Report: New Home Loans Plunge in 2018

Economists report that the number of new homes approved in 2018 declined by nearly 20%, indicating more price drops and cheaper homes.

The major reasons for the drop were stricter lending requirements, weakening investor demand and the then-impending banking royal commission final report.

Australian Bureau of Statistics figures showed that the number of mortgages taken out across Australia declined by 19.8% in the year ended December 2018.

According to chief economist Bruce Hockman, the December slowdown in lending for investor homes continues the steady drop over the last couple of years, with the number of new investor loan commitments dropping by about 40% from the peak at the beginning of 2017.

The slowdown in owner-occupier loans is more recent, with the declines mostly occurring in the last six months of 2018.

A Domain economist forecasts that property values in 2019 will be determined by home lending so too did Kevin Brogan at a Corelogic event I attended recently in Newcastle.

There is a strong correlation between changes in home lending and changes in home values, so there is a strong possibility of further price declines in 2019. This could signal of what happens in the housing market.

Home lending December, which declined by 4.4%, nearly double the past month, was worsened by the uncertainty in the lead-up to the final report by the banking royal commission.

Chief economist for AMP Capital, Shane Oliver believes the general decline in home lending in 2018 was due to both supply and demand. The banks have become stricter in approving loans, but demand is for loans is also weak. A significant portion of that weakness is focused on investors.

A lion’s share of the home lending downturn went to a drop in investment home loans, which dropped 27.8% in 2018.

The upside to investors staying away from the market was that one in four buyers getting new owner-occupier loans were first-home buyers. This means a bigger share of new lending is made up of first-home buyers. They make up about 27% of all owner-occupier commitments, not including refinancing, up from 20% at the beginning of 2017.

The lending decline was inevitable. The growth was coming to a halt. The environment will eventually become easier for first-time home buyers, which makes for an easier entry into the market.

There had been a boom in both property prices and debt levels. We are now returning to normal, which is welcome news and will eventually mean stable house values and debt levels.

Tim Reardon, peak construction and development lobby group Housing Industry Association principal economist, the slowdown in investor activity would change when house values stabilise.

The slowdown has long been anticipated, however, there are present risks concerning the length and depth of the slowdown.

The market is forecast to remain strong while unemployment rate and population growth will continue at present levels in the long term.

REA Report: The Uncertainty that the Election Brings; Negative Gearing to Cause a Disturbance

Property markets go on a standstill because of elections, according to in its April 2019 Property Outlook report. Plus, the number of new listings drop and buyers begin a waiting game.

The report added that the May federal elections is especially significant for property because ALP has identified major changes to negative gearings and capital gains tax concessions.

The biggest impact, according to chief economist at Nerida Conisbee, is the change that limits negative gearing to new properties only stating 1 January 2020. She added forecasts that prices will decline and rents will increase because of that modelling by both sides of government, and the independent consultants.

Australia has become almost fully dependent on “mum and dad investors” to make rental housing available in the country, which is not what is done in other parts of the world.

Individual investors rely on tax concessions to make owning a low-yielding property sustainable. Without another option to tackle the decline in investor activity, rent increases could pose a challenge, especially in areas already experiencing rent-related problems like Hobart.

Another issue is that, in regional locations with a lack of demand for new housing, a decline in rental homes supply would worsen.

And in big Australia cities, tenants may be forced to move to inner-city apartments and outer suburbs with plenty of supply. This would eliminate the middle for tenants which would become the territory exclusively for owner-occupiers.



According to Conisbee, a win for the Liberal would stabilize the housing markets. It would re-energise buyer and seller activity, and rents would continue to increase along with the market.

Meanwhile, a win by ALP would make declines continue and delay stability by at least 12 months. The increase in rent would be exceed market increases.

Ultimately, the move to investor incentives would benefit first home buyers and would have little to no impact for most home buyers because most of them bought before the brisk rise in prices.

Declining prices do have a major effect on sentiment, trouble for general consumer sentiment and spending. However, two “bigger” issues are seen.

