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Investor Report May 2015

By Ian Campbell

Property Bubble or Beat Up?

Is Sydney experiencing a property bubble or will prices soon plateau and stabilise? That’s the question real estate analysts are asking themselves.

Some think it’s just a matter of time before the bubble bursts. Australian Securities and Investment Commission chairman Greg Medcraft  told the Australian Financial Review recently he fears both Sydney and Melbourne are already in a housing bubble.  He says historically low interest rates have spurred appetite for property but he believes a correction will leave them exposed.

A more dire warning comes from Lindsay David, author of Australia Boom to Bust and founder of LF Economics. In a recent article, David says Australia is in the midst of the biggest credit-fuelled real estate bubble the country has ever seen and when it pops, it’s going to devastate the economy while possibly taking the big four banks with it. But NAB economist Alan Oster says there’s no housing bubble, instead saying there may be affordability issues at hand for some buyers.

Whatever your view, now is certainly a good time to sell and it seems prudent to do it sooner rather than later, just in case the “bubble” does burst.

The Ups and Downs of Interest rates

We all know an interest rate cut means a drop in mortgage repayments, but ever wondered how much it adds to property prices?

A new study by Moody’s Analytics shows every .25% drop in interest rates adds around $4000 to the average property value in NSW. According a News Limited article, the study estimates the most recent cut would have increased the national average price by .5% while values in NSW and WA would have risen by .6%.

Moody’s economist Matthew Circosta warned homeowners could be left vulnerable to a correction when interest rates return to normal levels, as house prices could potentially become further overvalued. As an example, the Moody’s model suggests house prices in NSW are currently 2.9% overvalued, but would be 8.6% overvalued when the cash returns to 4.5%.

Hot prices in cool climate

If you are considering selling but thought you might wait until the traditionally popular selling season of spring, think again.

Conditions are ideal for a hot winter real estate result. With interest rates remaining low and talk of  a possible property “bubble” building, now is the time to act. Also, there is currently a significant lack of stock, opening an ideal winter window to sell before the arrival of spring and a probable influx of property on the market.

To take advantage of the strong demand we are experiencing from buyers, call one of our helpful sales team today on 9331 9600.

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