There are several factors driving the market at the moment but the single biggest issue across all categories of property is finance. By this I mean the difficulty for a buyer to borrow money. The banks and second tier lenders have all tightened up there lending practices by increasing the level of documentation and scrutiny on loan applications manifesting into less loan approvals, or approval of a lower amount or higher principal to interest ratio. The banks are also keen to limit their exposure to certain types of property or locations. This has been driven mainly from A.P.R.A. (Australian Prudential Regulation Authority) as well as the recent findings from the Royal Commission into Financial Services.
Even if a buyer secures finance it may be at a lower load to value ratio or at a higher rate especially for investment loans. Obviously if a buyer cannot borrow as much money, then they can’t pay as much for a property or they are out of the market altogether.
The uncertainty of finance has seen the auction clearance rate dive to below 50% from the normal rate of over 70% and just this week in Melbourne it was 45%. At an auction there is only one thing you are negotiating on and that is price. You can not bid subject to finance and there is no cooling off period. This has made people very reluctant to commit to a purchase at auction even if they are generally happy to pay the price. Many properties are passing in and then selling afterwards once a buyer has confirmed finance.
As sale volumes and prices fall, valuers adjust their valuations down thereby accentuating the difficulty to get finance causing less sales and further downward pressure on prices.
It is therefore fast becoming a great time to buy especially if you are a cash buyer or need very little finance. The market will quickly find a floor where cash buyers see great value and prices will stabilise. It is also likely the banks have over corrected in their lending practices to demonstrate they can self-regulate and as the dust settles, they will move back to a more measured practice to ensure they don’t loose market share.
If you are selling in this market, there are a number of things you need to make sure you do and I refer you here to a separate note that provides valuable tips on how to sell your apartment in a weaker market.
As in all markets if you are considering selling or buying at the moment make sure you get great advise to help you navigate through to the best outcome.
Let me know about your experiences or how this market is impacting you.