So hot right now
Despite dire predictions, the Australian property market is booming. How did it happen and where to from here.
Feeling richer? The average Australian homeowner has an extra $60,000 equity in their pockets, thanks to a real estate boom no one saw coming.
Between March 2020 and March 2021, the average value of an Australian home rose 6.2 per cent from $554,229 to $614,768, according to CoreLogic. And much of that was recorded in March alone, which logged a 2.8 per cent leap in values – the largest monthly increase since October 1988.
This sharp rise prompted many economists to revise up their forecast for capital city price growth.
Mind you, a year ago experts were predicting a housing market collapse of 10-20 per cent that never materialised. How did they get it so wrong and can this sellers’ market last?
A different kind of boom
In a year that turned many things on its head, property market trends were no exception. Capital cities were left in the dust as home buyers raced to the regions.
In the 12 months to March 2021, regional home prices were up 11.4 per cent compared to an average increase across the capitals of just 4.8 per cent. That’s a reversal of the usual trend for capitals to outpace their country cousins.
And among the capitals, it was the outliers that shone, with Darwin, Hobart and Canberra eclipsing more restrained growth in Sydney and a barely there rise of 0.7 per cent in lockdown-hit Melbourne.
|Annual change March 2020||Annual change March 2021||Median value 2020||Median value 2021|
Source: CoreLogic Home Value Index – April 2020/April 2021
Why were the experts so wrong?
To be fair, who could have predicted anything in 2020? And most of the dire predictions about the property market were made at the beginning of the pandemic, before the Federal Government and the Reserve Bank weighed in to steady the ship. Here’s the key reasons housing surged rather than collapsed.
- Interest rates: This is probably the biggest factor in the housing market equation. The RBA cut the cash rate to 0.1 per cent and made the extraordinary statement that it didn’t expect to raise rates until 2024. This delivered a shot of confidence to nervous first-time buyers and homeowners looking to trade up. The RBA also embarked on a program of quantitative easing to put downward pressure on interest rates.
- Supply vs demand (demand won): You know it’s a red-hot market when houses are selling before the first home open, auction clearance rates are up more than 80 per cent and reserves are being toppled. There are substantially more buyers than sellers driving prices higher. How did this start? Well, when the pandemic hit there was a sharp contraction in listings, as owners feared a price collapse. When low-interest loans and a raft of stimulus aimed at first home buyers and the construction market instead triggered a rush of buyers, there simply weren’t enough houses to go around. There still aren’t, with total listings still down about 25 per cent on long-term averages and economists talking about FOMO (fear of missing out) as a market force.
- Renters got hit harder: This was a different kind of economic slowdown that has created definite winners and losers. The impact of business shutdowns fell disproportionately on younger, lower-income workers in hospitality, tourism and the arts, who tend to be renters rather than mortgage holders. This meant the property market was insulated from the worst fallout. Workers who held their jobs found themselves well placed to take advantage of lower interest rates and incentives.
- Forced savings: People banked a lot of cash when they couldn’t spend it globe-trotting or popping out for smashed avo. Tourism Research Australia reported that in 2019, when the world was ‘normal’, Australians spent $65 billion on international travel, half of which was holiday travel. That’s a lot of money suddenly available for other purposes. What else to spend it on other than a nicer home – as we have all been spending so much time there.
- Building incentives/mortgage deferrals: Stressed borrowers were able to defer loan payments, preventing a rash of distressed sales. (The scheme hit a peak in May 2020 when 10 per cent of home mortgages were in deferral. This had dropped back to less than 1 per cent as of March.1) A raft of Federal grants to build or renovate triggered a building boom, with the Australian Bureau of Statistics reporting that construction approvals for private homes hit the highest monthly figure on record in February this year.
- Expat buyers: More than 440,000 Aussies living overseas returned home last year and joined the hunt for housing, fuelling already hot demand.
That’s the million-dollar question, particularly for homeowners contemplating a move or upgrade.
Many may be tempted to test the waters and put their home on the market, but it triggers an age-old dilemma: sell then buy, or buy then sell?
Selling first in a fast-rising market can be risky. No one wants to get caught out trying to buy back in. So, with interest rates at record lows, upgraders often opt to buy first, locking in a new home before listing their old one. But this, in turn, drives the supply/demand imbalance by further inflating the pool of buyers relative to sellers.
