The discussion about a possible revaluation on the Australian Real Estate market is heating up and many of us are still trying to make sense of what is going on and if we are actually at risk.
We all know the mixed feelings of when you get to enter the property market by acquiring your first property. That excitement of joining the club so to speak, mixed with the anxiety of being locked up on a long-term mortgage.
That is why this topic is such a delicate one and we feel like the more informed you are the better chances you will have of making the right decision for you.
When it comes down to the current Australian Real Estate market we pretty much have two sides, The side that doesn`t see a revaluation coming and the contrarians, that are certain of it.
So let`s dig into it and compare both sides arguments.
Some of the most common arguments supported by the Real Estate advocates
- It`s a supply and demand thing. They focus on the immigration influx to back this argument up.
- Households aren`t having problem servicing their debt. Says AMP Capital chief economist Shane Oliver.
- Among all Australians only 5% are “highly leverage” for their homes, with 96 per cent either owning their own home outright or paying less than 30 per cent of their incomes on repayments, says Domain Group senior economist Andrew Wilson who also called the claims for a 50% price drop “outrageous”.
- “Most of the loans are held by upper income earners and the housing debt is fairly well allocated,” says HSBC chief economist Paul Bloxham
- Comparing the current Australian Real Estate market with other countries, Mr Bloxham says “In Ireland, the US and Spain house prices went up and credit was misallocated to households who couldn’t afford to service it, but there was also an oversupply of dwellings, which meant when the falls happened [it was exacerbated],”
Now lets have a look at the “contrarians” arguments
- 40% of mortgage debt is interest only payment. There are claims of even higher figures.
- Booming mortgage debt – from 2008: $638 Billions to a whooping $1.4 Trillion in 2015.
- Lowest wage growth for the past two decades.
- Record low interest rate since 2008.
- Highest household debt nation in the world. Number 1
- Private debt is a whooping 130% of the Australian GDP.
- Latest data shows Australian household have the lower savings rate since 2008. Current at 7.6% down from 9% on the third quarter of 2015.
- Surge on residence revaluations.
- Record dwelling constructions.
- Population growth slowing down.
- Lower Chinese demand due to tougher regulations and slow down on the Chinese economy.
The reality is this, since 2007 Sydney`s property market have soared 70% and the latest figures are showing that home values fell the most in 7 years at the fourth quarter of 2015. The word here is caution.
Latest figure shows Melbourne house prices have jumped 11.3% over 2015. Brisbane is also following suit showing a robust price increase, especially in the “inner ring” area. There are also reports of a surge in Real Estate prices in Goal Coast, with suburbs like Broadbeach showing an impressive 25% price increase over 2015.
Although, the opposite is also true. Real Estate prices in Mining towns are plummeting and in some areas the revaluation is forecasted to reach up to 80%. A hard to swallow reality that is turning heads all over the country.
While Contrarians argue this is a snap shot of what is about to happen on the overall Real Estate market in Australia, Real estate market advocates argue that mining towns are always a risky area to invest in due to its direct relation to the commodity prices.
Our take is this, times like today require your upmost attention. The more informed you are the better chances you will have to succeed in any market scenario.
The problem we see coming is not only related to the microeconomic arena. As you can see, most of the widely discussed topics are related to the health of the Australian internal market and unfortunately very little has been discussed about how the Real Estate market would react to a likely external event.
The problem we see coming may not be caused by the internal market forces but from some greater forces coming from the macroeconomic arena. That is where the real danger lays.
As we broaden our perspectives and shift the focus to the global economy and how it relates to our internal markets we can see a whole new picture.
Why would we do that? I hear you saying… We believe it is necessary because we live in a globalized world where all the economies are some how interconnected and it wouldn`t be wise to disregard a contagion type of scenario.
So lets have a look at some key global economic indicators:
- Current global debt stands at around $230 trillion. A whooping $88 trillion increase since last quarter of 2007 where the debt stood at $142 trillion.
- International trade numbers have collapsed and are tracing back to levels prior to the GFC.
- All major international economic agencies such as the Bank of International Settlement (BIS) considered to be the central banks of all central banks, the International Monetary Fund (IMF) and many others, have already issued strong warnings in regards to the global economic outlook as well as looming liquidity in the markets.
- Considerable slow down of the Chinese economy. The main contributor for global economic growth for the past decade. Experts say`s that when China sneezes the whole world catches a cold. Let`s hope they`re wrong.
- Emerging markets all over the world are collapsing and going through some severe recession. Venezuela, Puerto Rico, Argentina, Brazil, Greece just to name a few.
- Commodity prices have already been revalued. Increasing greatly the risk of defaults from highly leveraged enterprises that operate in this sector.
- The Euro zone is trying all tricks in the book to revive its economy and so far the negative interest rates and the 80 billion euros monthly being used to stimulate the markets are proving to be not quite effective.
- Japan has been trying to stimulate its economy since 1990 and so far not even negative interest rates have been able to solve Japans problem. Japan has the highest debt to GDP ratio in the world.
- The US dollar standard is proving to be pretty much outdated at this stage, with most countries bypassing it by settling International trade using their local currencies. This poses a massive risk to their economy and once it looses permanently its status of world money we might be looking at a completely different world. Latest data shows that there is a glut building up on US bonds, as most countries liquidate it to move into cash in order to support their own troubled economies. A great example of this is Saudi Arabia and China.
By going beyond the Microeconomic aspects of the Australian economy, it would be fair to say that the risks are staking up and the likelihood of a market revaluation is plausible.
But one thing is for sure, no one knows exactly how it will unfold. So the best option we have is to be prepared and informed of the both sides of the story by doing it we will minimize our chances of being “caught by surprise” and we will guarantee our overall peace of mind.
You should be asking by now, why is it coming from a mere Removalist company?
The reason why is because we are not a mere removalist company. We are genuinely interested on our customers and we can clearly see this growing tension on our clients faces day in and day out. So we thought of a way to help them through times like today.
We sincerely hope this blog to be of value to you.
One thing is for sure though, no matter what is going on with the Real Estate market it will always be winners and losers, but no matter which way it goes for you, we want you to know that we will be here to help you along the way and we will be always providing you with our No Worries experience for your next move.
Please feel free to leave a comment and join the discussion.