COULD THE BOTTOM OF THIS MARKET CYCLE BE NEAR?
CoreLogic’s latest Home Value Index shows that consumer sentiment has improved, further interest rate hikes appear to have been ‘priced in’, and the speed at which prices have been falling has slowed so greatly that it looks increasingly likely the bottom of this market cycle is near.
In fact, based upon the emotive language we’ve seen used to describe minor monthly falls in values of late, the rate Sydney’s values fell at last month might in a parallel universe be described as ‘shockingly lethargic’. There, the monthly rate of decline slowed from -2.3% in August to -1.8% in September. We’ve seen smaller adjustments described as ‘horrifying’, ‘in free-fall’, ‘collapsing’ and ‘plunging’!
In Melbourne, the rate of decline slowed from -1.2% to -1.1% in September. Brisbane held up a mirror; its rate of decline slowed from -1.8% to -1.7%. In Darwin, housing values haven’t started falling.
The pace of falling house prices picked up marginally in Perth and Adelaide, but both of these cities were much slower to begin to experience the reversal of fortune being seen on the Eastern Seaboard. Even so, the reduction in values in both cities could only be described as mild compared to other capital cities.
Even throughout country areas where we’ve just started to see prices fall, the pace of decline slowed – but let’s not forget that prices across our regional cities and towns jumped 40% through the pandemic.
Could the bottom of this market cycle be near?
Frankly, it may have already passed. While it’s too early to say, the busy spring season has arrived and auction clearance rates have remained solid despite the increased volume of listings. In fact, clearance rates have been on an upward trajectory since July. When it comes to prices, since they started dropping in April, September produced the smallest declines. When October’s results are in, we may see evidence of reversal in many markets.
Official interest rates are expected to continue to rise but remain historically low, and First National’s agents have seen a 10.4% surge in first home buyers at open homes. Knowing first home buyers have an almost innate sense for opportunity, this would certainly suggest they’re keen to get in before prices start rising again.
Australian household finances vs cost-of-living pressures
One of the reasons that prices have shown such resilience in the face of high inflation & rising interest rates is that household financial deposits have trended strongly upwards since 2005. There was also a period of increased saving during the GFC and COVID pandemic, and the period of lower fuel & electricity prices in 2015 & 2016 boosted the ability of Australians to save. The ratio of housing interest payments to income has also fallen to its lowest levels since 1999, and household debt has trended lower as a proportion of housing values, according to RBA data.
For just under 40% of households, Australians with a mortgage, the interest burden fell to its lowest level in 42 years in the March quarter.
These households will economise while discretionary items like fuel, electricity and food continue to rise but the 30% of households without a mortgage will benefit from higher interest rates, and be able to spend more. With savings at record highs, these households actually prefer higher interest rates.
Monthly change in capital city home values
MONTHLY ANNUAL
Sydney q 1.8% q 6%
Melbourne q1.1% q 3.9%
Brisbane q 1.7% p 13.4%
Adelaide q 0.2% p 19.2%
Perth q 0.4% p 4.1%
Hobart q 1.4% p 2.0%
Darwin 0.0% p 6.2%
Canberra q 1.6% p 4.0%
National q 1.4% p 1.7%
HOW TO DECLUTTER YOUR HOME THIS SPRING
With winter behind us and longer days to come, getting stuck into your home to declutter and clean is a great way to launch into a relaxing summer.
Lists and Boxes - As you sort, you’ll find most things need a new destination. Inevitably you’ll find old broken things that need to be repaired, thrown out, or replaced. It’s a great idea to get a few different lists on the go & also some boxes or spaces you can sort different items into. Sort things into different piles as you go - boxes marked garage sale, rubbish bags, goodwill bags & a repairs box – then you have everything organised for the next stage of your spring cleaning – getting it out of the house or back to usefulness.
Book a garage sale, a goodwill pick-up or rent a skip bin - Set helpful deadlines for yourself & schedule a date for a garage sale, call your local goodwill to come & do a pickup, or rent a skip bin for a couple of weeks to give you solid timeframes. A more measured approach will keep you motivated & encourage others in the house to chip in, knowing there’s an end in sight. If that doesn’t work, bribe them with pizza.
Clean, paint and repair - Now that the chaotic top layer of life’s junk has been removed, you can start to really get in & give everything a good clean. Cleaning shelves, inside drawers, windows, light shades, fans & filters & behind furniture is not something all of us do regularly, but it’s great to do it a couple of times a year to clean for a healthier environment.
HOW TO FAST TRACK PAYING OFF YOUR MORTGAGE
Knowing you are chained to a mortgage for 3 decades or more can be daunting. There are ways you can mix up your strategy, however, with the reward of reducing the balance of your mortgage, as well as the time y0u’ll take paying it off.
Adjust your psychology
Nobody likes the idea of short-term sacrifice for long term gain but thinking about pockets of sacrifice throughout the lifetime of your mortgage can make it more digestible. Over 30 years there will be as many lean times as there will be times of prosperity. Career aspirations should be considered in line with your mortgage too – double income households that are both benefiting from pay rises as they progress professionally will be in a great position to really carve a chunk out of a mortgage by living off one salary and directing the other to the loan repayments for example. Tightening the budget for 2 to 5 years and reducing the mortgage as much as you can during that time, then relaxing into a more manageable balance, is much easier than living a restricted lifestyle for most of your life.
Tighten the purse strings
Whatever strategy you choose in terms of repayments through the lifetime of your loan, tightening your budget will always make a difference. If you don’t currently track your spending, make the change now. There are plenty of apps that will do the job, or you can use the humble spreadsheet, or even handwrite it in a notebook. Every month there will be something that can be skipped, reduced or removed altogether. Delaying things from one month to another to spread the expenses across the year will help boost your month-to-month repayments, without impacting on your lifestyle too much.
Maximise an offset account
If you don’t already have an offset account for your mortgage, you should get one! The balance of your offset account is used to calculate the interest payable on your mortgage – if you have $10,000 in your offset account and a $600,000 mortgage, then interest will be calculated against $590,000 instead. The higher the balance of your offset account, the less interest you will pay. Getting a salary paid into your offset account is a great way of increasing its balance, as is transferring savings or your buffer account balance.
Increase your mortgage repayments
Paying more off your mortgage from month to month is of course the best way to fast track paying off your mortgage, but it’s also the most challenging. If you tighten your budget and pay a big chunk of it down early on, then reduce your interest via your offset account, you’ll definitely make some progress. Finding ways to increase the money you’re actually paying across will also make a big difference. This isn’t always easy, but as mentioned previously, identifying blocks of time across the lifetime of you mortgage where you can boost your payments, such as when your salary increases or once block expenses like school fees are finished will all make incremental but rewarding differences.