Forget societal pressures, these are the reasons why you shouldn’t buy a house right now.
IF YOU are one of the growing number of Australians who thinks they will never be able to afford a house, listen up.
Leading housing commentator and AMP’s chief economist, Shane Oliver, has made a compelling argument as to why you should NOT buy a house right now. So sit back, relax and feel reassured that you are actually doing the smart thing by sticking to renting.
As a quick disclaimer, Mr Oliver told news.com.au that it is important not to generalise when it comes to housing affordability as in some parts of the country — Darwin and Perth in particular — prices have retreated back to where they were a decade ago. However, for the rest of Australia — particularly Sydney, Melbourne and Brisbane — there are “several reasons” it is best to hold off getting onto the property ladder.
WHAT GOES UP MUST COME DOWN
Rest assured, house prices will come back down to earth. So while price growth has been breaking records, it won’t last forever. It’s basic economics, explains Mr Oliver.
“If you look at past cyclic patterns in house prices, periods of strength are often followed by periods of weakness.
“We have seen this several times over the last decade or so now — with weakness around 2004-05, again around 2008-09 and again in 2011. Prices in Sydney fell on average somewhere between 5-10 per cent.
“So after such a huge run up the likelihood is we would go through a period of weakness, which would then provide opportunities for buyers where they can buy at a much lower price than what is currently the case.”
AMP Capital Chief Economist, Shane Oliver, says you shouldn’t buy a house right now.Source:News Limited
RENTS ARE GETTING CHEAPER
Part of the housing affordability issue is the cost of renting. In major capital cities it is almost impossible to save for a deposit while renting. But rents are actually beginning to plateau at a time when price growth is so strong, making staying in your rental property the better financial decision right now.
“This is tilting the equation in favour of renters. Wages growth is soft and we are starting to see an increase in the supply of apartments,” Mr Oliver told news.com.au.
“When the supply of rental property goes up, that tends to lead to weak rental growth. If you do the math, rents aren’t keeping up with prices therefore there is an argument to rent and hold off to save for a deposit.”
It is also “quite possible” that rents could go backwards as supply increases further, Mr Oliver said.
According to CoreLogic’s latest ‘Mapping the Market’ report, rental rates across the combined capital cities are falling and showing their largest declines in more than 20 years.
SUPPLY IS INCREASING
Australia is currently facing an under supply in the property market, which is part of the reason prices have been pushed up. But there is new supply already coming on to the market, or set to hit the market, which will even up the supply versus demand balance and ease prices.
“This supply overhang which is increasing the construction of apartments is occurring across Sydney, Melbourne, Brisbane and Perth in particular,” Mr Oliver said.
According to the latest building approvals statistics released by the Australian Bureau of Statistics, the total number of houses and apartments approved for construction increased for the ninth consecutive month in August.
“It will hit the market in the next couple of years or is already hitting the market and will continue to hit the market. When that occurs it is likely that’s going to put downwards pressure on prices, reinforcing the weakness that will likely occur anyway,” Mr Oliver said.
INTEREST RATES WILL RISE
This seems counterintuitive and against everything you’ve been told, but you are actually better placed to buy a home when interest rates are rising. And considering the Reserve Bank has been in a monetary policy easing cycle since it cut the cash rate in November 2011, rates are tipped to begin rising again in the next couple of years — so buyers should hold off until then.
“Despite what people think, the best time to buy property is when rates are high and rising. That is when people can pick the bargains up,” Mr Oliver said.
“This is because there is less competition and because people think it is unaffordable. I tend to think that is a good time to buy because it is when prices are the lowest because a lot of buyers have dropped out.”
And when rates do finally start rising, Mr Oliver said it is likely to be a longer period of tightening.
“Normally, the downward part of the cycle lasts a couple of years … This cycle could be drawn out a bit because the up cycle has taken longer. We have now had more than four years of growth,” he told news.com.au.
“So the up cycle has gone for longer than normal and has been stronger than normal. Therefore the downwards part of the cycle may be longer and deeper.”
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A look at the nation's property market for the week ending 23rd October