According to a Bank of Queensland report, the September quarter GDP numbers show that the economy is hovering at 2%. This is under the 3% plus growth rate that Australia needs to get the unemployment rate down and the inflation rate up. Despite the tax cuts, consumers are not spending. Households are using their extra disposable income to pay down their debts and boost their savings.
What can we expect to happen in 2020?
1. A market recovery in house prices
There has been a market recovery in the prices of properties in Sydney and Melbourne in 2019. This is partly caused by the current low supply of properties listed for sale in the market. There is also the sparked interest from first home buyers and upgraders due to the low interest rates and easing of the assessment rate and mortgage lending by banks.
There are still areas of oversupply of units in NSW. A number of newly completed units are coming in lower than their off-the-plan prices. Some of them are having issues settling since they exchanged at the peak of the property market in 2017 but are now valued lower.
According to Corelogic, “house prices across all capital cities are expected to stabilise over the coming year before strong population growth and a sharp downturn in new dwelling completions result in median prices increasing”.
2. Interest rate is expected to further fall
In 2019, three RBA cuts took the cash rate down to 0.75%. The cuts were made to encourage lenders to bring down their current interest rates with the goal of increasing consumer spending and overall inflation rate.
Negative interest rates are where interest rates drop to below 0 percent. This creates a scenario in which cash deposits incur a charge for storage at a bank rather than receiving interest rate income. To put it simply, deposits do not receive interest in their bank deposits and instead must pay regularly to keep their money with the bank.
According to Reserve Bank Governor Phillip Lowe, interest rates are expected to stay low but unlikely to go negative. It is unlikely that Australia’s interest rate will fall below zero but that rates will remain low for an extended period. Some economists are predicting another rate cut early next year, most likely in February.
3. Greater scrutiny in your living expense and debts
Banks are now taking a longer look at loan applications to find out if borrowers can and cannot afford the loan. Under the new responsible lending guidelines released by ASIC, banks and lenders have been instructed to grill borrowers over their spending, and what they are and aren’t happy to sacrifice for credit. Borrowers may be asked by the bank to give up their children’s private education and their Netflix subscription if they really want a home loan.
ASIC’s responsible lending guidelines also include looking into customers who use “buy now, pay later” services like Afterpay and Zip. Having multiple personal loans (car loans included) and credit card facilities near their maximum limits are now considered red flags for lenders. These borrowers are now considered high risk as ASIC instructs lenders to dig deeper into the borrower’s financial situation and their ability to make the loan repayments. If you are a first home buyer with a high credit score, an impeccable credit history and with good savings history, you can easily get a loan with lower interest rates. Too many credit cards and personal loans will affect your chances of getting a loan.
4. A stampede of first home buyers in January 2020
With the announcement of the First Home Loan Deposit Scheme (FHLDS) by the Australian government, expect a deluge of first home buyers getting into the market in January 2020. The FHLDS is an initiative by the Australian Government to support eligible first home buyers to purchase a home sooner. The scheme provides a guarantee that will allow first home buyers on low and middle incomes to purchase a home with a deposit of as little as 5%. It will support up to 10,000 loans each financial year. With the 10,000 limit where over 100,000 first home buyers are expected to purchase their first home in 2020, there may be an artificial increase in the prices of properties that are within the property price threshold. The maximum property purchase price for a property in NSW – capital city is $700,000 and lower at $600,000 if purchasing in VIC – capital city. Other incentives for first home buyers include stamp duty exemption and concession and the first home owners grant of $10,000.
- My fearless housing and lending market prediction for 2018
- Lending and property market forecast for 2019
This article is for general information only and should not be considered personal financial advice. Before making a financial decision, you should seek independent advice from a mortgage broker, financial planner or an accountant.
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