The main things that could cool the market in coming months are a rise in supply (property listings); a rise in interest rates; a rise in unemployment; or government intervention in the form of tighter lending restrictions.
The key indicators to watch in coming months will be:
- Auction clearance rates (the higher the hotter).
- Mortgage approvals (rising numbers usually means rising prices).
- Property listings (as they rise it should help take the heat out of buyer FOMO).
In the meantime, homeowners can sit back and watch values rise. In some states, such as WA where the market has been flat for quite some time, this makes for pleasant viewing.
1 Temporary loan repayment deferrals due to COVID-19, February 2021, apra.gov.au
Lock it in Eddie
Getting the itch to fix? Choosing the right time to lock in an interest rate can be tricky.
In the past year interest rates on fixed-rate loans have plummeted to all-time lows, prompting many borrowers to ask whether it’s time to lock in a rate.
If you’re thinking about it, you’re not alone. The number of homeowners opting for a fixed rate loan jumped sharply in March last year and remained high as rates continued to fall. According to the Australian Bureau of Statistics’ Lending Indicators data, the proportion of new home finance in fixed loans has jumped from around 14 per cent pre-COVID to just under 40 per cent. There are a few things to consider before you look at fixing.
First, how do interest rates compare on fixed and variable mortgages?
Across the past few months, fixed rate mortgages are tracking lower than standard variable mortgages, in some cases by quite a significant amount.
Do you expect interest rates to go up or down?
The major advantage in fixing is to avoid, or at least postpone, an expected rate hike. At the same time, no one wants to fix, then watch rates fall further.
Under normal conditions, when fixed rates are lower than variable rates it indicates the market expects further cuts. But with the RBA cash rate at 0.1 per cent, further cuts are highly unlikely. So, what gives?
Why are fixed rates so low?
The key phrase above is “under normal conditions”. Remember those?
When the pandemic hit last year, the Reserve Bank deployed billions to support the Australian economy through lockdowns and job losses. One of these measures was the Term Funding Facility. Set up in March 2020, the TFF is supplying money to banks on cheap three-year terms to support lending. It’s a great deal for lenders. They borrow from the RBA (at 0.25 or 0.1 per cent), then pass it on at a low rate to consumers, which is one reason fixed rates are so low. The TTF winds up at the end of June.
What can impact interest rates?
RBA cash rate: Reserve Bank Governor Philip Lowe has said the bank doesn’t expect to lift rates before 2024. It believes the Australian economy can’t sustain a rise until sluggish wage growth hits 3 per cent a year, which the RBA believes requires unemployment to drop to 4 per cent, and that is unlikely before 2024.
Bond markets: Bank interest rates do not mirror the RBA’s official cash rate. While the RBA may keep rates on hold until 2024, banks raise capital in bond markets and if the cost of money there rises, mortgage rates are likely to lift independent of the RBA rate. Rising bond yields signal inflation and possible interest rate rises. Yields spiked in February, but the RBA began aggressively buying bonds to hold them down. Commentators say money markets are pricing in a cash rate rise before 2024 and some lenders have recently lifted their four-year fixed rates.
It’s not just about interest
Interest rates are a major factor in deciding whether to fix or float but there are other things to weigh up.
- Fixed rates are currently very competitive.
- If you’re on a tight budget, fixing gives you certainty about repayments for the length of your loan term.
- Lock in at the bottom of the cycle and save on rate hikes.
- If you sell during a fixed term, you may incur significant break fees for ending the contract early.
- You will also be hit with break fees if you want to access equity generated by rising house prices in your home by refinancing during the term.
- You may not be able to pay off your loan faster by depositing lump sums or increasing your repayments as suits.
- Many fixed-rate loans do not come with offset or redraw facilities.
- If rates climb significantly during the fixed term, it can be a budget shock when mortgages revert back to a standard variable rate.
Is there a third option?
There are strategies to hedge your bets. Some lenders offer split home loans. These are exactly what they sound like – borrowers divide their mortgage between fixed and variable rates in any ratio they like: 70:30, 50:50 or 60:40. This allows extra repayments on the variable portion without incurring fees, and if interest rates rise, repayments on the fixed portion stay the same. If you have an offset account however, you will need to ensure enough of the split is retained in the variable portion to maximise savings, as offsets are not always offered against fixed loans. Get in touch and we can look at whether splitting your loan may suit your individual circumstances.
