To successfully navigate the housing market in 2016, advisable to be aware of the factors likely to impact the market in a meaningful way.
We suggest you keep an eye on the following indicators in 2016.
Banks/APRA - A theme of 2016 is likely to be the fact that credit is cheap, but it's not as readily available as it was from 2012 to late 2015.APRA have enforced, and continue to enforce, tougher lending standards on retail banks for residential investment. In the short term, this may weaken the market. In the long term though, prudent lending ensures the sustainability of the market. It is very clear that the days of easy money from the banks are over.
Interest rates – Most pundits expect interest rates to remain stable during 2016. The December 2015 increase in interest rates by the US Federal Reserve could signal the bottom of the global interest rate cycle. Back home in Australia, banks increased lending rates for residential investors as part of APRA’s regulations. There was an expectation that the RBA may offset this with a rate cut, but that’s looking unlikely. Whilst we are unlikely to see significant movement from the RBA, retail banks have been adjusting their interest rates independently of the RBA in recent years, meaning rates will play a role in 2016.
Employment – The level of full and part time employment plays a huge and largely underestimated role in the performance of real estate markets.Both Sydney and Melbourne’s unemployment levels over the last few years have remained low, resulting in stimulated spending on consumer goods and housing from the high participation rate. Sydney continues to enjoy a golden period of construction and employment not seen since the Olympics in 2000.
Brisbane was tipped to follow the Melbourne and Sydney property booms over the past 3 years, but it didn’t, so it continues to disappoint property investors. A stubbornly higher than normal unemployment rate in Queensland, caused a lower participation rate, which was a big part of the reason real estate prices in Brisbane did not follow those in Sydney and Melbourne.
AUD/International money – The Australian Dollar began 2015 just above US80c and now begins 2016 just above US70c.As the dollar goes down, our real estate becomes cheaper for foreign investors and expats. Expats are likely to offer some support at the upper end of the Sydney market. Developers will continue to target foreign investors with ‘high rise off-the-plan’ apartments.
The Federal budget – Expect a stinker of a Federal Budget soon. When it comes, it may very well hurt sentiment in the real estate market.Joe Hockey’s ill-fated budget of 2014 knocked confidence out of both the economy and the property market. The question now will be whether the Government calls an early election in March 2016 with the aim of unleashing a tough budget come May. Conversely, they may play it safe on the budget front this year and push through the tough one in 2017. Property and money markets are very attuned to what happens in the Federal Budget.
State economy – As the Nation at large battles to deal with the end of the mining boom, the NSW economy continues to go from strength to strength. This is a clear example of why generic reporting terms, such as ‘Australian House Prices,’ are nonsense. The Perth and Sydney property markets are at polar opposites, yet both form part of the ‘Australian House Price’ narrative. There are markets within markets when it comes to property. The NSW economy is performing well and promises to support the real estate market, even as other markets struggle.
Off-the-plan apartments – Talk that banks are beginning to baulk at lending against off-the-plan purchases can trigger wider problems.Excess development in apartments is a potential risk, particularly if investors at large are forced into selling existing stock to fund off-the-plan purchases.
Rental market – As prices skyrocket, rents have stagnated.This has been just another reason for investors to cool on residential investment for the time being. If rents were to rise as prices stagnate, expect investors to re-enter with enthusiasm.
First home buyers – If there is oversupply in the apartment market across Sydney, first home buyers will enjoy a long awaited opportunity to enter the property market via distress selling. It feels like 2003 all over again! First home buyers will play a crucial role in ensuring over supply does not become endemic.
We hope that helps!