Are mixed messages creating uncertainty for your clients?
It’s a confusing market for borrowers. Interest rates are down and the media has been positive that by all indications, the property market is recovering. However housing stock is still light on compared to demand - particularly for springtime - which is partially responsible for driving up prices in most capital cities. Lender competition is fierce, but there’s more scrutiny than ever on borrower spending, meanwhile banks aren’t passing on rates in full. No wonder your clients feel they’re getting mixed messages when it comes to property and the economy at the moment. How can you help them decipher it?
On the one hand your clients are hearing the RBA has dropped rates again to historical lows, so borrowing is cheaper than ever. At the same time as the housing market is warming up and investor activity (an excellent barometre for real estate market health) is lifting, with the latest housing finance data from the ABS (to end of July) indicating investors comprised 32% of mortgage demand across New South Wales and 26% of Victorian mortgage demand, which is higher relative to any of the states or territories and identified as a driving factor in the strength of Sydney and Melbourne’s housing recovery.
But on the other hand, they’re also seeing headlines denoting a few economic red flags, including stagnant wage growth and low consumer confidence. “Are the fundamentals shaky?”, they might be asking you.
There are three main features of today’s borrowing-buying environment, and here’s what I make of them. Feel free to share these with any of your clients weighing up buying in the next few months.
There’s a spring in the property market’s step…finally
A good litmus test for the health of the property market is the behaviour of investors. When investors start sniffing around properties, opportunity exists. A survey last month showed 82% of their investors view now as a good time to buy residential property, and about 48% of respondents plan to purchase in the next six to 12 months. If investors get active as a collective, it’s a good sign that prices will start to push up.
So the market’s moving but is the economy okay?
This market recovery has coincided with an easing of lending restrictions which has also coincided with lower, and lower, and lower rates. Some people look at the latter two factors (freer lending and record low rates) and fear that economic fundamentals are rocky, which isn’t compatible with investor sentiment and property market activity since about May. Put simply, the RBA is trying to stimulate the economy, and reverse lacklustre retail spending in the lead up to Christmas. The borrowing opportunity here is huge, but I also respect that some borrowers are deterred by doomsday headlines.
RBA lowers rates to record levels, but you have to ask the right questions with lenders.
The general consensus is that there’s no chance rates are heading north anytime soon. Most of the big banks are now offering sub-three per cent rates on some of their loans (having passed on roughly 57 of the 75 basis points on offer in the last few months) but a lot of existing home loans are not in the 2% range. If your client’s current rate doesn’t start with a two, it might be worth their time putting them in touch with me, and if your client is seeking a new loan, it’s critical we get expenses in line ASAP. Banks are definitely examining expenses and bank statements with more attention than ever, but with competition fiercer than I’ve seen it in a long time, we can make lenders square-off for your client’s business!
In short, there’s opportunity to be had here in terms of low cost of lending, the property market seemingly having left the bottom of the cycle, and banks wanting your client’s business now - more than any time in recent history. If your client’s are looking at buying in the near future, now might be a good time for them to start speaking to a broker.