Market splits as homebuyers and downsizers surge to the forefront.
31 August 2015
According to preliminary auction results, there were a reported 841 residential properties auctioned in Melbourne at the weekend, with 643 of these selling and 198 being passed in, 76 of those on a vendor bid.
The news headlines have caught up with WBP Market Wrap’s recent predictions and there is no doubting homebuyers and downsizers are back in the game. The weekend saw strong results for Melbourne property, overall, but it’s hard to ignore the disparity reported in clearance rates for houses versus apartments and units – we’ll come back to that point.
The restrictions APRA placed on banks this year limiting loans to investors has led the banks to make up the shortfall in business from the non-investor market. Highly attractive lending rates and fewer investors to compete with has brought on the surge in activity from homebuyers and downsizers, which in turn is perpetuating an even stronger seller’s market – exactly what APRA was trying to stymie.
Let’s take a closer look at why the homebuyer and downsizer market has surged to the forefront, leaving investors in its trail. On the one hand we have a buying class paying approximately 3.6% on their mortgage loan – these are the homebuyers and downsizers. On the other hand we have a buying class paying 4.5% on their loan, who are also required to meet lower loan to value ratios, meaning more equity is required to secure a loan – these are the investors. This means one buying class has a larger borrowing capacity.
The inevitable result is a powerful group of homebuyers and downsizers returning to the market with gusto – an unintended outcome of the Australian Prudential Regulation Authority’s (APRA) efforts to calm the market down.
The surge in homebuyer and downsizer activity will support future growth across all sectors, particularly for houses priced from $750,000 and, to a slightly lesser degree, well-located villa units. This partly explains the disparity in weekend results for houses versus apartments and units. The other factor contributing to this current disparity is the lower quality of apartment and unit offerings, which is expected to improve into spring.
Even with lower investor activity, competition will still be tough during spring and through to the end of the year. Market strength is expected to continue into next year, assuming no major economic or political events occur to upset market confidence.
Regardless of whether you’re buying a home or investment, the same considerations apply. If you’re seeking a property with strong capital growth potential, be sure to analyse its past performance as this is a key indicator of future performance.