happened over there, does not mean it is inevitable here.