• LoanCaddie

Welcome to our June 2020 Newsletter

Winter has arrived quickly and we’re hoping you’re well and keeping warm. Recently the property market slowed down considerably with the COVID-19 pandemic having a huge impact. Find out more about home value movements in each state below.

Interest rate news

The Reserve Bank of Australia (RBA) announced it has decided to keep the cash rate and 3-year target rate unchanged at 0.25% at its meeting on the 2nd June.

According to the RBA, the pace of recovery for the quarter beyond June is uncertain. The outlook will depend on the extent to which the market continues to be affected by social distancing and other containment restrictions. RBA governor Philip Lowe said in the previous meeting that the Board will not increase the cash rate until progress is being made towards full employment and inflation is sustainably within the 2-3 per cent target band. He has also repeated his preference not to reduce rates to zero or negative before implementing other monetary policies.

Interest rates remain low for some time and there is plenty of competitive home and property investment loans available.

Read our article 5 Reasons to review and fix your home loan which further discusses our view on interest rates and talk to us to make sure you’re getting the right deal for you.

Home value movements

The Australian property market experienced the following impacts as many of the social distancing policies that have impacted on housing markets and economic activity have either been relaxed or lifted:

  • Housing sales bounced back by an estimated 18.5% in May. This coincided with a rise in consumer sentiment and eased social distancing policies throughout the month. However, housing market activity remains well below the historical average.

  • We`ve seen a sharp reduction in the number of auctions being withdrawn, and more vendors are testing the market under auction conditions rather than accepting an offer prior to the auction. The combined capital city clearance rate bounced back from a low of about 30% in April, to nearly 63% in the week ending 24th of May.

  • Improved confidence is also flowing through to a rise in new 'for sale' listings. However, the total listing count, which includes new listings as well as re-listed properties, has continued to trend down. Implying an overall healthy balance between supply and demand.

  • The most rapid decline in housing values is across the top quartile of the Melbourne and Sydney markets. Melbourne’s most expensive quartile of the market recorded a 1.3% drop in values over the month, compared with a 0.6% fall across the broad ‘middle’ of the market and a 0.3% fall across the most affordable quartile. Similarly, in Sydney, the top quartile was down 0.6% while the lower quartile posted a 0.1% increase in values. We consider that this reflects the reduction in FOMO ('fear of missing out') behaviour that fuelled the significant capital growth in these markets of the last 12-18 months.

  • Rents overall were generally steady in May. However, this was not enough to offset the overall downward trend in rents. Unit markets are looking weaker than house markets over the past two months, with unit rents falling 0.8% since March across the combined capital cities while house rents were steady.

  • Investor buying activity also remains low. The investor participation rate continued to fall to 26.2% from historical highs of 40%-45%. This reflects the change in investor attitudes as views on rental growth and in particular the uncertainty of migration which ultimately is seen as the key driver for demand for rental properties. Consequently, first home buyer participation is relatively higher than normal.

  • We have seen a reduction in home values in May as the market activity showed more positive signs. The Home Value Index report from CoreLogic shows that the estimate of sales activity bounced back by 18.5% in May after a drop of 33% in April. CoreLogic head of research, Tim Lawless, said “Considering the weak economic conditions associated with the pandemic, a fall of less than half a per cent in housing values over the month shows the market has remained resilient to a material correction. With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.”

Read our article Housing Market update June 2020 which provides further insight on the current property market.

We’re here to help you achieve your property goals

While the immediate indicators are showing improvements, the longer-term outlook of the housing market remains uncertain. With property prices easing you might have plans to take this opportunity to explore new property options. If you’re a business owner, you might also take this chance to take advantage of the increased instant asset write off threshold for assets up to $150,000, so let us know if you need help with getting your finance organised quickly before the end of the financial year. Please get in touch today.

Additional Sources: www.corelogic.com.au/research/monthly-indices www.realestate.com.au/auction-results/ www.rba.gov.au/media-releases/2020/mr-20-13 www.corelogic.com.au/news/housing-values-edge-lower-may-while-transaction-activity-partially-recovers-sharp-drop-april