Hot market concerns for 77% of home owners

by Miklos Bolza09 May 2017
Anxieties about housing affordability in the Australian market has increased so much that the vast majority of home owners and non-home owners have expressed serious concern about their ability to purchase property.

These trends lie in conjunction with the realisation that large proportions of the public have serious gaps in knowledge about how the property market functions.

In the CoreLogic report, 2017 Perceptions of Housing Affordability, 77% of property owners are concerned about how rising prices will affect their ability to buy their next home.

This figure is even higher for non-property owners with 88% worried about not being able to afford a house or apartment.

Out of the 2,010 Australians surveyed, 62% said housing affordability was worse than it was a year ago. A total of 58% said it would further deteriorate this time next year.

While the perceived impediments to purchasing a house varied from demographic to demographic, saving up for the deposit and covering stamp duty were seen as the biggest obstacles overall (with 44% of respondents highlighting each of these areas) while foreign buyers came in third place at 42%.

“Particularly in Sydney and Melbourne, saving up enough of a deposit to enter the market is a challenge when prices are growing at a much more rapid pace than incomes,” Cameron Kusher, head of research at CoreLogic, told Australian Broker.

“With stamp duty, ultimately this means you have to save more to get into the market. Foreign buyers are something we have seen increase over recent years although we don’t have solid regular data. However if people from offshore are buying property, that means there are fewer properties for people who don’t already own a home.”

A lack of knowledge

Disturbingly, CoreLogic found that Australian consumers had a real lack of knowledge about the housing market with 29% of respondents aware that banks had limits on investment lending and 25% who knew foreign buyers could only purchase new dwellings.

Only 42% of those polled were aware that banks allowed borrowers to purchase property with a deposit of less than 20% while 49% of those polled were unaware of stamp duty concessions for first home buyers in different states.

There was a need for added education around these areas, Kusher said, as the lack of knowledge could in itself act as a hurdle for some potential buyers.

“Definitely it prevents some people from entering into the market. Some people still think you need a 20% deposit. They don’t understand that lenders' mortgage insurance is there.

“Also, this probably lessens the overall risk in the housing market as these people aren’t entering. Maybe those who don’t know about these matters are the ones who could stretch themselves too far. It’s kind of a double-edged sword.”

People had to start reading more and discussing these matters with mortgage brokers and the banks, he added.

Mortgage stress?

CoreLogic’s research showed that 8% of home owners were having difficulty meeting their current level of mortgage repayments.

In the event of a rate rise, an additional 6% would experience difficulties with rate increases of 0.5% while a further 14% would struggle if rates rose by 1%.

A total of 52% of property owners with mortgages said they would have difficulty paying off their mortgages if rates increased by 2%.

However, Kusher warned that this statistic was a case of perceptions not equating to reality.

“If you asked me whether I would struggle, I’d have a lot more difficulty than I would now if interest rates increased by 2%. However it doesn’t mean I couldn’t repay the mortgage.

“We’ve become accustomed to a low interest rate environment and when you’re paying off a mortgage, you don’t want your expenses to go up. I think it’s partly that.”

Another factor, which Kusher said a lot of people tended to forget, was that interest rates would only rise by 2% if the Reserve Bank of Australia (RBA) also lifted the official cash rate.

“Once interest rates start shifting higher, it’s generally going to be reflective of an improving overall economy in which people are getting more wage growth than they have been over the past few years.”

While external factors might push rates up a little bit, they were unlikely to raise rates by 2% unless the RBA also acted, Kusher said.

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