Much has happened since my last update both locally and globally - the downgrade of the United States’ credit rating, stock market volatility, softening of the Australian Dollar, more speculation about interest rates, as well as many other overly sensationalised headlines that the Australian media continues to churn out to sell papers. There is, however, good news for the Australian property market, read on….
Last week's rollercoaster ride on the Australian stock market and global uncertainty did not seem to have a negative impact on the weekend's house-buying activity in Sydney. The auction clearance rate was 60.5% compared with 54.3% last weekend. It seems that with share market activity volatile, many investors are questioning their strategies, adding fuel to the long-debated argument of property versus shares.
Traditionally during uncertain times, bricks and mortar are typically a haven for investors who have pulled their money out of shares in reaction to a volatile market. Property is seen by most as a far ‘safer’ environment for investors. We are also seeing more SMSF’s turning to property. According to a survey carried out by Mortgage Choice, about 6% of first-time Sydney investors plan to tap into their super funds when making their first property acquisition.
Consumer confidence also appears to be weathering the uncertainty. According to Dr Andrew Wilson, senior economist for Australian Property Monitors, there are still some doubts about the performance of local, national and international economies, but last week's stock market rally indicates there is investor confidence in the underlying strength of the Australian economy. If this confidence holds up as expected, it will have an undeniably positive effect on the housing market.
There has been a lot of speculation about interest rates in the last few weeks. In reaction to the debt problems facing the US and Europe, money markets have already factored in a cut of 1 percentage point in the official Australian cash rate by the end of the year. Westpac is forecasting a 1 percentage point rate cut by the end of 2012. And while ANZ is erring on the side of rate stability in the short-term, publicly citing a strong domestic economy, they have followed suit with the other major 4 banks last week, dropping their fixed-rate mortgage rates. ANZ's three-year fixed rate plummeted to 6.44%, ahead of CBA at 6.59%, NAB at 6.69% and Westpac 6.79%.
Other factors are also causing downward pressure on interest rates. For example, the unemployment rate has increased nationally, although importantly for us, there has been no change in employment figures for NSW. Lower interest rates typically stimulate the property market – as we saw in late 2008, when rate cuts were quickly followed by a large increase in demand for residential property.
Importantly, we are still seeing strong levels of enquiry from overseas buyers, and the softening Australian dollar is making foreign investment even more attractive. While the US and European Union are suffering at present, we have found that East and Southeast Asian buyers continue to be attracted to Australia for its economic and political stability, and with the Australian dollar dropping, property is becoming an increasingly strong investment proposition for international buyers.
While interest rates have a strong impact when buyers are making a decision to purchase, what we really need is a period of stability. There is so much uncertainty with conflicting media stories daily – we understand that it is hard to know what to expect next. At this point, both buyers and sellers should be factoring in the rate drop that the banks have made over the last week. If you are thinking of buying, keep in mind the rise in the market that followed the last set of rate cuts – if you are holding off and waiting for the market to dip further, you may find you have missed out. For sellers who have been unsure about the climate of the market this year, there is an opportunity here as local buyers return to the market on the back of lower interest rates and from overseas on the lower Australian dollar.
I would be happy to discuss your own situation and how you can take advantage of the current market to achieve your property goals.
Best regards,
Joshua Wygoda
0414 666 190
Century 21 Mosman
