Latest news with #housingMarket
The Guardian
6 hours ago
- Business
- The Guardian
As interest rates fall, could Australia be facing another house price boom?
With the Reserve Bank easing monetary policy, interest rates are on the way down. Already this year mortgage pre-approvals have begun to rise, suggesting that many aspiring homebuyers are excited by the prospect of cheaper home loans. With further cuts expected before the end of the year, some economists are predicting Australia could be about to experience another house price boom. Lower interest rates enable people to borrow more and potentially spend more on homes, bidding up prices. So, how might the RBA's actions affect home buying behaviour and the housing market more broadly? Research offers us some clues. Research shows that when a central bank lowers its benchmark interest rate, mortgage interest rates usually follow suit. We saw this after the Reserve Bank's May decision to cut rates. Australia's big four banks immediately announced similar reductions in rates for new and existing borrowers. Lower rates reduce the cost of servicing a loan. This is a big deal for Australian homebuyers, whose mortgages can be very large. With the average house price now hitting about $1m, an 80% loan saddles the typical homebuyer with $800,000 in debt. Back in March the average interest rate on new mortgages was 6%. For the average $1m house, this implies a monthly repayment of about $4,796, using the standard formula for amortising loans. After the RBA cut the cash rate by 0.25 percentage points the new monthly repayment would be $4,669 – $127 less. That's a small but surely welcome relief for mortgage holders. Combined with the Reserve Bank's rate cut in February, such borrowers are now saving more than $250 a month relative to the start of the year. Lower rates can also improve the borrowing capacity of new homebuyers. Before a bank issues a new mortgage, it weighs the ability of a borrower to service the loan. It does this by considering the amount of income the applicant will have left over after meeting typical expenses. This is known as a borrower's 'net income surplus' and the proportion of this that is used to service a loan is known as the 'net surplus ratio'. The maximum ratio is capped at 90% but the typical mortgage is lent against a ratio of less than 70%. If a household earns $100,000 a year and allocates 25% to expenses, it can afford $4,375 in monthly mortgage repayments at a 70% net surplus ratio. Given the previous interest rate of 6%, this maximum monthly repayment implies the household can afford to borrow $680,000. But, after a 0.25 percentage point rate cut, this household can now afford a $695,000 home loan. And after the 0.50 percentage points of cuts we've seen since January, this household's borrowing capacity is up by $30,000. For an individual homebuyer, this extra borrowing may be enough to secure that dream home. But the rate cut affects everyone at the same time, increasing the borrowing capacity of homebuyers across the country. All of this extra mortgage credit feeds housing demand, which is likely to pour more fuel into an already overheated market. Indeed, research indicates that a 0.25 percentage point cut in the cash rate is likely to lead to a 1.5% to 2% increase in average house prices over one to two years. That's an extra $20,000 on the $1m average home value. Research also suggests that the impact of interest rates across local housing markets may be strongest where housing supply is tightest and houses are already more expensive. While lower rates reduce the cost of a given mortgage, the average mortgage size needs to grow to keep up with higher prices. Recall that the monthly payment associated with an 80% loan on a $1m home at 6% interest was $4,796. If the interest rate falls by 0.25 percentage points but house prices rise by 2%, the new monthly payment is little changed, at $4,762. On top of this, the 20% down payment on that new home will now have increased – by $4,000. Despite the initial excitement of lower rates, aspiring homebuyers may be disappointed to see the price of their dream home climb further out of reach. Some may end up no better off. Others might try to snap up a home before lower rates are completely priced in – motivated by a fear of missing out. Research suggests it can take a year or more before house prices peak after a rate change. And others still may decide to keep renting for the time being. Fortunately for them, research shows that changes in interest rates do not materially affect the rents that landlords charge their tenants. Finally, one option is holding savings in the stock market while they wait, perhaps diversified via exchange-traded funds, as these assets usually rise in value after an interest rate cut. It's never a good idea to panic. It's always important to think through your options before diving into the market. And remember, this is general information, not financial advice. All investments carry risk. This article was originally polished in the Conversation. James Graham is a senior lecturer in economics at the University of Sydney
BreakingNews.ie
