Last week’s interest rate cut hasn’t proven to be quite the shot in the arm many real estate agents thought it would be and as 2011 rounds out, the industry is hoping home buyers will come back with renewed vigour after the New Year.
On the face of it, the fundamentals look good for a positive start in 2012.
Affordability has risen thanks to the mix of falling home prices and back-to-back interest rate cuts, which were eventually passed on despite the seeming unlikelihood of that happening as the days wore on last week. There’s also the whiff of more rate falls either when the Reserve Bank gets back to business in February or in the months to follow.
On top of that, there has been a slight uptick in the number of home loans approved – evidence that more people are planning to buy.
And with Christmas looming we may see a last-minute buying rush as sellers decide they want to offload their homes before the year ends and buyers are equally keen not to drag out the home inspection duties any longer.
But caution remains. Outside of the booming mining industry, there is still plenty of talk of pain, which doesn’t engender much confidence to buy a house or upgrade for people in, or close to, those industries.
The problems clouding over Europe have bitten into the Australian psyche despite our economy being the envy of the world. There is the fear of contagion from potential problems abroad and it has householders trying to pay down their debt rather than going further into the red.
Australians have moved to an entrenched savings mentality and are tending to make do with what they have – as evidenced by the rising rate of home renovations reported by the Australian Bureau of Statistics and the poor auction clearance rates for most of this year.
The double rate cuts don’t seem to have helped yet – Sydney, for example, had its worst clearance rate of the year last Saturday at a revised 50.4 per cent. The same time last year it was 54.1 per cent. In 2009 it was 64.3 per cent.
If we look back at 2008 and 2009 we can see that what underpinned the sudden activity in the housing market then was the federal government stimulus.
Tempted by overly tasty offerings, first-home buyers jumped into the market, and their enthusiasm flowed onto people upgrading and even some investors. Yes, we’d had big interest rate cuts but it was really the federal government money that lit the buying fire.
Given the government is scrambling to get back into the black now, we probably won’t see such big incentives rolled out again in the near future should we hit another rough patch. And nor should we – affordability, having for many people reached a peak, is finally coming down now that the market is being allowed to find more of its own level.
That’s not good news for current homeowners trying to sell but if they plan to buy again in a similar market, the positives lie on the other side of the transaction.
So will the housing market fire up like a New Year’s Eve cracker once we get back into the swing next year? While rate cuts could provide a bit of a boost, people are wary of just why the cuts are coming – concerns about the economy.
So until the dark clouds disperse abroad and Australians feel like the world has moved out of rocky territory, the property market is more likely to light up like a New Year’s Eve sparkler come 2012 rather than the full shebang over the Sydney Harbour Bridge.