Warning: Property Weakness Ahead Will Have Real World Consequences…

In recent posts I highlighted how the current property dynamics thanks to higher interest rates, and now Labor’s decision to introduce a minimum 30 per cent tax on capital gains from July 2027 and abolish negative gearing has rattled property investors. I also said, from an affordability perspective we do need lower prices, because it is impossible for wages to catch up, and price falls will also be impacted by the impossibility of building new homes at a price point which is affordable. This is a complex multi-faceted issue, and I note that Housing Minister Clare O’Neil refused to take credit for the decline in prices, a central factor in improving housing affordability, when questioned by Channel Seven’s Natalie Barr on Wednesday. “The government’s changes, Nat, are not what’s driving house prices in our country principally,” O’Neil said. We want sustainable home price growth. Sorry Clare, that in my view is an oxymoron. Over the long weekend, total auction listings were down to 1,182 according to preliminary results from Cotality and actually we got a larger proportion than normal of results reported, with the true clearance which I calculate comparing listing to sold at 40.3%, while the clearance rate based on reported results, which as you know is always biased towards successful sales came in so far at 51.1% still lower than the 54.5% last week or 58.2% the week before. Spot the trend? I want to make the point that prices were already easing before the budget, and I do not think that the budget changes to capital gains and negative gearing, especially as currently grandfathered and still available for new builds is as material as it has been portrayed. We should note that if prices were to fall it is the first home buyers who recently used the government’s 5 per cent deposit scheme, or even 2% in certain circumstances, are at greater risk of falling into negative equity because they have such a small stake in the home at the point of purchase (just 5 per cent at best) and have not paid off much of the loan to increase their holding. A 5 per cent reduction in house prices would effectively erase the buyer’s equity (assuming they have just bought), a 10 per cent drop would mean many people on the scheme would owe more than their house is worth. But while negative equity can become a practical problem if a home owner is forced to sell, maybe because they lose their job or the relationship breaks down, if they are able to hold on to the asset for a longer period of time (first home owners typically stay for at least eight years) they should be able to weather the storm. More broadly, the RBA estimates a 1 per cent increase in housing wealth translates into a 0.16 per cent increase in the long-run level of consumption. Just 0.16%. Assuming the reverse is true, a 10% drop in home prices, if that translates to a 10% drop in housing wealth, would lead to a 1.6% drop in consumption, from levels which are very weak already. And of course, not all households would be equally affected, with many more affluent households pretty much insulated. I see disparate results across household cohorts in my surveys. So all up, it seems to me that we do need to look beyond the proposed tax changes, and consider the path of migration especially in relation to rents, and to changes to household wealth when it comes to property price falls. Yes, for sure, weakness in property prices will have real world consequences, but we should understand there is complexity here. The simple headlines or political spin are not getting to grips with the real issues. So beware. If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you. Buying property, is both challenging and adversarial. The vendor has a professional on their side. Emotions run high - price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make. Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest. Shoot Ribbon an email on [email protected] & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.