Perfect storm for growth brewing
Latest figures from CoreLogic showed another dramatic month of price growth in Australia’s two biggest cities, with median home values up 1.7% in both over September.
It might not sound like much but if we had that sort of price rise every month for a year, values would be up 20%-plus and that’s boom time growth in anyone’s language.
Interest rates are a key driver of buyer confidence so last week’s 0.25% reduction in rates will be well received by the market, even though many lenders didn’t pass on the full cut. Long term low rates make the Australian dream of home ownership more achievable.
They also open up attractive investment opportunities, particularly given the RBA has told us to expect “an extended period of low interest rates” and that they could go even lower.
The crucial question is, how will you leverage these record low rates to grow your own wealth?
Since June, the median home price has gone up by 3.6% in Sydney and 3.5% in Melbourne. One of the reasons for this is a lack of stock for sale.
SQM Research shows a 4% dip in homes for sale nationally over September, which is highly abnormal for the first month of Spring and puts the supply/demand dynamic firmly in favour of sellers.
Melbourne stock for sale was down -5.8% and Sydney -5.7%. Over the year, Sydney was down -20.4%. That’s why we’re seeing auction clearance rates back in the 70% range compared to mid-40% and 50% last Spring.
SQM Research Managing Director, Louis Christopher said lower listings, rising asking prices and rising clearance rates suggested Sydney “has indeed entered into a new housing boom”.
“Melbourne is not that far behind the mark as well,” Christopher says. “I think we can expect to record rapid rises in dwelling prices for our two largest cities at least in the December quarter and likely beyond.”
In the Australian Financial Review, CoreLogic’s Head of Research, Tim Lawless, said Sydney and Melbourne were “back to boom-time conditions”.
“I’d like to see more than just two months of that trend before I’d be calling that the marketplace is back into significant growth phase, but the indicators are showing what’s where it’s heading,” Lawless said.
We’re seeing lots of stories about homes selling well above reserve in many real estate markets but remember, today’s reserves are much lower than they were a couple of years ago. It’s unlikely that any buyer is paying above the peak prices of 2017 when the median was 15-20% higher.
To me, this Spring is unique as it provides a rare ‘everyone wins’ scenario. Buyers are purchasing for prices well below the peak, but many sellers are achieving better than expected results. Plus, both sides are benefitting from historically low interest rates and easier finance.
The RBA has made it clear that we’re in for a long period of low interest rates, so I’d love to see more investors taking advantage of this, not just home buyers. ‘Early adopters’ of new market conditions could pick up very good capital gains over the medium to long term with a purchase this Spring.
This is especially the case in Queensland, where rental yields are very impressive and the market is not recovering as fast (Brisbane median values up 0.5% since July compared to 3.5% in Sydney and 3.3% in Melbourne and Regional Queensland values up 0.5% in September alone.)
Brisbane houses are selling for a median $540,000 with a gross rental yield of 4.4%. Gold Coast houses are selling for a median $630,000 also with a 4.4% yield. Sunshine Coast houses have a median of $600,000 and a rental yield of 4.3%. Apartments in all three areas are yielding 5-5.5%.
With latest advertised investor loans around the mid-3% range, the rent on a Queensland investment property would more than cover your interest payments, so it’s a great time to be looking north for opportunities before the market takes off up there, too!