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Mixed Signals in the Market

Gold Coast Market

Rental enquiries for the month of December 2018 at 1182 were 50% higher than December 2017 but the number of enquiries we’ve been fielding through January 2019 are just extraordinary. In one 24 hour period we had 162 enquiries go through the system. For more information on December click here.
 
It is no secret that the past two years have seen a steady decline in turnover of sales in the Southern Gold Coast. Sales have reached the stage where they were down 20% over the two years from the peak. Anecdotally they appear to have slowed even further over the past 2-3 months.
 
One explanation for both the high number of rental enquiries and the declining number of sales is simply that people are sitting on the side lines waiting to see which way the market jumps. Westpac's January 2019 Consumer Confidence Survey again indicates some weaknesses in major components of the survey with sentiment regarding “family finances” and “time to buy a major household item” both falling.
 
The interesting thing is that "time to buy a dwelling" went higher going up 4.1% month on month and is now at its highest level since March 2015 against house price expectations which fell. These results suggest potential homebuyers see the market becoming a buyer’s market rather than a seller’s market. For more information on this report click here. 
 
The number of people looking at open houses has picked up in January and if you’re in the market looking for a house yourself you are aware that well priced and new listings are getting a lot of people looking at them.
 
Between the Reserve Bank and APRA there has been a lot of intervention in the market. We are also suffering from what real estate agents would call excessively cautious application of responsible lending rules.

More Tea Leaves

The November house finance data is of bit hard to read because a lot of the weakness is related to the value of owner occupier loans.
 
There is quite a clear correlation between weakness in dwelling prices with investor loans and borrowing capacity. In the six months to November the value of owner occupier loans declined 5.8% but the volume was only down 1.5% most observers see this as a result of the banks tightening lending criteria as the Banking Royal commission ramped up.
 
The number of first home owners hit 10,500 which is almost a nine year high. The percentage of first home owners in the overall housing mix hit a six-year high at 18.3%. Considering time to buy a dwelling is a 3.5 year high this data suggests that it's the first home buyers who are optimistic on their prospects and the changing market conditions are falling in their favour.
 
There are two schools of thought on interest rates and they are diametrically opposed. The Reserve Bank is being urged by one school to reduce interest rates and free up lending and by the other school of thought to raise them.  The banks on the other hand have been creeping rates up for a while now.
 
Locally there doesn’t appear to be too much wrong without economy looking toward the rest of the year except in the construction area where higher interest rates would cause problems for buyers and job losses later in the year if follow on projects get deferred.
 
Pushing the Responsible Lending Rules is resulting in a higher “crash” rate than we are used to. We had one sale in the last 30 days for a $600,000 property that crashed over the age of the purchasers and their income available for serviceability even though the buyers had a 50% deposit. In the past a bank would have seen it as a good risk for them and made the loan.
 
Some brokers are now recommending to clients that they clean up their discretionary Credit Card spending, personal loan repayments and rent payment frequency for 3 months before they apply for a loan.
 
As prudent lenders the banks are also starting to ask for new valuations to support loans if the valuation is more than 90 days old so “unconditional” if there is long term finance involved is not necessarily unconditional.
 
For people reaching the end of their interest only periods on mortgages there is some relief since January 1 because the Reserve Bank has eased up on restricting the volume of Interest Only loans the banks can make. The question is will the banks build the principal payments that will have to be made once the interest only terms of expired into serviceability calculations. In the past they often just rolled these loans over.
 
Another concern at the moment has to be political bank bashing especially with a budget in April, a legislative response to the Banking Royal Commission recommendations which are due on February 1 and an election coming up in May. Everybody loves to hate the Banks especially politicians and the Banks seem to be gun-shy at present.
 
As real estate agents we are not allowed to give investment advice and I’m not going to start now I will say that the Gold Coast market seems to be holding up better than the Sydney and Melbourne markets and should continue to hold up at about the current levels the rest of the year. With everything coming up the situation will probably be as clear as mud until about July.
 
If you’re thinking of selling please ask one of our salespeople for a current market opinion.
 

by David Hamilton