So Much Stimulus

There has never been a more confusing time economically. Every day there is a new article – or tweet – that causes pandemonium. While the GFC was 10 years ago, many experts feel that to some extent it is still alive and well.

Australia has weathered the past 10 years rather well but global impacts, thanks to technology take their impact quicker than ever.

This week we were lucky to attend an economic update by Nerida Conisbee from She is a highly regarded economist and one of Australia’s leading commentators on the property market. Below is a summary of some of the more interesting points from her talk.

So much Stimulus:
• APRA have removed the speed limit on investor lending growth, the cap on interest only loans and the 7.5% stress test on home loans
• The federal government has cut income taxes, made no changes to negative gearing and will be giving first home buyers a chance to buy with a 5% deposit at the end of the year
• The RBA has cut interest rates twice this year and there may be further cuts
• Globally interest rates are trending down again – this puts less pressure on wholesale rates and hence our mortgages.

Although stimulus is having an impact, things are still very uncertain:
• Investor lending is down 45% from the peak
• Chinese buyer activity is at its lowest level ever recorded
• The development industry is grappling with quality issues
• Stock levels remain very low but are likely to increase
• First home buyers are particularly happy, and this is driving demand in some more unusual locations
• There is a flight to premium suburbs
• Development will take some time to recover and we cannot rely as much on Asian buyers or local investors

Globally a number of factors are influencing the most growth negatively:
• US rates are declining with a possible recession looming
• International trade war is a big concern
• Trade conflict is impacting on stock markets and business sentiment
• Brexit is beginning to drag on the British economy
• European economy isn’t out of danger

Domestically growth isn’t looking so positive:
• RBA has now downgraded the economic growth forecasts
• Policy changes seem to be unable to bring down the unemployment rate
• Consumers are the big problem low unemployment is not flowing through to wages and spending
• Interest rate cuts are good for property, but rising unemployment isn’t.

A big factor in Perth’s property market has always been the overseas buyers. Offshore property seekers are still active in Perth but they are not coming from the usual places:
• 45% increase in purchases from the UK
• 25% increase in purchase from Hong Kong
• 22% increase in purchase from New Zealand
• 22% increase in purchase from the US
• 3% increase in purchase from Singapore
• -10% increase in purchase from Malaysia
• -18% increase in purchase from China

The largest decline in offshore property purchases has come from the Chinese market. They are finding it both difficult to get their money out of China and the changes to the expenses when purchasing a property in Australia has now made the entire transaction cost prohibitive.

-35% decline in offshore property purchases from China, July 2018 - July 2019

So, what do we do with all this information if we are thinking of buying or selling? Well there has probably never been a better time to pay a mortgage down and build some equity. With interest rates at an all-time low and looking like staying there for an extended period, those with job security are upgrading and using this time to pay down debt.

Many families are holding off making the decision to sell hoping that the current flatness in the market will change soon. Given the global outlook this looks like being unlikely with most property experts expecting the current environment to be the ‘new normal’ for quite some time.

There is still good buyer interest across all property levels, but buyers are definitely more cautious, and more value driven. Those sellers looking to achieve GFC process will be disappointed and will need to adjust to the new reality if they are hoping to snag a buyer. Those sellers trading up should try to be pragmatic about what the market gives them knowing they are going to be able to take advantage of the same when purchasing.

We are definitely in unchartered waters and if I had a crystal ball I would make a fortune! As always buying and selling a home is never actually about the home, but rather, what is going on for the families within that home. Families will continue to buy and families will continue to sell, we just need to adjust ourselves to the new normal which looks like settling in for quite some time.

get in touch with us