Will this continue?

It’s no secret the property market has experienced a price boom. The question is whether it’s set to continue?

Since March this year, Sydney, in particular, has undergone one of its most rapid housing price surges in history. At a time when the world is enduring an ongoing pandemic and our country has virtually stood still, this seemed impossible. As I reported last week, the median house price in Sydney has risen $1,220 per day this year – 15.1 percent!

But how long can this go on?

Some economists are already predicting that the growth will slow by the end of the year but, as we know, they don’t always get it right. The fact that the prices rose so rapidly has led them to reset their predictions for the annual results and even the big banks are now revising their forecasts.

The over-inflated demand for housing fuelled by the side-effects of the pandemic was difficult to foresee and has left a lot of analysts modifying prediction models. Government-assisted programs, remote workplaces, and low interest rates have contributed to a desire to relocate or enter the property market. However, on the converse, the uncertainty of the economic outcomes of the pandemic has left even more homeowners reluctant to sell. This has resulted in a disproportionate supply/demand ratio and the fear of missing out, which in turn ignited the frenzy.

Part of the frenzy has been a push from borrowers to maximize their mortgage potential. With interest rates as low as they are likely to go and prices rising faster than logic can reason for, the pressure to stretch affordability to its limit has never been greater.

The concern now is being voiced by mortgage brokers who worry about even the slightest shift upwards of interest rates. They are feeling the responsibility of warning their clients about the real risks of taking on massive debt and are alarmed that their clients are for the most part ignoring the advice.

They are also worried that the recent housing incentives doled out by various governments could have given borrowers a false sense of security that the government will be there to bail them out if needed.

With interest rates so low, borrowers believe it is cheaper to pay their mortgage than to pay rent and this is dangling another carrot to take on whatever they can. Most believe that rising house prices will outpace any negative equity from interest rate increases so are not so worried about the inevitable interest rate rises and ability to service their mortgage.

Fixed interest rates have begun to rise slightly and will likely experience further hikes. However, many buyers believe that as expats and foreign investors start to filter back into the market prices will continue to be pushed upwards. They are also confident that their own wages will increase, affording them the ability to continue to repay their loan.

Ultimately it is up to the consumer to factor in changes to the specifications of their mortgage and the buffer they have to withstand the changes; whether that be reduced spending, saving, refinancing or selling their property.

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Published August 24, 2021

By Belinda Cassano