The past week has seen big calls made on the national real estate market and the low interest rates that have started fuelling it.
SQM Research’s Louis Christopher suggested Sydney was in for a potential gain of 15-20% over the next year.
His suggestions for other capitals were milder with gains of 4-7%, excluding Canberra with falls of 1-4% on the back of expected public service cuts.
Prominent economist, Chris Joye also suggested there’s a boom ahead if rates remain at current lows – but property buyers don’t get excited.
He further suggested if action wasn’t taken, it may be followed by the most serious housing crash in 75 years.
Joye, who has long rubbished talk of a housing bubble or crash, reasons Australia currently only has one measure to deal with rapidly increasing property prices – increasing interest rates.
He argues Australia is currently missing macro-prudential policies to curb the excesses of mortgage lending, while still allowing low rates to work in other areas of the economy.
Low interest rates have coincided with lower lending standards, bringing riskier borrowers into the market.
Something backed by figures from the Australian Prudential Regulation Authority’s (APRA).
APRA showed 38.7% of new mortgages from banks were interest only loans in the June quarter – a 40% increase on the March quarter.
And 32.7% of new mortgages from banks had a loan-to-value ratio (LVR) of over 80% – a 25% increase on the March quarter.
Overseas, similar levels of riskier borrowers entering the market due to low rates have prompted reaction from regulators.
The Reserve Bank of New Zealand is implementing caps on mortgages with LVR of over 80%, while various mortgage restrictions have already been implemented in Canada, Norway and Sweden.
If such policies remain absent in Australia and real estate goes crazy, interest rates increases are the only option we have to pull back mortgage lending and house prices.
And rate rises are what the rest of the economy doesn’t need.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Searching for the top financial adviser in Australia?
