Has the Australian Real Estate boom finished already?
I have seen a lot of commentary lately speculating about the “property bubble” bursting and the property boom being finished. No doubt you have too and if you haven’t already got on board you are probably regretting missing out. It seems that any time things seem to be going well there are elements within the media who want to hose it down as quickly as possible. I guess bad news sells better than good.
Conversely, though I have also seen a lot of commentary from some well respected property analysts, who believe this is not the case. A recent article by Terry Ryder of www.hotspotting.com.au suggests that there has not even been an Australian Real Estate boom yet. He points out that there has been some significant growth in the Sydney market and perhaps Melbourne, but most other State capitals are yet to see anything like this. So to call a national property is perhaps premature.
Many analysts, including the highly regarded BIS Shrapnel, are suggesting that there is still some significant growth to be seen in regional areas such as Newcastle and Wollongong as well as State capitals such as Brisbane and perhaps even Adelaide. So if you have not yet dipped a toe in the water as a property investor I suggest there may still be plenty of opportunity to do so.
You should have FOMO with interest rates this low
Despite recent conjecture to the contrary, the home loan market is still booming at the moment.
Competition between the banks and non bank lenders is at an all time high leading to record low interest rates. The simple logic behind this mark down is this: they can afford to.
The chart below demonstrates what I am trying to explain. As you can see, the time period between 1999 and 2008 the interest rate margin between the RBA cash rate and what you paid for a variable home loan was around 1.20%. That margin has grown to around 2.60%.
As home loan mortgage profit margins grow for the banks, concessions can be readily accommodated, saving investors considerable amounts.
With this in mind, its natural for many to have a Fear of Missing Out (FOMO) in investment opportunities at this time.
Solid interest rates as far as the eye can see
The mainstream financial media can be a strange beast. After predicting doom and gloom for the Australian economy for the last 6 months (as mining investment dies away), the headlines were all of a sudden full of confidence when exports demonstrated a solid lift for the quarter.
Unfortunately, as soon as there’s even a minor hint of economic gain, the pundits start anticipating an interest rate rise.
So, as I regularly do, I have looked at what the real authorities in this field think of this growth data. These are people who have actual major investments in this market. The ASX futures market has actually surmised the next cash rate rise to be in September 2015.
Obviously, the futures market can be inaccurate, particularly if there is a world economic collapse like a GFC. Nonetheless, this ASX estimate is a long way from general media conjectures of a rise in the interest rate.
About Aaron Sainsbury
With expertise spanning mortgage lending, property law, property investment and borrowing to invest within Self Managed Superannuation, Aaron Sainsbury offers more than 25 years professional advisory expertise.
He is an enthusiastic supporter of financial literacy, working closely with clients to help them gain and maintain control of their financial future.
Aaron is thoroughly committed to building lifelong relationships with clients based on the highest quality service, advice and trust.
Contact Aaron direct on 02 9818 8643 .
Smartline Personal Mortgage Advisers
G5/1–15 Barr Street , Balmain NSW 2041
Authorised Representative No 298191
Smartline Operations Pty Ltd Corporate Authorised Representative No 376868
Aon Hewitt Financial Advice Ltd AFSL No 239183