Signs of a more balanced market

Since 2012, the number of people borrowing to purchase, build and/or renovate properties has steadily been increasing. Rising lending activity is a sign of increasing buyer demand, and more demand generally leads to growth in property values.

But a deeper examination of the type of lending suggests some cause for concern… Investors accounted for about 40% of all Lending Commitments (the highest on record) from the back half of 2013 to the middle of 2015. Unusually high Investor activity contributed to booming property prices in Sydney, and has undoubtedly affected property prices in Melbourne, albeit to a lesser degree.
In recent months though, Investor lending has decreased significantly. This suggests that Investor demand has peaked, and that the impact of interest rate drops in recent times has largely flowed through the system.

The above graph demonstrates how the Lending mix has changed in recent times, and points to an emerging shift in buyer demand. In a good sign for the overall health of the market, Total Lending (Owner Occupier + Investor) is still trending upwards; but Investor Lending has been shrinking as a proportion since the middle of last year, and has been falling Year-on-Year in real terms since September.
These Lending figures are sourced from the Australian Bureau of Statistics – they show things at a national level, so they won’t apply perfectly to Melbourne conditions. But they do suggest we’re moving away from a market characterized by speculative investment, and towards a more balanced market in which owner-occupier activity will drive prices.
The reality is this: the record-breaking Investor activity seen over recent years was unsustainable.
Less demand from Investors is taking some heat out of the market, but don’t expect Melbourne prices to fall in 2016: the Victorian economy is robust and less resource-dependent than other states’; unemployment has been heading in the right direction since the middle of 2014; net interstate migration is at its highest level in decades; and Melbourne remains a top destination for foreign real estate investors (particularly with an Australian Dollar at about $0.70 US).
If you attend an auction for an established house over coming weeks, look around. Chances are, competition is mainly between homebuyers who have benefited from recent growth in their current home values. Investors will continue to be active, but their bidding won’t be as rampant as it has been over the last year or two.
Owner Occupier activity will contribute to a more natural, happier and sustainable marketplace.

The above graph demonstrates how the Lending mix has changed in recent times, and points to an emerging shift in buyer demand. In a good sign for the overall health of the market, Total Lending (Owner Occupier + Investor) is still trending upwards; but Investor Lending has been shrinking as a proportion since the middle of last year, and has been falling Year-on-Year in real terms since September.

These Lending figures are sourced from the Australian Bureau of Statistics – they show things at a national level, so they won’t apply perfectly to Melbourne conditions. But they do suggest we’re moving away from a market characterised by speculative investment, and towards a more balanced market in which owner-occupier activity will drive prices.

The reality is this: the record-breaking Investor activity seen over recent years was unsustainable.

Less demand from Investors is taking some heat out of the market, but don’t expect Melbourne prices to fall in 2016: the Victorian economy is robust and less resource-dependent than other states’; unemployment has been heading in the right direction since the middle of 2014; net interstate migration is at its highest level in decades; and Melbourne remains a top destination for foreign real estate investors (particularly with an Australian Dollar at about $0.70 US).

If you attend an auction for an established house over coming weeks, look around. Chances are, competition is mainly between homebuyers who have benefited from recent growth in their current home values. Investors will continue to be active, but their bidding won’t be as rampant as it has been over the last year or two.

Owner Occupier activity will contribute to a more natural, happier and sustainable marketplace.

Property Analytics