Contemplating a Sale – July 2017

If you’ve been contemplating a sale, there is some indication from experts that now may be the ideal time to sell up and capitalise on growth markets. With growing concern from economists that Australia’s housing market is in a bubble and has reached its peak, there’s a feeling that a significant correction is imminent, especially in Sydney and Melbourne where housing values are considered over-inflated.

Some economists predict an extended period of stagnation or at worst a 10-15 per cent price slide. ASIC’s Greg Medcraft shared his warning of a bubble earlier this year and ratings agency Standard & Poor’s is becoming increasingly vocal about Australia’s housing risks. A small minority is predicting a 20+ per cent drop, citing a couple of reasons for the prediction.

Firstly, Australia’s record household debt is now around 189 per cent of incomes and more than 123 per cent of GDP. Globally, when it comes to housing and personal debts, mainly property, that puts us right up there. It also makes households very vulnerable to any rise in interest rates or tightening in lending standards that reduces access to refinancing or extra credit.

The second factor making a drop likely is the lack of liquidity in the housing market – how easy it is to buy or sell when you want to. While the property market is rising and finance is freely available, prices tend to be pushed up. Easy availability of loans means the pool of buyers gets bigger, while expectations of continued price gains keep the number of sellers low.

We’ve seen a great deal of this lately in major East Coast markets however the feeling is that this can’t go on forever. There is a finite limit to how much debt households can sustain, especially with wages growth at its lowest level since at least the last recession, and it will likely be investors in particular who feel the pinch.

In New Zealand property news, international ratings agency Moody’s Investors Service has downgraded the credit ratings of the four big New Zealand banks in line with downgrades of their Australian parents, citing concerns about the Australian housing market.

The long-term ratings of Australia’s ANZ, Commonwealth Bank, National Australia Bank and Westpac were downgraded to AA3 from AA2, and their baseline credit assessments (BCAs) were downgraded to A2 from A1. Consequently, the long-term ratings of ANZ Bank New Zealand, ASB Bank, Bank of New Zealand and Westpac NZ were downgraded to A1 from AA3.

Massey University banking expert David Tripe said the downgrades could put about 10 basis points of upward pressure on New Zealand lending rates.