- 4 Dec, 2018

Millennials cash in on buyers’ market as rates remain steady

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The Reserve Bank continues to strengthen the Australian economy by leaving the cash rate on hold at 1.5%, with home prices falling as lending reforms restrict investor activity. This lull in market action is encouraging younger generations to start buying property, especially with many homes selling below their listed prices.


eChoice RBA Commentary for December 2018

The Australian cash rate remains steady at 1.5% as:

  • Inflation sits at 1.9%;
  • The Australian dollar rises to around .73c US;
  • Unemployment dropped to 5.0%; and
  • Dwelling prices continue to fall nationally.

Home buying and interest rates

The official cash rate last moved in August 2016, when the Reserve Bank of Australia (RBA) dropped the cash rate by 0.25% to 1.5%. However, looking to keep the Australian economy steady as global economies continue to expand, the RBA indicates that no rate rise is likely for some time.

Why?

Revision to the economic forecast is likely for 2019 and 2020. Over the past year, the GDP has risen by 3.4%, and unemployment has declined to 5% – its lowest in six years. Given this, forecasts suggest that the GDP will sit at 3.5% over the next 18 months, before declining in 2020, due to a drop in resource exports.

Australian trade has increased over the last two years while the Australian dollar has stayed within its expected range. As a result, inflation hovers around 1.9% and is expected to rise to 2.25% during 2019.

While business conditions remain positive and higher infrastructure levels are supporting economic growth, household consumption stays low. This scenario is likely to persist for some time, given that household debt is high and asset prices are steadily declining.

Furthermore, market conditions in Sydney and Melbourne are softening, rent inflation remains low and owner-occupier and investor credit growth has declined noticeably.

What’s the bottom line? Tighter credit conditions and incredibly low-interest rates are increasing lender competition, which, in turn, is encouraging younger borrowers to enter the market.

Millennials and home buying

According to data, millennials (Australians aged 25 to 34 years) are saving more for a home than they are for a holiday and, on average, 70% of the savings of those aged 25 to 34 is earmarked for a home deposit. Research indicates that millennial home loans surged over the last two months, with mortgages amongst this demographic increasing during 2018.

In today’s market, to save enough to buy an averagely-priced dwelling in Australia you’ll need at least $100,000. To encourage younger generations to save for a home, some lenders are launching savings accounts that attract ‘bonus’ interest. So, for anyone looking to save a home deposit faster, it’s worth researching the market before setting up a savings account.

RBA cash rate remains steady

Smart home buying as property prices fall

CoreLogic Data recently reviewed advertised home prices and selling prices to see if homes were selling at their listed prices. The results of the review indicated that, over the last three months to October 2018, over 75% of Australian homes sold for less than their advertised price.

As lending criteria continue to tighten and the ‘fear of missing out’ on purchasing property dwindles, home stock increases. This scenario is seeing home buying negotiations becoming more prevalent, with buyers offering lower prices and vendors willing to accept these offers.

Home buying discounting is as high as 7.3% in some areas: at these rates, a home listed for $850,000 could end up selling for $722,499.

Dwelling values across Australia have fallen by as much as 3.5% over the last 12 months, making home buying far more affordable. This market correction is expected to continue for some time, making it a favourable time to buy property.

The Australian home buying market

CoreLogic_RP-Data_Logo

CoreLogic RPData stresses that homes values across Australia are falling due to tighter lending conditions. Nationally, the price drop in dwellings is the sharpest decline since February 2012, but to put this into perspective, market increases across Australia have risen by some 44% in the last decade.

Over the last 12 months, Sydney home values fell by 7.4% and Melbourne dwelling values by 4.7% over the same duration. With these markets being some of the most sought-after in Australia, this is great news for first home buyers looking to break into the market.

Dwelling Values October 31, 2018
All Dwellings
City Month Quarter Year Total Return Median Values
Sydney -0.7% -2.0% -7.4% -4.2% $833,876
Melbourne -0.7% -2.1% -4.7% -1.4% $665,044
Brisbane 0.0% 0.0% 0.4% 4.2% $491,925
Adelaide 0.2% 0.2% 1.8% 6.3% $431,554
Perth -0.8% -2.0% -3.3% 0.5% $451,148
Hobart 0.9% 1.2% 9.7% 15.2% $445,655
Darwin 0.0% -0.7% -2.9% 2.5% $433,818
Canberra 0.0% 1.5% 4.3% 9.0% $589,415
Combined Capitals -0.6% -1.6% -4.6% -1.2% $625,215
Combined Regional -0.2% -0.7% 0.8% 5.9% $375,444
National -0.5% -1.4% -3.5% 0.2% $538,688

Source: CoreLogic RPData

Economists suggest this is only the start of the housing market slump, given we’ve seen such high price rises over the last four years. Tighter lending conditions are expected to put an even heftier brake on market activity, with home values predicted to drop by as much as 12% in 2022.

Those thinking of buying a home, or those already saving a deposit, can take advantage of this slump. By potentially saving more now, you can buy property while prices and interest rates are at their lowest, which means you could save more long-term.

If you’re looking to cash in on the buyers’ market while rates remain low, then it’s time to discuss your options with an eChoice mortgage broker. We have access to hundreds of products across a panel of multiple lenders, so we can help you find a competitive mortgage.

Compare your interest rate today.

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