May 2017 Property Market Update Is the Market Finally Cooling?

June 1, 2017

May 2017 Property Market Update  Is the Market Finally Cooling?

The latest property market update points to a noteworthy shift in the Australian market, particularly in the housing hot spots of Sydney and Melbourne. Home values have stopped their rapid rise! A look at the numbers for April reveals that in most of the major urban centres, the remarkable growth that has marked the property market for the past five years may have reached its peak.

In Sydney, home values remained virtually unchanged. In Melbourne, they rose by only 0.5 percent last month. In other areas, the trend was similar, although cities like Adelaide and Darwin are showing some signs of promising growth. Overall, however, the recent updates point to a cooling Australian property market. Will this continue over the next few months, meaning the growth cycle is finally moving beyond the peak?

Is April Really the Beginning of the Cool-Off Period?

It is possible that seasonal factors could have skewed April’s numbers so you’ll have to keep an eye on the property market over the next few months to really see if this slowdown is sustainable. April is notorious for a decrease in mortgage activity and transactions, which tends to correlate with a fall in capital gains. During this time, many families are travelling for spring break and setting time aside for the Easter holiday, rather than making an appointment at the bank to refinance their mortgage or buy a new home.

However, according to real estate analysis firm CoreLogic, April of last year didn’t see such a significant slowdown. Also, there are several factors that indicate last month wasn’t an anomaly and that increases in home values may indeed have come to a screeching halt.

Factors Impacting the Current Softening of the Australian Housing Market

It wasn’t only property values that cooled. Transaction volumes fell in April, as did mortgage related activity. Mortgage activity was the slowest that it has been since July of last year.

What may be an even larger contributing factor, however, is mortgage rates. Rates have been steadily moving up since August of last year, making it even more difficult for homeowners to handle their current mortgages and discouraging investors and first-time buyers from purchasing new properties.

While the Reserve Bank of Australia hasn’t changed the cash rate recently, banks have been announcing gradual increases, causing rates on investor loans to jump 25 basis points. This is the equivalent of a rate hike by the RBA. For owner-occupied loans, mortgage rates have gone up 10 basis points.

In the current financial climate, both homeowners and investors are extremely sensitive to these changes, which pushes down activity even further. Australia is facing a unique situation right now, with household debt levels at record highs. This makes every increase a challenge for borrowers. For investors, it becomes more difficult to profit from a property investment when borrowing is more expensive.

The result? Less people are entering the market all around.

Wait, there’s more. The banks have new mandates to deal with they are no longer allowed to originate more than 30 percent of new mortgages on interest only terms, which will make it harder to attract borrowers. These restrictions may encourage banks to push rates even higher in order to make up for the fewer mortgage transactions.

The Future of the Australian Property Market

There’s no way to know for sure what will happen over the next couple of months. Many predict that rates will continue to rise, which means if you are thinking of refinancing, it may be a good idea to act soon and apply to refinance for a fixed rate mortgage before the banks raise rates again.

While no one can predict the future for certain, what is clear is, for the first time in years, it is realistic that the Australian property market may be softening. Those ballooning prices, at least in Sydney and Melbourne, may have reached their peak.

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