3 days ago
- Business
- BreakingNews.ie
First-time buyers lead the way for mortgage approvals in April
First-time buyers continue to lead the way for mortgage approvals in April, with the overall value of approvals supported by ongoing increases in the average value of approvals and increases in re-mortgaging levels. The trends in approvals are broadly in line with Q1 and are unlikely to impact our mortgage forecasts, according to Davy. Advertisement The Banking & Payments Federation Ireland's (BPFI) April mortgage approvals of €1.5 billion are ahead by 14 per cent by value and 4 per cent by number versus April 2024, with the timing of Easter (April 2025 versus March 2024) likely having some impact on April 2025 activity levels. First-time buyers (€965 million) again lead growth with a 12 per cent increase in value (3 per cent by number), with a large increase in re-mortgaging (€151 million), albeit off a low base. Second and subsequent buyers remains more muted with a 1 per cent increase in value and 6 per cent decline in numbers of approvals. Average mortgage approvals continue to increase with an 8 per cent increase in first-time buyers to €330,123 and a 7 per cent increase in second and subsequent buyers to €374,823. On a year-to-date basis, the overall value of approvals has increased by 16 per cent, with a 13 per cent increase in first-time buyers and 9 per cent increase in second and subsequent buyers. Advertisement Second and subsequent buyers are more impacted by the health of the existing homes market where supply remains at very low levels. Nonetheless, the trends in April are broadly in line with Q1 and point to increases in activity in the mortgage market. As a result, we maintain our mortgage forecasts with an overall mortgage drawdown of €14 billion (2024: €12.6 billion) and growth of 3 per cent in the stock of mortgage balances.
RNZ News
4 days ago
- Business
- RNZ News
Is it time to lock in a longer home loan fix?
Photo: RNZ Timing the market to lock in interest rates at the very bottom of the cycle is likely to be difficult, ANZ's economists say - but there could merit in taking one more short-term fix before locking in a longer term. They have released their latest Property Focus report, in which they say they expect the housing market to pick up over the latter half of this year, and for prices to end the year 4.5 percent higher. But they say the big question on many borrowers' minds is when is the right time to lock in home loan rates. The Reserve Bank cut the OCR again on Wednesday, and banks are offering a range of terms just below 5 percent. ANZ's economists said the Reserve Bank's own forecasts implied more cuts were coming but there was debate about how quickly and how much. The Reserve Bank has pencilled in 40bps of cuts, indicating that two 25bp cuts is more likely than one. ANZ economists expect the OCR to fall to a trough of 2.5 percent in October. They said wholesale rates were likely to keep falling until the end of the year and mortgage rates were likely to follow suit. But when markets decided the turn was happening, the opportunity to take cheaper rates could start to disappear. "History has taught us that when interest rates bottom out, financial markets tend to be quick to conclude that if they aren't falling they will eventually start rising. Given that, we think the proverbial $64,0000 question for most people will be when should I lock in for longer? Loosely speaking the short answer is soon." Wholesale rates would have a little further to fall, but not as much as the OCR, which could bring one, two and three-year mortgage rates down by another 10bps or 20bps, they said. "At face value that suggests there is merit in fixing for six months with a view to refixing for a longer term when that fixed term ends. The only problem with that strategy is that the future is always uncertain and of course rates may not fall, or if they do they may not fall as much as expected." They said the US tariff impacts would mean it took longer for the economy to recover than it otherwise would, which would keep inflation at bay and mean rates could fall further. "We have broadly been of the view that borrowers have had the luxury of waiting a little longer for the past few months and, while it has paid off, and we think that remains the case, time is marching on. "With one- and two-year rates already at 4.99 percent, they are worthy of consideration too, as is spreading one's risk over several terms or strategies. "For many borrowers the choice will come down to how convinced you are that interest rates will keep falling and how much you stand to gain if they do." They said they expected the housing market was likely to stay fairly steady with rising demand being matched by supply. "The sales-to-listings ratio is a useful indicator of heat in the housing market and tends to give a three to six month lead on house price momentum. It's tracked sideways as rising sales have been matched by growing inventories, and points to modest growth in house prices in the near term." They said days to sell had dropped a bit but was still above the long-term average.
