Last night 60 Minutes did what it does best this days, broadcasting an irresponsible & sensational story about the so called cliff property prices are about to fall off.
The facts were pretty light on & should be more accurately described as opinions. It talked about our unique addiction in Australia to property & feeding the engine of housing debt. What it didn’t mention is that Australia is also unique in our capacity to absorb more immigrants, to the tune of 200-300,000 per year. That’s a lot of people who need somewhere to live, need to eat, be clothed, schooled etc. They also need somewhere to work to keep the economy productive & prosperous for future generations. When we get these two aspects of the economic cycle balanced it works well, but within every decade it skews one way & then the other . . . then it corrects & we start all over again.
It’s true that the housing market is going through a correction which it does (as per above economic cycle) every decade or so. The difference between our current correction & the last one (remember the GFC anyone?) is that regulators put the breaks on what was becoming unmanageable levels of interest only loans to investors (predominantly) & owner occupiers (as well). The market is doing what it is supposed to do; cooling off & taking a breather from its bull run.
There is no doubt there are many people who borrowed too much, bought at the top of the market & cannot afford to service their loans especially if they have switched from interest only to principal & interest. For these people, I would highly recommend finding a good accountant or financial planner who specialises in debt restructuring who may be able to salvage the loss & even set you on the path to financial stability.
I for one don’t believe there is a cliff in our sights. That’s not a prediction, it’s my opinion. We have a sound economy, we have almost full employment, the fundamentals are not the same as pre-GFC. I think the market will be cool for the coming months & perhaps 2019.
As an optimist I believe this is a good time to buy, property should be a long term investment, there’s no rush, you can negotiate with the seller (if they’re distressed sellers, be kind), rates are still historically low but I agree likely to start moving upward (there are a lot of factors driving this decision, that’s for another article) so a good time to consider locking in a portion of your loan (not for too long, you need some flexibility . . . talk to your broker about options!).
Most importantly, make sure you consult with a qualified, well experienced & recommended mortgage broker. You should also talk to an/your accountant or financial planner as a broker can’t give you investment advice. If you feel that your broker is pushing you to borrow more than you are comfortable with, if they cannot clearly explain the risks & the alternatives of the options that they present to you . . . . walk away, find someone you trust. This may make you feel awkward or uncomfortable, but it beats the regret of being over leveraged & the bank foreclosing on your dream house.
Let me know what you think.