Ep17: What's going on with interest rates? Is it time to buy?

On average, there'll be about 15 to 25% increase in listings, but the demand might not actually be there.

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It's only set to increase by 10%, and that's due to all the reasons that I just listed.

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Welcome to the Home Loan Insider.

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I'm Max Lending, your industry insider, and we're lifting the lid on the finance market, guiding you on how to cut through the jargon, manage your finances and get investing into the property market.

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Spring season is here, everybody.

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That means sun's out, guns out, and the property flood is about to begin.

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Is it the right time to buy?

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We don't know.

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That's what today's episode's all gonna be about.

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So you know the drill.

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Get your cup of coffee, get into your comfy undies, and let's get stuck into it.

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Spring season.

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So what's so great about it?

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What's to expect in the market?

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Well, realestate.com shows that in winter they only had a 60% clearance rate of all houses on the market.

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That that's not great.

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And each one of these auctions, Ray White Real Estate, they reported that there was only on average two to three actual active bidders at the auction.

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In case you're not aware, a good clearance rate reasonably needs to be about 70% plus range.

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These stats not great.

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If you're the seller, that is.

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If you're in the market to buy, this is pretty damn fantastic.

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Because it means that there's less actual competition at the auction and you might have a shot at picking up the property at the advertised or suggested range and not have to fork out the extra 100 or 200,000 that, let's be honest, they're all mentally conditioned for when we go to these auctions.

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And I've been speaking to a few real estate agents and they're all pre-conditioning their clients to be realistic in their sale price expectations.

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They've warned them that there's a flood of competition that's about to hit.

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And they need to lower their reserve price to ensure that they can actually secure that sale.

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So what's affecting the market that's causing all of this?

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There's so many moving parts, but the main reasons are the increased properties on the market.

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For one, realestate.com stated that in spring they're expecting a 20% boost in stock.

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The higher interest rates, they're causing buyers borrowing power to be lowered by a few hundreds of thousands of dollars.

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This is taking the heat right out of the market.

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Another major factor is the increased construction costs or the uncertainty about the whole construction market at the moment.

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People are worried about purchasing a house that's outdated in internals and externals.

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The market's being more picky.

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They no longer want that renovator's delight.

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They want a turnkey, ready to move in property.

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When I think about it, I don't really want to be mucking around trying to find trades to fix and redo all the internals.

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I just want to buy a property, have it done, rent it out.

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And be done with it.

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And the main thing is people are currently just overexposed and over geared and they're forced to offload their assets as they can no longer keep up with the property due to the really high monthly interest rate costs.

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A lot of these people initially got the loan at like the low 2% rates and now they're paying close to three times the amount higher.

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I noticed the house across the road from me, it sold for about $3,000,000 during COVID.

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And the guy came in with his family and did a full internal reno and external reno on it.

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The place was looking beautifully.

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He even put a basketball court out the back.

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Sadly, he wasn't expecting the interest rates to increase 10 plus times over the next year or so.

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And when he finished the reno, he had to sell the property for exactly what he purchased plus the reno costs.

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He had to gather the loan because his current income could no longer afford it.

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And that's what's happened to people across the country.

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And whose incomes just don't cut it anymore to service that massive loan that they've taken out.

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So it's expected in spring that on average there'll be about 15 to 25% increase in listings, but the demand might not actually be there.

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It's only set to increase by 10% and that's due to all the reasons that I just listed.

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I went to see this for myself, so I went to an auction over the weekend to check out what this sentiment was like.

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And it did not disappoint.

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It was converted warehouse in a beautiful inner city suburb, right next door to the cafes, shops, everything that you wanted.

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You name it, it had it.

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The price range was between 850,000 and 900 Ki had a chat to the auctioneer and he was pumped.

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He told me that he'd sent out 13 contracts of sale prior to the auction and the turn out on my count was around about 30 people.

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And I thought for sure this place was gonna go over 900,000.

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I actually guesstimated 1.1, but it was a lacklustre auction.

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There was only two bidders.

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One guy, he looked like he was forced to be there by his wife and the other was a dad bidding for his daughter.

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They did the dance for about 3 minutes and then the bidding stalled spot on 900 K.

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The auctioneer went back in to convince the seller to put it on the market in hope that it would spur the competition.

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He came out, he said it's on market and there was no more bids.

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The place was sold for 900,000.

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It was a steal.

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Oh, I felt so bad for the seller.

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My drawer was on the ground when 13 contracts have gone out and 30 plus people are at your auction and it converts to no real competition.

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Only two bidders.

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This backed up everything that I've been told and seen seeing in the market.

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The era of insane auction prices seems to be an end and prices are selling for quoted price.

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It is beautiful if you're looking to buy.

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Hey guys, sorry to interrupt your regular listening.

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We're just going on a small intermission.

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If you're enjoying today's episode, we have many more just like it.

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I'd recommend episode 3, How does the RBA .25% rate increase affect you?

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And episode 10, What's going on in the housing market for 2024?

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That's intermission over.

