A Good Sign For Market Stability
The number of people borrowing to purchase, build and/or renovate properties has steadily been increasing since 2012. This is a good sign for the market – increasing demand generally leads to growing property values.
But a deeper look shows some cause for concern… From late-2013 to mid-2015, Investors accounted for about 40% of all Lending Commitments (the highest on record). Sydney prices boomed in part because of this, and so did Melbourne’s to a lesser extent.
But moving into 2016, Investor activity has subsided significantly. It appears that the impact of interest rate drops in recent times has largely flowed through the system.
This graph shows the changing nature of Lending activity, and suggests an emerging shift in buyer demand. Total Lending (Owner Occupier + Investor) is still trending upwards (good!!), but Investor Lending has been decreasing as a proportion since the middle of last year, and has been falling Year-on-Year in real terms since September.
These are national figures, and won’t apply perfectly to Melbourne conditions, but they do suggest we’re moving into a more balanced market, characterised more by owner-occupier activity than by speculative investment.
Simply put, the record-breaking Investor activity seen over recent years was unsustainable. While less demand from Investors will take some heat out of the market, don’t expect prices to fall in 2016: the VIC economy is robust and less resource-dependent than others; the state unemployment rate finished 2015 below 6%, and has been gradually trending downwards since mid 2014; net interstate migration is at its highest level in decades; and foreign real estate investors continue to see Melbourne as a top destination (particularly with an AUD at about $0.70 US).
As a homebuyer bidding at auction – look around. Chances are, you’re competing against other homebuyers who have similarly benefited from recent growth in their own home, as opposed to investors playing with cheap finance. I reckon this will make for a much happier and sustainable market place.