Only 5 suburbs in Melbourne have higher median prices than they did a year ago. Bucking the trend, the median house price in just 5 suburbs performed the best in all of Melbourne, seeing increasing median house prices.
These top performers were Donvale, Ascot Vale, Officer, Sunbury and Cranbourne North.
President of the Real Estate Institute of Victoria, Robyn Waters explained that these 5 suburbs look as though they have “escaped the property market correction.”
However, the feeling is that the market has now changed. On the back of consecutive interest rate cuts and APRA loosening lending restrictions, Melbourne property prices returned to positive growth for the first time since 2017.
Evidence of a shift
Last month property prices in Melbourne and Sydney returned to positive growth for the first time since 2017.
Auctions give us a guide for the level of demand in real estate, and clearance rates are rising across state capital cities.
Clearance rates in both Melbourne and Sydney are 14.4% and 25.9% higher than the same week last year.
The clearance rates suggest buyers are reacting positively to interest rate cuts.
As a result of the turnaround, both ANZ and NAB have adjust their property forecasts and are now tipping 2020 to be a year of growth.
This represents a massive change in thinking from the banks. They have credited the change to a perfect storm of events, including the election result and the interest rate cuts.
When we think about what factors affect really cause property prices to change this is a helpful diagram.
There are countless factors, however all of them can be categorized under the umbrella of supply, demand or consumer sentiment.
APRA Changes are starting to come into affect
The big lenders have started lower the assessment for home loans. What this means is that prospective borrowers can now borrow more. Significantly more. Potentially allowing buyers to enter the market earlier and armed with bigger buying potential.
The Commonwealth Bank has lowered it’s floor assessment rate from 7.25% to 5.75%. Meaning borrowers are assessed on their ability to repay a potential loan at 5.75%, rather than 7.25%.
CBA joins the likes of ANZ, Westpac, Macquarie, Suncorp and MyState, all of which have adjusted their credit policies in response to APRA’s announcement.
In summary: These factors have led to the resurgence:
- Increased confidence now that the Coalition has won the Federal Election
- APRA easing bank’s assessment criteria for new loans – this has now commenced
- Two interest rate cuts and the prospect of more to come
- Banks passing on the home loans with some cutting rates even before the most recent RBA “official” cut in rates
- Tax cuts are on the way – meaning more money in our pockets
- The best housing affordability nationally since 1999
- Positive messages in the media stoking consumer confidence.
- First home buyers returning to the market encouraged by government incentives.
These changes might not yet have worked their way into the system, and many homeowners and investors are yet to benefit from lower mortgage rates and tax cuts that are yet to fill their pockets. So, the current positive sentiment could become even stronger moving forward.
Going forward, the same principles apply
If you stick to a well-thought out investment strategy and do your research, then in the long-term outlook will be favorable.
This is regardless of price movements in the short-term and how high or low property prices are in the current market.
So, rather than worry about where property prices are heading over the next year or two, focus on the longer-term.
If you buy well, buy smart, and have a strategy in place, your prospects for wealth creation are strong.
You must be careful of what real estate advice you listen to. Many so called ‘experts’ are merely people who have bought a couple of properties during Australia’s historic boom. You need a strategy which helps you plan, save, invest and protect your money during good times and bad
We’ve been educating Australian’s since 2009 through our TV show, also called Dollars With Sense. Our real estate strategies and investment advice are based on the expertise of leading financial advisors, educators and professors – some of which train and develop the country’s top financial advisors.
With the consecutive interest rate cuts that not all banks have passed along, there is now a compelling case for homeowners and investors to check their finances to ensure they are getting the best deal possible.
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