Over the last couple of years, the residential property market has faced several headwinds such as curbs on bank lending as a result of APRA restrictions and the Banking Royal Commission. The picture today is very different. After the biggest house price correction in 30 years, the government and regulators are now all in sync when it comes to providing support to an ailing residential property market.
The election result was excellent news for residential property, as predictions were that the house price slide would continue into next year as the market and economy took time to absorb Labor’s tax changes. Early indications show the election result has provided a boost in confidence. The CBA has had the highest level of home loan applications in the last week as it has had for the previous six months and there has been a notable spike in auction clearance rates.
The factors now supportive of the residential property market include:
- The uncertainty of the election is behind us. Activity that was delayed can now confidently go ahead. Increased activity will lead to more activity and eventually, prices will follow.
- Negative gearing and capital gains tax will be left alone. Property investors can get on with business as usual now that the rules will not change.
- The first home buyers deposits scheme being introduced (buying a home with a 5% deposit instead of 20%). While this is not expected to be significant, it should help clear some of the excess supply of apartments on the east coast.
- RBA set to cut rates. The RBA will almost certainly cut interest rates next week, this will undoubtedly increase activity as mortgages become more affordable.
- APRA lifting restrictions on investor credit growth on interest only lending. Measures introduced to deliberately put the brakes on the rapid growth in house prices, partly fuelled by investors, have been removed.
- APRA removing the 7% interest rate mortgage serviceability requirement. This is a significant development to increase the availability of credit in an environment when bank credit assessments have been significantly tightened.
If employment in the Australian economy remains robust, the support being provided to the residential property market coupled with the recent boost to confidence is likely to mark the bottom of the cycle. However, it will probably take some time for certain parts of the market to clear and for the increased activity to generate meaningful increases in house prices in the short term.
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.