Issue 24 | November 24th, 2016 | Will Property Prices Continue To Rise?
Are The Price Rises Good For The Market?
There is this whole question about the ‘state of the market’ and whether all of the strong price rises that have been occurring are sustainable or indeed whether it is creating a risk situation to the market. There is some suggestion that in markets such as Sydney and Melbourne, that they could be in for a strong price correction.
Some more research out from Core Logic reveals the national average home loan application is showing the loan to valuation ratio across Australia is 74.3% or 1.7% higher than the 72.6% recorded in 2011 however, and significantly, it is much lower than the 78.9% that was recorded in 2013.
The downward trend in the loan to valuation ratio across the country reflects the fact that homeowners are building equity in their properties as prices rise. Have a look at markets such as Sydney, where dwelling values have increased by almost 95% since the beginning of 2009. People who have owned properties since that period of time have now created a lot of equity. Their debt remains the same, however, the value of their property has almost doubled and this is a fine example of why so many people choose to invest in real estate. My own observation is that even if there was a price correction, those people who have owned properties for two or more years will have more than enough equity in their properties at present to absorb the price correction.
Tim Lawless, who is the head of research at Core Logic, said a more conservative loan to valuation ratios shows Australia has adopted a prudent lending standard. He says “Regulators and policy makers are likely to see the lower loan to valuation ratios as a positive outcome”, which was reflective of a more considered and prudent lending regime.
How Price Rises Are Affecting Affordability
This leads on to the second bit of news and that is research from Macquarie Capital, where their veteran researcher Rod Cornish has been commenting on affordability, which is an index that combines prices, mortgage rates, and incomes. Cornish did particularly focus on Sydney, where he said affordability has worsened, however, not as bad as 2003 or even back earlier 1989. What he did say was housing affordability could remain stretched for two or three years as that has occurred previously. He says that despite stretched affordability in some cities, the important interest rate trigger for broad-based turn in the cycle is not imminent.
Mr. Cornish is confident that in areas of high demand, such as inner city urban areas, properties close to the beach and with lifestyle benefits, is where there is a continued scarcity of quality property for sale and that prices will continue to grow.
The Balance Between Building Approvals and Oversupply
The next market update is in relation to building approvals. In recent reports, it has been mentioned that nationally 18% of all approvals never get to construction, although I suspect it will be running at higher levels currently. There have been some concerns about overbuilding in certain markets throughout Australia, so the latest news that building approvals fell by 8.7% in September will alleviate some concerns. The significant drop was in apartment approvals. In fact, housing approvals rose 1.7% whilst apartments, townhouses, and semi-attached dwellings were down 17.5% from August. Of course, we want building construction, as it is a major driver of our economy, however, we do not want oversupply. The report states that forward-looking figures point a picture of activity coming off the boil, however, the already elevated past approvals and commencements are likely to keep activity in the residential sector strong until the year after next. This relieves concerns about an oversupply yet it is a good signal for the economy.
The graph below shows the latest consumer settlement graph where you can see that consumers have been more optimistic than pessimistic over each of the past three months. You can see the graph bounces around quite a bit, however, we have somewhat of a more consistent period in recent months. Consistency in the optimistic zone is a perfect scenario.
How Is The Gold Coast Market?
November was again a huge sales month right across our team, with around $100 million in sales. There is not a sector of the market that is not extremely active. The last to click in was the prestige component of the market, however, we are thrilled to be recording some significant sales with results over the last few months ranging at $25,000,000, $15,000,000, $11,000,000, $10,900,000, $10,200,000 and quite a number of sales between the $5 million and $10 million bracket. This has been a significant number of sales in a short timeframe and the best the prestige component of the market has experienced for nine years.
I am just back from visiting our Ray White office in Guangzhou. Overseas investors are continuing to play a significant role in supporting sales in new developments and the recovery in the prestige component of the market. This year alone we have sold well over 300 properties to overseas buyers with a great portion of those being from China.
Bookings to be part of the upcoming Event 2017 program are flying in and the cut off is December 23rd 2016. If you are thinking of selling please do not miss this opportunity to be a part of the biggest showcase of Gold Coast properties that occurs each year. For a free appraisal simply SMS your name and property to 0448 556 908 or phone 1800 198 009. If you require any additional information please click here to view the website.
I will be back to you in a fortnight and of course then only days away from Christmas.
Stay safe particularly on our roads through this very busy Christmas party season.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group