News.com.au
4 days ago
- Business
- News.com.au
‘Stop giving concessions': Major warning on first-home handouts
Potential first-home buyers are falling further behind due to the very schemes designed to get them into a home. Independent economist Saul Eslake said the best thing the government could do to help first-home buyers would be to remove concessions that allow them to buy a home. 'The question isn't what they should be doing, it's what they should not be doing,' he told NewsWire. 'What they have to stop doing is things that needlessly inflate demand for housing. 'Stop giving out what I call second-home vendor grants as I call them because that is where the money ends up.' 'Stop giving stamp duty concessions, all they do is allow people to pay the vendor what they would have paid to the state government and back away from the mortgage deposit guarantee schemes and shared equity schemes,' he said. Mr Eslake said these policies, which are designed to help first-home buyers, simply end up inflating house prices. 'While a shared equity scheme sounds like a good idea, in practice, if you're willing to buy a $400,000 house and the government says 'hey, we will give you 20 per cent', then buyers say 'oh good, I can now afford a $500,000 house'. 'So a $400,000 house becomes a $500,000 house, so it's more a matter of just stop needlessly inflating demand.' One of the key election policies the Albanese government ran on was its expansion of the First Home Guarantee scheme, which is sometimes called the 5 per cent deposit scheme. This program allows first-home buyers to purchase property with a deposit as little as 5 per cent, with the government effectively guaranteeing the other 15 per cent, allowing first-home buyers to avoid paying lenders' mortgage insurance. But in an updated version of the scheme to come into effect at the start of 2026, caps of $125,000 for singles and $200,000 for couples will be removed. The PropTrack April Home Price Index showed national house prices hit a new record high over the month of April, increasing by 0.2 per cent monthly or 3.7 per cent compared with the same time last year. Helia chief executive and managing director Pauline Blight-Johnston said the main risk to the latest policy was the removal of the income caps to get government help. 'Our belief is that we will achieve the most as an economy if the government help is directed towards those that need it the most, and those that are able to help themselves through private enterprise do so without the taxpayers' dollar,' she told NewsWire. 'At the end of the day, our view is that taxpayers' dollars should go to those that really need the help to get into the market, such as essential workers or others that are really struggling.' Ms Blight-Johnston said expanding the HGS didn't address the fundamental underlying issue for those struggling to buy their first home – a shortage of affordable supply. She fears that the government's housing schemes just worsen housing affordability by fuelling demand and driving up prices. Instead, she pointed to first-home buyers using lenders' mortgage insurance as a 'really powerful tool' that is often misunderstood. 'People think of it as a fee …. But if you think of it differently as a wealth creation tool and it allows you to get into a home earlier, on average people that use LMI get in around nine years earlier and around $100,000 better off after five years because they got into the market earlier,' she said. Ms Blight Johnston said mortgage holders would typically pay 1 to 2 per cent as a premium above their usual repayments if they took on LMI. 'If you think property goes up on average 4 or maybe 5 per cent a year, if it is going to take you more than six months to save the deposit, the extra 15 per cent — as LMI takes the deposit down from 20 to 5 per cent – you're going to be ahead by getting into the market earlier and paying the premium.' Mr Eslake said LMI could increase demand for property if it acted like a reduction in interest rates. 'We know whenever interest rates go down, people borrow more and pay more for the house they buy which results in higher prices,' he said.
Daily Mail
4 days ago
- Business
- Daily Mail
America's housing market is flashing a hidden recession warning that came just before the 2008 crash
A hidden recession warning is lurking in the US housing market. While fears of an imminent economic downturn have eased slightly as President Donald Trump has de-escalated his trade war, experts are sounding the alarm about a buried threat.