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Now back to the show.

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What's going on with interest rates then?

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It's actually good news here.

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The RBA are not going out cutting rates anytime soon.

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So if you think that, get that out of your head.

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I usually refrain from making predictions, but I honestly don't think we're going to see a rate cut until or a rate movement that is at all until June 2025.

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Even if they don't drop rates, Australia is nothing like the US We normally cut rates by twenty-five basis points at a time.

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America, they just dropped their rates by half a percent.

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That is massive.

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But their rates, they are sitting much higher than ours.

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Also, you need to remember the banks in Australia, they don't have to factor in the full rate cut.

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It's frowned upon, but the banks historically only cut rates by .15 to .2, and that's when the RBA cuts their rate by .25.

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The banks want to make some more profit on those loans so they don't pass on the full rate cut.

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They're thinking, why throw out the baby with the bathwater if they don't have to?

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With all this said though, the banks are actually moving on rates already as of today.

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Owner occ rates, they were sitting in mid sixes, so 6.5 as an example for an owner occupied variable rate and high sixes for an investment rate at the start of the year.

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But as new purchase market is not off to a great start and mainly it's just refinances out there.

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Growth for these banks are only sitting at half a percent and they need to be growing at a lot quicker pace than this.

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They've got all those hungry shareholders they need to please.

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The banks have actually been reducing their rates in an attempt to kickstart the market and spur refinances across to them for their juicy low rate.

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You can now pick up an owner occupied variable rate at high fives and investment rates at low sixes.

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So who needs the RBA to lower the rates when the banks are doing it for them anyway?

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But people don't know this.

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They only see the doom and gloom that's on the news, but the rate cuts are already been factored in by the banks today.

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This is why I think that when the RBA actually does make a move on the rates, the banks won't be jumping to lower the rates much further.

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Mr.

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Jim Chalmers, he's going to get on the blows and start yelling at the banks, saying they have to pass on the rate cuts in full.

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But the banks will hold firm because they've already passed on the rate cut close to six months prior to that.

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A good forward indicator to look at is the fixed rate market.

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You can get a fixed rate at 5.6%, which is great news if you're seeing it as a lead indicator.

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That means that banks are predicting that in two years time the RBA cash rate will be lower, so that that way they can justify the 5.6%.

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You can even get lower than this if you're looking to fix for three years.

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If I was to make a recommendation, I think there is no harm in doing a split.

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And taking out a portion at a variable rate at today's rates and a portion at those fixed rates.

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That way you can offset the variable if you have any spare cash and you can lock in a great 5% rate, which is the majority of your loan.

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By the time the RBA actually does drop rates, you're going to be head by the lower two year fixed rate that you've capitalized on today.

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It's just about being smart when it comes to structuring your loan.

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Will all this even affect house prices anyway?

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Australian suburbs are made-up of pockets.

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You see this every day.

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Some parts of the suburb are highly sought after and less than 500 metres away.

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No one wants to live there.

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Each of these pockets will have their own price fluctuations.

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But in general, the lack of current borrowing power in the market, the increased housing supply, the lower demand.

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This all leads to great buying opportunities.

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Prices, they won't be reducing.

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I'm not saying that you can pick up a house 5K's from the city at a $500,000 discount, but you can pick up that house that seems 100 to $200,000 cheaper than you would have been able to pick it up in a hot high demand market because auction premiums, I E the bidding wars, they're currently not there and the seller's expectations, they're being cooled by the agents and the data is starting to show that.

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What's my thoughts about all this?

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Well, this advice, it's gonna depend on what state and location you're in because every market has micro markets.

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But I think that if you're in a position to buy, you have a specific time period between now and June 20 twenty-five when I think the RBA will actually start to cut rates and it'll take effect into the market.

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You're going to be in a market with up to 20% increase in supply and a lackluster in demand.

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Allowing you to pick up a beautiful blue chip asset for a fair or subdued price.

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All you have to do then is sit back and you'll be laughing when that demand starts to roll back into the market after the RBA has cut the rates and those bidding wars, they're going to start again at some point.

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Just remember, Australians are house obsessed.

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It's the number one asset class and it's ingrained in our culture.

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That is that the goal is to build wealth via owning property.

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With a growth in population and land scarcity around those major cities, prices are only going to be going one way.

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OK, there you go.

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It's my thoughts on what's going on with the interest rates and what's happening in today's market.

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Hopefully you learnt something.

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If not, Oh well, too bad.

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Just remember, spring is here.

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Go out, get some sun, you stay classy and I'll see you at the next one.

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If you have a question that you would like answered on the show about budgeting, mortgages or finance, then drop us a line either via our socials, e-mail or website.

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Details available in the show notes.

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Any opinions and views expressed in this program are just that.

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Opinions.

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All information is general in nature and should not be seen as financial, economic, legal, investment, accounting or tax advice.

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This program makes no representation or warranty as to the accuracy or completeness of any information contained in this program.

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You should consult a professional advisor in relation to your own personal circumstances.