David and Libby Koch* say property values are falling in all major Australian capital cities, suggesting the pain is only just beginning.
Photo: Maximillian Conacher
The latest property figures show the residential property market is falling or, at best, stagnant in the better-performing capital cities.
With the Spring selling season now under way, it is a vastly different environment than a year ago.
It has definitely turned into a buyer’s market while recent homeowners need to be careful these falling market values don’t put them on their financier’s watchlist.
Not only has the property market changed substantially, but so has the lending market.
The last thing anyone needs is to be caught in the whirlwind of a credit squeeze coupled with a falling market.
The latest data from research group CoreLogic show Sydney (–5.6 per cent), Melbourne (–1.7 per cent), Perth (–2.1 per cent) and Darwin (–4 per cent) residential property values fell over the last 12 months, while Brisbane (+0.9 per cent), Adelaide (+1 per cent), Hobart (+10.7 per cent) and Canberra (+2.3 per cent) enjoyed property price rises.
While the 12-month results capture all the headlines, we tend to focus on the latest month or quarterly result.
Hobart is a great case in point.
A healthy 10.7 per cent annual rise is impressive but values have risen just 0.1 per cent in the last quarter and fallen 0.1 per cent in the last month.
That indicates a market that has turned and is following the rest of the country down.
Last month all but three capital cities suffered a fall in property values.
Those that did go up rose by just 0.1–0.5 per cent.
Property is all about supply and demand so this softening market will likely intensify with a flood of new listings for spring
According to SQM Research, national residential listings rose 5.9 per cent in August to 332,678, with rises in all capitals.
Property listings rose 10.9 per cent in Sydney — a whopping 30.4 per cent higher from a year ago.
So, values are generally falling and the supply of property coming on the market is rising significantly.
It could start to look ugly over the next six months.
Now add the financing layer to the equation.
Regulators are forcing financiers to tighten their lending criteria and they, in turn, are putting up their home loan rates to cover rising interest costs.
Yep, it could get ugly.
At most risk are property owners who stretched themselves to make a purchase in the last two years.
Say you were a buyer who took advantage of the various State Government–funded First Homeowners Grants and bought a property worth $400,000 with a 5 per cent deposit.
If the value of that place falls by 10 per cent then your deposit has effectively been snuffed out.
Instead of having $20,000 equity in the house, you now have none.
In fact, you’re in “negative equity” where the value of the loan is higher than the value of the property.
Your lender then starts to get very nervous.
You are at risk of them demanding you pay down a big chunk of the loan to get back into positive equity, forcing a sale of the property or getting you to arrange finance with another lender.
It will be a lot harder to refinance now than a year or two ago.
That’s not to say there aren’t ways to secure a new mortgage if you don’t hold the rule of thumb 20 per cent equity.
Offering other security can enable you to lock in a loan with less equity in your property, or getting a family member to stump up a guarantee, or taking out loan mortgage insurance, or having an existing relationship with a bank can swing the odds in your favour.
Mortgage Choice CEO, Susan Mitchell has put out a warning about how banks have drastically changed their approach to lending: “Our data reveals that home loans are taking longer to progress from application through to settlement, as lenders’ qualification criteria becomes more onerous to comply with responsible lending standards.”
“We have found that lenders are conducting a more thorough analysis of home loan applicants’ monthly living expenses, requesting forensic detail on as many as 15 expense categories, including clothing, entertainment, medical, transport, education, childcare and more.”
“Some home loan applicants are having to justify their expenses in certain categories and are being told that they need to change their spending behaviour to increase their chances of getting a home loan.”
The take away point?
Don’t ditch your lender before securing alternative financing because if you’re low on equity an alternative may not be available.
In fact, you could be in the negative equity gang and not even realise it.
For some people there may be no option but to sell.
That has to be a last resort because it will involve a lot of emotional and financial pain.
So start preparing now if that is even a remote possibility.
Price
Selling a house is all about price and whether that price realistically reflects the market.
Look at the auctions results over the last couple months for similar standard properties in your area and take advice from local agents.
Street appeal
Buyers get tired of looking and jaded by the real estate hype, so they can be ruthless in the culling process.
You have to entice them to stop their car and say, “This is worth a look”.
So make sure the house is painted and the garden is in good shape.
Fix things
Make sure everything works.
Even minor repairs are crucial.
Keep your home as clean as possible.
This means cleaning out your closets and getting rid of excess clutter and furniture.
You want your home to look as spacious as possible.
* David and Libby Koch are personal finance experts. Their website is www.moneymakeover.com.au.
This article first appeared at www.news.com.au.
