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  • Writer's pictureCOMPASS

Housing ‘Crash’

We love a sensational headline . They generally capture attention. Although I am one that is quite ‘anti’ sensationalism there are a growing number of institutions that are adding weight to predictions of what I would call an adjustment to the residential property market . Here are some of the latest and growing list of some important players, the percentage, and timing of those adjustments:-

NAB – all states to see housing drops , Melbourne and Sydney to see the biggest drop at 11.4% each

AMP Capital – houses could fall in value up to 10% in 2023

Westpac – Prices to fall over next two years at up to 14%

CBA – A price drop of 10% expected in 2023

Morgan Stanley – A price drop of 5% in 2022

Here’s what Westpac’s economist Bill Evans reported to the Australian Financial Review 14/2/21 :-

The cash rate currently sits at just 0.1% - and the RBA has acknowledged that a “shock” rate rise could happen within months. Although underlying inflation at 2.6%, it is comfortably inside the RBA’s preferred band, headline inflation for last year is sitting at 3.5% - and any action to tame inflation would hurt homeowners. Housing will be ‘collateral’ damage in the RBA’s efforts to keep inflation on target over the medium term,” Bill Evans told the AFR. “The sector is highly sensitive to interest rate changes. With affordability already stretched in many markets, rate rises will have a direct impact on the borrowing capacity of buyers and their ability and willingness to sustain high prices.”

I’ll just remind people again that apart from inflation and borrowers affordability being stretched, which Evans mentions above, since the GFC in 2007, interest rates around the world have been falling and reached record lows here in Australia.

The Government has stated late in 2021 that it will wind back its bond buying activities in the money markets in Feb / March 2022 . That was economic stimulation and also kept the cost of money low.

Less cash flowing in money markets means higher cost of the money that is circulating. Inevitably interest rates must rise. Borrowers, regardless of whether they are owner occupied or investors must reassess their respective positions. Property purchasers that are ‘cash buyers’ would be unaffected, but a reduction of borrowers looking to purchase has to impact on property demand.

The mere discussion around this forces ‘would be purchasers’ to reconsider the elements of timing and value?

Give Michael a call in 02 6583 2211 if you have any questions.

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