First, the supply pipeline is dropping and the flow-on economic growth could be critical. Second, rents rising. Tenant with no gain from capital growth in housing are normally younger, in the lower income bracket and most probably experiencing housing stress, which means they are affected by the even the tiniest rent increase.

Conisbee said that initiatives to attract more institutional investors to rental housing through adjustments in the managed investment trust structure will not immediately happen and many not be compensate for a decline in investment by the usual suppliers.

What are your thoughts on this topic?


Why are Property Stylist Becoming In Demand among Australian Homesellers?

Vendors are using property stylists in an effort to make their homes noticeable in a slowing market.

Stylists say that demand is growing as vendors do all they can amid declining home values and stricter bank lending requirements, which have resulted in a rise in how long properties sell.

The rise in demand is attributed to the fact that homes are taking longer to sell.

Homes in Newcastle are averaging 60 days on the market, more than double that in 2017 where we the average was around 28.

Sellers are opting to style and present their homes to show buyers how they could live in the home with specially handpicked furniture and other home décor.

There are some clients who pay $12,000 or more for the use of a property stylist and furniture rental in preparation to sell, depending on how large the home is. There are also others who might spend as little as $3,000 and still use some of their own furniture for open inspection.

Newcastle is also seeing a rise in demand for property stylists due to smart sellers wanting to make their property stand out from the rest.

People have more awareness of the property styling industry compared to 13 years ago. Previously, people would assume that a stylist was a hairdresser. But now vendors realise gorgeous furnishings can establish an emotional link with buyers and increase their price expectations.

Much of the demand is coming from downsizers who are both selling and buying. Property stylists and agents are helping these clients get rid of all their clutter and their surplus belongings. These people have been living in their homes for 30 years, so they are intimidated by it and are very emotionally invested, they need someone to help them out.

Many new stylists have entered the Newcastle market in the past 3 years and this may surprise many people. But the fact is, you have to spend money on making your home beautiful to stand out from your competition, to sell your home faster and to realise the most amount of money in your bank.  Ever heard the saying “Spend money to make money”?



What Can Home Buyers, Sellers and Investors Expect in 2019?

The property market without a doubt experienced ups and downs in 2018.

At the start of the year, home prices were sky high, mortgages rates reached record lows, and sellers gained the upper hand. In the past months, however, the growth of home values has wavered, rates have increased to its highest levels in almost eight years, and favour has began to move from seller to buyer.

Will we see the same trends this year? Will it be a wild rise still for housing in the new year? Here is what the experts predict for the real estate market in 2019:

What Can Home Buyers, Sellers and Investors Expect in 2019?
Even though it has steadily increased for the last two years, mortgage rate continue to be lower than they were during a significant period of the recession and below average for the kind of robust economic development Australia has been enjoying. 2019 will be different. Fixed rate mortgage gets to 5.8% – a level not seen since the 2018 financial crunch when rates were plunging due to the housing crisis.

Rising rates will not deter millennials
Mortgage rates will continue to rise and demand will surge in 2019. Increasing rates, by tagging a hefty price tag on homes, will probably discourage some people from buying. Conversely, the biggest cohort of millennials will reach the age of 29 next year, coming in to peak household formation and home-buying age, and sharing in the growth of first-time buyer demand.

Millennials will remain the biggest sector of buyers next year, making up 45% of mortgages, versus 17% of baby boomers, and 37% of Gen Xers. It will not be easy for first-time home buyers next year, but older millennial move-up buyers will have a broader selection in the mid-to upper-level price point and will represent the majority of millennials who close in 2019. In the years ahead, 2020 is forecast to be the peak millennial home buying year with the biggest cohort of millennials reaching age 30 years. Millennials are expected to comprise the biggest share of home buyers for the next 10 years as their housing requirements change over time.

Home buying power to decline – likely good news.
Majority of home buyers set aside a monthly payment. When rates increase, a fixed monthly payments means less borrowing capacity and purchasing power has dropped around 10% since the same time in 2018. Because the number of buyers drops at every price point, the right market reaction is a decline in sales and a slowdown in price momentum.

