Housetalk 154

Dear Resident,

The June official cash rate review by the governor of the reserve bank saw the interest rates rise for the third time by 0.25%, meaning in turn an increase in bank mortgage interest rates. Governor Bollard also indicated that further rises were likely in the future.

Does this mean that house prices will fall? No. Does this mean house prices will stop increasing? No. Does this mean investors will stop buying? No. Does this mean it will be harder for first home buyers? Yes.
Does this mean it will be more expensive for existing home owners to pay their floating rate mortgages or at the end of their fixed mortgage term? Yes. Does this mean some home owners will not be able to pay their mortgages and have to sell and then rent? Quite possibly yes.

Does this mean there will be more rentals needed? Yes. Does this in turn mean more investors will buy rental to meet the demand? Yes.
What a crazy scenario, fewer people able to buy their first home, fewer people able to keep their present home and more investors buying rentals. All in the name of controlling inflation. I totally and utterly agree with controlling inflation and rapidly rising house prices can be a major contributor to inflation.

However I am sure there are better ways of controlling inflation other than pushing out first home buyers and forcing existing owners to sell due to unaffordable mortgages. Capital gains tax is not the answer. Australia has had a capital gains tax since 1985 (except on the family home) and property prices in Australia have increased spectacularly since 1985. One Australian statistic shows that from 1996 - 2010 Australian house prices rose 127%, the figures for the major cities show for higher increases. Australia house prices in the country’s 8 major cities rose by 9.48% in 2013– Australia Bureau and Statistics.

The only answer is to build more homes and that will take at least 5 years to balance the supply to meet the demand. If net migration continues anywhere near present levels it will take a lot longer than 5 years. Meanwhile settle in for property prices to rise. If I were buying– do it now. If I wanted to sell I would do it now– we have the best market for a decade. Feel free to call me for a confidential update on the current market value of your property.


Best wishes,
John