August 2018 Newsletter

TOOLS AT THE READY …

Australia is on the brink of a housing-renovation boom, with more that $40 billion expected to be spent on renovations over the next five years to 2023.

The reason for the reno-boom? A large number of houses that were built in the 1980s are getting close to or are at the 30-year age mark and need work done, according to property experts.

The Housing Industry Association (HIA) has predicted the renovation boom will happen late over the next decade. “The boom in house building in the late 1980s is set to provide big opportunities,” Shane Garrett, HIA senior economist says.

This follows the release of the latest edition of the HIA Renovations Roundup Report, which highlights Australia’s home renovations market, recent developments and forecasts. The latest report revealed a “strong correlation” between the number of renovations and the current age of houses.

“The more houses there are between 30 and 35 years of age, the greater the need for renovations and improvements to those houses,” Mr Garrett says.

“The good news is that the number of houses in the key renovations age group will increase substantially over the next decade – a result of record volumes of detached house building during the late 1980s. Houses in the ‘1980s club’ will become increasingly ripe for renovation work over the coming years.”

In NSW, renovations have been gaining speed, with renovation work growing by 5.7 per cent over the June quarter, five per cent higher than this time last year. Victoria experienced a growth of 1.4 per cent over the quarter, 12.6 per cent higher than this time last year; Queensland’s activity is up 3 per cent for the quarter but still down 7.1 per cent compared with the previous year; while there’s a downturn in South Australia, Western Australia, Tasmania and the ACT. The Northern Territory is currently riding a three-year upturn, with activity currently up 10.5 per cent over the quarter, 27.3 per cent higher than this time last year, due in no small part to detached housing from the 1980s.

ANOTHER TYPE OF BOOM …

According to Business Insider magazine’s property guru Pete Wargent, Australia has never built as many homes as it is right now.

Say what now? Yep, according to the Australian Bureau of Statistics (ABS), there were 224,914 residential dwellings under construction at the end of March this year, surpassing the record of 222,142 set back in the September quarter of 2016.

There were 69,639 houses under construction at the end of the quarter, overshadowed by a mammoth 155,275 units that were also being built. Both figures were the highest level on record. That’s a lot of construction, especially when it comes to units.

The building boom seems to be the most concentrated in Sydney and Melbourne… and property analysts are predicting it will continue to gain momentum for the foreseeable future.

CASH RATES … WHAT’S THE OUTLOOK?

Before you make a property move, you want to be sure interest rates are going to stay right where they are. But predicting this can be as tricky as picking the winning numbers for the Lotto.

The Reserve Bank of Australia (RBA) has said that although the cash rate is now at a record low, it will rise again…but no one knows when. And that’s the rub. The RBA has said that the next move in official interest rates is likely to be higher if progress continues in lowering unemployment and boosting inflationary pressures in the next few quarters.

Some people in the industry are calling for interest rates to increase now, but the RBA said it still sees “no strong case for a near-term adjustment in monetary policy”.

In its July monetary policy meeting the RBA said it is reluctant to increase the cash rate, pointing to rising risks from abroad, as well as ongoing constraints for Australia’s highly-indebted household sector, as a reason to sit tight.

“Members noted that trade tensions extended beyond the United States and China, and could escalate through non-tariff measures such as administrative delays,” the RBA said. “An escalation of trade tensions could harm global growth by undermining confidence and delaying investment decisions and could dampen international trade.”

Closer to home, the Board also discussed the high level of household debt in Australia at its July meeting, a timely conversation given our current household debt to income ratio has increased to a record 190 per cent. “Household debt has increased by more than household income over the preceding three decades in many countries, but particularly so in Australia,” the RBA said.

With all this in mind some are predicting the cash rate will stay on hold until approximately 2020, also citing Australia’s “people boom” (constantly growing population) as a reason why the country hasn’t experienced a recession for the past 26 years.

For smart investors and first homebuyers, this presents big opportunities for getting into the market at just the right time.

WHAT CREDIT CRUNCH?

We’ve heard a lot of talk lately that lenders are getting much tougher on housing loans due to a host of factors including the Royal Commission.

But according to Business Insider Australia magazine, there was no sign of a “credit crunch” in Australian home loan lending in May, based on the Australian Bureau of Statistics’ (ABS) latest data.

In fact, the value of housing finance grew by 0.5% to $31.9 billion over the month of May, leaving the decline over the past year at 3.7%, a small increase on the 3.3% drop reported over the year to date from April.

The surge was driven by the value of owner-occupier home loans, counterbalancing the slowdown in the value of investor loans. Finance to owner-occupiers rose by 0.7% to $21.168 billion, locking the increase on a year earlier at 2.1%. Yearly growth had hit a high of 7.2% in February.

In contrast, investor finance continued to fall, down 0.1% to $10.738 billion.

In terms of home loans, the number of applications approved slightly grew over the month, rising by 1.1% to 53,037 in seasonally adjusted terms.

The ABS noted that, in actual terms, the quantity of loans given to first time buyers remained flat at 17.6% – a figure which mirrored the effects of stamp duty concessions introduced by the New South Wales and Victorian state governments last year.

Figures will continue to moderate over the next few months, especially with investor lending as the demand continues to increase from owner occupiers and fewer investors look to enter the market.

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