August 17, 2022
The fourth rate hike is a cue to review, home prices drop 0.43% in July, and it’s now cheaper to buy than rent one in four homes nationally.
Rate rise is putting a re-fi on household ‘to-do’ lists
At its August meeting, the Reserve Bank of Australia (RBA) opted to lift the cash rate by 0.5% to 1.85%1.
The RBA made it clear that it’s aiming to bring inflation down from its current level of 6.1% (the highest since the early 1990s) to the RBA’s target range of 2-3%2.
However, this may be a slim consolation to homeowners with a variable rate home loan, who have faced a string of rate hikes since May 2022. It means another month of digging deeper into household budgets to cover rising loan repayments.
Refinancing reaches new highs
Homeowners aren’t just sitting back and wearing rate hikes.
Data from the ABS shows refinancing among owner-occupiers jumped 9.7% in June 2022 to reach a new record high of $12.7 billion in one month alone – 24.6% higher than a year ago3.
Source: Australian Bureau of Statistics Lending Indicators, June 2022, released August 2022
Knowing how you could benefit from refinancing calls for expert help.
The latest market analysis from Mozo4 shows that while most lenders have been simply passing on previous rate rises to their variable rate customers, shifts are starting to occur.
Non-bank lenders are having to introduce larger rate increases, but a number of banks are holding back part of the increase for some or all types of borrowers.
This development could make it more challenging to work out if your current loan offers value – or if you could slash your loan repayments by refinancing.
Speak with your Mortgage Choice broker for a clear picture of how your loan shapes up – and the opportunities you can seize to pocket savings with a lower rate loan.
Home values were down 0.43% in July
Australian home prices fell 0.43% in July, and are now down 1.66% from their peak in March 2022, according to PropTrack Home Price Index Report for July 20225.
Prices continued to decline in Sydney (down 0.70%) and Melbourne (0.59%) with both markets now more than 3% below their peaks, which occurred in February 2022 in Sydney, and March 2022 for Melbourne.
Only South Australia and Western Australia experienced both capital city and regional market price increases in July. The price increases saw Adelaide, regional SA, and regional WA all record new prices.
More broadly, regional areas have started to record price falls, with values in all eastern states’ regional markets declining. Despite recent price dips, regional areas have seen home values soar 48.8% since the start of the pandemic in March 2020, far outpacing gains across the state capitals where values have climbed 27.5%.
Source: PropTrack
Cheaper to buy than rent 1 in 4 homes Australia-wide
A recent Buy or Rent Report7 from PropTrack estimates more than a quarter (27%) of homes Australia-wide could be cheaper to buy than rent over the next 10 years, based on current prices.
More than one-third of units across the country are estimated to be cheaper to buy than rent over the next 10 years.
The report adds that buying conditions are much more favourable outside of New South Wales and Victoria.
More than 50% of dwellings are estimated to be cheaper to buy than rent in Queensland, Western Australia, and the Northern Territory.
By contrast, in NSW, Victoria, and the ACT, less than 10% of homes appear cheaper to buy at current prices.
The report’s findings are good news for first homebuyers – and it’s certainly a strong incentive to speak with your local Mortgage Choice broker to know how you can become home loan ready sooner.
Source: Proptrack Buy or Rent Report8
Falling property prices could be just what many first homebuyers have been waiting for. However, Finder's First Home Buyer Report 20229 reveals one in three recent first home buyers blew their home-buying budget.
In some cases, the budget overruns were eye-popping, with Finder reporting that close to one in ten first homebuyers paid more than $100,000 over their budget.
Finder suggests part of the problem lies with underquoting of property prices, especially for homes being sold at auction.
Whatever the cause, buying over budget can have disastrous impacts if first homebuyers can’t secure loan approval for the amount they need to borrow.
This highlights the value of talking to a Mortgage Choice broker about getting a home loan pre-approved as it helps to set a buying budget, and this can allow buyers to focus their property hunt on homes priced to match their borrowing power.
Investors see rents rise by up to 15.3%
It’s no secret that rental markets across Australia are experiencing a tight squeeze.
SQM Research says the national residential property rental vacancy rate is a tiny 1%10. If we look beyond Sydney and Melbourne, vacancy rates are below 1% across the remaining state capitals.
Competition for rental properties is driving rents higher.
In a market that SQM Research says “remains significantly in favour of landlords”, capital city house rents have recorded 12-month increases of 15.3%, while unit rents have risen by 14.8%.
It can certainly make an investment property a very attractive option. And for many homeowners, who have built up substantial equity over the past two years, it may be possible to buy a rental property using home equity as collateral rather than dipping into cash savings.
To learn more about how you could become a property investor, speak to your Mortgage Choice broker today – and start tapping into a market where robust rents and wafer thin vacancy rates can support healthy cash flows.
Want to be on top of the property market? Find out what's happening in South Australia here.
1 https://www.rba.gov.au/media-releases/2022/mr-22-21.html
2 https://www.rba.gov.au/media-releases/2022/mr-22-21.html
3 https://www.abs.gov.au/statistics/economy/finance/lending-indicators/latest-release
4 https://cdn.mozo.com.au/roundup/mozo-banking-roundup-202207-6542ofds.pdf
5 https://rea3.irmau.com/site/PDF/0cc03195-cab4-459f-9a75-4e1c31b4331c/PropTrackHomePriceIndexJuly2022
6 https://rea3.irmau.com/site/PDF/0cc03195-cab4-459f-9a75-4e1c31b4331c/PropTrackHomePriceIndexJuly2022
7 https://rea3.irmau.com/site/PDF/80ba7c48-1d96-453c-927e-60d4f49d5058/PropTrackBuyorRentReportJune2022
8 https://rea3.irmau.com/site/PDF/80ba7c48-1d96-453c-927e-60d4f49d5058/PropTrackBuyorRentReportJune2022
9 https://www.finder.com.au/first-home-buyers-exceeding-their-budget
10 https://sqmresearch.com.au/14_07_22_National_Vacancy_Rate_2022_FINAL.pdf