Another tactic uncertain borrowers adopt is to fix for a short period – say one year – then reassess.
If you would like to run through your options and the current range of low-rate fixed mortgage products on the market, get in touch with me to make a time – I’m always here to help.
Hide in a cupboard, launch an escape pod or retreat to the garage – you may have more options than you think to create a peaceful home office.
If we’ve learned anything in the past 12 months, it’s that study nooks no longer cut the mustard.
They may be great for paying a few bills but trying to get a productive day’s work done is next to impossible when you’re surrounded by inconsiderate and noisy co-workers (AKA your family).
Working from home was not only the biggest change and challenge of the pandemic, but also looks to be the most enduring. Many people hope to hold on to some flexibility post-COVID, working from home at least one day a week. And that sentiment has seen demand for home offices skyrocket, pushing it to the top of buyers’ wish lists.
In the second half of 2020, “study” was the most searched keyword on realestate.com.au, leaping 52 per cent to edge out perennial favourite “outdoor space” for the first time.
The growing trend was backed by results of a survey from the Real Estate Buyers Agents Association that ranked home office third on buyers’ priority lists after a large kitchen and outdoor entertaining space.
That’s a significant change considering two years ago it didn’t even crack the top 10.
Creating a separate work space that is out of view of the living areas is also good for work/life balance. Switching off means you don’t want to be constantly catching sight of the paperwork you need to tackle.
It means creating a home office is now the ideal renovation project to not only make your home more liveable, but to add value. Before working out how much you want to budget for the project, it’s worth talking to an accountant to find out what expenses may also be tax deductable – another advantage to prioritising an office reno over the more traditional bathroom update.
If you think you don’t have space to carve out a home office, here are a few ideas.
Chairman of the (cup)board
A home office space doesn’t need to be huge, but it does need to be private – even if that’s just the ability to close a door to make calls or Zoom without children or pets interrupting.
If you have a spare bedroom – or second living area – consider repurposing built-in cupboard space to create an instant office within the privacy of a room away from busy family living areas.
That way, the room can still be used for another purpose in the evenings or on weekends, but on the days you need to work from home, it transforms into a convenient office. And at the end of the day, you don’t need to clear the dining table to eat – or put your paperwork away from little hands or stickybeaks. You can simply close the cupboard doors and make a short commute up the hallway.
The larger the cupboard the better, but an average built-in wardrobe is plenty wide enough for this project.
Install a desk across the width of the cupboard, with shelving above. A designer tip to maximise small spaces is to fully utilise vertical space with shelving to the roof. Wi-Fi-enabled printers can be located anywhere in the home to free up bench space if necessary.
An interesting feature colour or wallpaper on the interior of the cupboard can make it look and feel more like a pop-up office than a broom cupboard.
If you are using a spare bedroom, it’s unlikely the cupboard space will be missed. But if you do need clothes storage, a freestanding cupboard and drawers should fill the gap.
Peace in a pod
Expanding your home doesn’t have to involve building. Prefab pods are the latest way to add an extra room instantly. Their popularity has boomed in the past year as people sought quick and easy ways to juggle working from home with the chaos of a hectic house.
And if you’re thinking old-school demountable, think again. In a garden setting, sleek designer pods are a statement, rather than an eyesore.
The price points stack up well against the cost of a more traditional home renovation too, with some companies offering ready-to-use turnkey pods sitting around the $20,000 mark.
Once you have a level pad prepared, they can be installed on site and ready to use in as little as two hours. Another upside is that pods generally don’t require planning permission.
More high-end sleek designer pods, such as the pictured Harwyn Pro, start around $35,000 for a carpeted, work-ready cabin with floor-to-ceiling glass to maximise natural light. Several prefabricated cabin companies launched purpose-built, standalone office pods last year, when demand for private home workspaces went through the roof.
This home office solution also comes with one major advantage – you can take the pod with you when you move, or simply sell it when you decide you don’t need it anymore. You can’t say that about too many rooms in your house!
If you have a bit of skill and the time, DIY shed/office kits start under $10,000.
Become a convert
A garage conversion is a simple way to find extra space in your home.
You may choose to hive off a narrow section to create a small office or convert the entire area to living space and build a freestanding carport. Replacing garage doors with glass sliding doors brings in lots of natural light, which is ideal for working.
A garage conversion can also provide the opportunity to create a spacious home office with a separate entrance, so clients can come to your home office without walking through the living areas of your house.