Broader home sales to decline
Home sales are forecast to drop about 2% in 2019. It is going to be another slightly slower year as buyers continue to fight higher mortgage rates after struggling with many years of brisk price increase.

Inventory issues will lessen but not too much
The flood of first-time home buyer demand will see a rather higher supply levels than in 2018. But inventory is expected to remain stretched nationally during 2019, despite the days of multiple offers and bidding wars being a thing of the past in certain markets where stock is growing.

The stock increases or decreasing price required to achieve a more extensive sales growth are not likely to happen in 2019. The circumstances are not getting better for buyers, but it is also not getting better significantly in most markets.

Home value growth to continue to slow
Home price growth is expected to slow to almost 3% in 2019. This is based on the belief that the recent pattern of rising stock levels will continue in the coming year.

Less competition among buyers, but first-time buyers may not benefit
Buyers who managed to remain in the market will experience less competition as more buyers opt out due to affordability issues. But they have this heightened feeling of urgency to finalise their purchase before prices increase even more. Their biggest hurdle in 2019 will be bringing together wants, needs and budget against the strong competition of 2018. Though the number of houses on the market is rising, which is a plus for buyers, most of the new stock is aimed at the mid- to higher-end price level, not entry-level.

Competition between individual and institutional investors
Moneyed institutional buyers have enormous ad budgets and their spend doesn’t allow ordinary real estate investors to compete. A large sum of money is needed to undertake a marketing campaign that aims at exact targets and spots acquisition opportunities. Institutional investors gain instant advantage for that alone. In addition, interest rates are rising, which not only affects buyers without the funds to move, but also individual investors aiming to take out a loan and keep rental properties. Their expense to borrow goes up while stock levels drops and competition strengthens. Individual investors do not want to see this kind of combination middle-market.

Bottom line
In general, housing is expected to slow down in 2019, but analysts don’t exactly see that as bad news.

They see bullish medium and long-term prospects for housing, thanks to demographics continuing to boost demand. A slow price growth will give income the break to catch up. Slower sales could normalise inventory. The housing market is expected to be stronger going forward with the slowdown in 2019.



Experts Warn Buyers not to be Overconfident of Getting a Bargain in a Slow Market

A buyer’s market is forecast for Newcastle in 2019, with prices continuing to drop. But experts are warning people who are planning to buy not to be too confident.

The risk of buyers overpaying in a slow and in a fast market is the same, as many erroneously think their chances of grabbing a bargain are better. When a property gets passed in an auction, it doesn’t mean that one or two other buyers are waiting in the wings to grab it. In this scenario, buyers often end up competing with several buyers and paying a hefty price.

The primary benefit of a softer market was that there is no need for buyers to make a hasty decision. However, this does not mean that house hunters should wait for the market to take a tumble.

Here are expert tips for home buying in 2019:

  1. Get your loan approved

More rigid lending conditions were pushing home buyers to have their loan approved before they even start their search. Delays in financing will create problems and could cost you money if ignored. Make sure you know when your pre-approval expires.

  1. Think long term

House hunters should look at property investing and home buying as a “long-term game” and not be overly concerned about what is currently happening in the market. Think about what your needs are for the next 10 years instead of purchasing a home now. This will prevent you from being forced to sell in the short term.

  1. Negotiate like a professional

A buyer’s greatest defence against overpaying in a slow market is negotiations.

Experts advise searching for properties that have been on the market for four or five months to get more savings. They also warn against being complacent and thinking that real estate agents are easy targets because many properties are available or prices are low.

Never forget that you are not the expert at negotiations, they are.

  1. Don’t dawdle and attempt to “time the market”

For buyers, don’t wait for the market to slow down. You can’t predict anything, so take action when opportunities are presented to you. When you find the right property, perform your due diligence and act fast. Good locations and good properties are tougher during slumps.

  1. Hire a professional

Prospective buyers can seek the services of a local buyer’s advocate with extensive knowledge of the area and the market they’re intending to enter.

A buyer’s agent will steer you towards the locations that have traditionally performed well regardless of the macro economic conditions, and look after your budget.