What's happening to the market?
(3 minutes reading time)
Adjusting to current conditions may be a mental challenge given the strength of the market for so many years and somewhat surprising for people who are currently selling their property.
Whilst the idea of selling in this new market may seem daunting to some, rest assured that this current market dynamic provides excellent opportunities for those that are prepared to be smart about it, have a long-term vision and who are prepared to take short term action to maximize their financial outcome.
What's happening with the banks?
The Royal Commission into the banking sector has been ongoing for several months now and will continue to take place for at least the remainder of 2018. Investigation has revealed multiple issues with the banks lending practices and their alleged negligence will undoubtedly lead to financial hardship for many Australians. Lenders need to tighten up there practices to ensure that borrowers are capable of repaying their debt. One of the major issues that has caused the current situation is the underestimation of household expenditure. During the loan application process, borrowers are required to include their annual household expenditure in their application to obtain a loan and often this amount has been estimated at as little as half what the true household expenditure actually is. This practise has allowed some borrowers is to borrow even more money than they should been able to which they may be unable to repay.
Those people taking out a mortgage rely on the bank or finance broker to tell them how much they are capable of borrowing based on the current financial situation and the banks have been negligent in carefully assessing household expenditure to protect the consumer.
The bottom line for prospective purchasers is that they are now only able to obtain a loan for far less than what they previously could have only mere months ago. This has forced these people to dramatically reassess the type of property that they can purchase or reconsider which location they can purchase in. This situation is resulting in confusion amongst homebuyers and in many cases inaction, which results in fewer attendances at open for inspections across Australia. Seeing as the market price growth has been largely driven by affordability and cheap and easy credit and the prospect of short term capital growth it is highly likely that the amount of growth the real estate market has seen in the previous previous few years may dissolve somewhat leading to an adjustment of property values.
So how do you make the most of this situation?
There are several ways to maximise your financial position in a market such as this. The first is by reacting quickly if you're currently aiming to sell your property. The market moves relatively slowly so you do have a significant opportunity to move quicker than your competition and create a sense of good value. Buyers will assess your value proposition against the other properties currently for sale and naturally gravitate towards the homes they feel offer the best value. Should the market decrease, you will have sold at a higher point than what you would have otherwise sold for should you not react to the current situation rapidly. Other sellers will eventually make those same changes after remaining unsold for some time.
As you would expect, this current situation can create severe anxiety for those that need to sell their property therefore presenting some excellent opportunities to buy very good value. Furthermore if you take a long term view (which you should with property ownership) property investors will be able to achieve solid growth within a reasonably short space of time. Remember though that because finance is more difficult to obtain, of course you must be capable of repaying the debt making it a double edged sword.
As a purchaser you may attempt to discover the motivation of the seller of the homes you are considering purchasing. Some people will have a greater urgency that others and will be open to a fair offer from a willing buyer. It is an excellent idea to obtain finance approval in advance of making an offer as an unconditional offer will be looked upon more favorably that one that is subject to loan approval.
All things considered, the current market is not a bad one to be selling in right now but be aware that buyers are focussed on those homes that offer the best value. It is fair to say that there are many homes on the market that fit into that category right now but there are also a vast number of homes that have not yet made the change needed to attract a buyer.
For all real estate advice or information please contact the author Simon Wendt on 0407 040706.
Licensed Estate Agent | Auctioneer