The cost advantage to a garage conversion is that you’re generally working under the home’s existing roofline, although you will need to investigate the slab. It needs to be waterproof, termite-resistant and level. You’ll also have to ensure there is adequate insulation in the walls and ceilings and have power points and lighting fitted.
Other things to bear in mind include ceiling heights and boundaries. Walls within 900mm of a boundary must be fire rated, which can affect the location of doors and windows.
Development approval is generally required to convert a garage into a living area. And, as a rough guide, people can spend in the region of $20,000-$40,000, depending on additions such as a sink, toilet or shower room.
A double garage can provide enough space for a home office/rumpus. When it comes to resale, a flexible second living area is in high demand and particularly popular for families with teenagers.
Need finance for a renovation project to make your home a better fit? Contact me today to discuss your options.
Haven Extras Winter 2021
Clean dishes, happy fishes
Zero Co Australia is on a mission to make a difference in our planet’s enormous plastic waste problem. Their intention is simple: to ‘unrubbish’ the world by stopping the production of new single-use plastic while also cleaning up the plastic that’s junking up our oceans.
Zero Co deliver great home-cleaning and personal-care products direct to your door, minus single-use plastic. How it works: empty dispensers (made from plastic rubbish pulled from the ocean) arrive to your door and are for you to keep; you fill them with the contents from a matching reusable pouch (made from plastic diverted from landfill). Once you’ve collected enough of the empty pouches, you send them back (for free) to Zero Co in a reply-paid postage satchel, which cleans and refills it, then sends it on to the next customer – over and over again.
Since launching last year, Zero Co has removed more than 6,000kg of plastic rubbish from the ocean – that’s the equivalent of more than 500,000 water bottles worth of plastic. And they’ve set themselves an audacious goal for 2021: to collect 21 tonnes of ocean bound waste and turn it into their forever bottles.
It’s super simple: you order online, they deliver, you return (for free), they refill. Wave bye-bye to single-use-plastic at your place.
Paver weeds begone – au naturel
Forget spraying environment hurting herbicides around your house – no one wants nasty chemicals in their yard or leaching into the water table. Instead try this sure-fire solution to kill the pesky weeds that pop up between brick and stone paving. It not only knocks the weeds dead, but also retards the soil beneath the paving, helping prevent future growth.
Simply mix together:
- 2 cups of salt
- 9 litres of white household vinegar
- A squirt of dishwashing liquid
Then pour the solution directly onto the surface of the weeds.
How does your winter garden grow?
With cooler weather now upon us, summer salads take a backseat as our tummies start yearning for food that warms and sustains. Whether a gung-ho gardener or a novice that wants to give it a go, here are some of our favourite winter vegies that grow in Australia in coming months. If confidence in growing your own isn’t high and your local farmers market is your go-to instead, you’ll like our ideas for injecting some winter veg into your culinary repertoire.
Broccoli and cauliflower: take the family favourite cauliflower cheese topped with luscious cheesy bechamel sauce to another level by combining the cauli with its Brassica cousin, the broccoli. Broccoli pairs with cheese sauce just as well as cauliflower, and when the two are put together it’s a match made in heaven.
Spinach and silverbeet: Popeye knew how good this leafy green was, and winter is the time for it to shine. Its versatility is excellent – try it in a stir fry, through an Indian curry, in hearty soups, wilted through pasta or pair it with salty feta by making a gorgeous Greek spanakopita pie topped with flaky filo pastry. Yum!
Carrots: while they can grow all the year round, carrots are particularly well suited to warming winter soups, hotpots and roasts. Or for a decadent alternative to the ever-popular potato bake, pair the humble carrot with another winter root vegetable, the parsnip. Slice both finely and layer with gruyere cheese, cream, a little crushed garlic and salt and pepper before baking in a moderate oven.
Beetroot: bring the rainbow to your table with delicious, earthy beetroot. A winter vegetable superstar, warm roasted beetroot loves to be paired with a soft goats cheese and also marries well in a warm salad with chickpeas and toasted almonds. And for those that like to bake, don’t forget that old classic the beetroot chocolate cake – when combined with bittersweet chocolate, beetroot adds a rich, super moist decadence that’s hard to beet.
We can help you
We’re here to help if you have any questions or wish to review your circumstances. Please don’t hesitate to contact us.
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.