We are currently in what I would call unchartered waters in the property market with blue skies ahead… for now.

 

 

Low interest rates create some good news for some but bad for others… So let me get all Clint Eastwood on you and point out some of these good, bad and ugly points…

 

 

the Good…

As Australians we love hearing that interest rates have gone down. The last rate cut was a surprise but very welcomed.

How many of you sit and wait for the 2:30pm announcement on the first Tuesday each month or look at Facebook seconds later and watch the comments start coming through.

The nice part of this is obviously your home loan repayments reduce. So if you want to be a little more money savvy, keep your loan repayments the same as when interest rates were 6.5% or even 7%… that way you are making considerable extra loan repayments every fortnight or monthly.

That’s the best way to take advantage of these low rates…

Investors, as well, are seeing a great way to make money through investing in property with houses now cash flow positive. Many of the houses we are currently buying for our clients are receiving 6%+ yield and with interest rates in the low 5%’s these houses are not costing them a cent to hold each month.

But not everything is good with low rates…

the Bad…

When interest rates reduce we all anxiously wait to see how much the greedy banks will pass onto us. In the past they often do not pass the entire amount onto us.

They blame higher funding costs but I call that bollocks…

The current cash rate is 2.75% but a good mortgage rate is in the early 5%’s… meaning they are making a margin of 2.5% plus.

That’s almost 100% margin…

Having been a mortgage broker for 10 years I have been around when bank margins were 0.7%.

We then see reports this week where the four major banks are making $71 million per day, one must question whether we are paying way too much… Let’s put this into perspective.

$71,000,000 profit per day = $10,923,077 profit per hour = $182,051 profit per minute…

Yes every minute the major banks earn $186k…

I don’t care who you are, no one or no company is worth $186k a minute.

I think that’s enough Bank bashing…

That aside, there are more negatives here…

For self funded retirees, having their money in cash management is atrocious for them currently as the banks offer extremely low returns when interest rates are down… and now they are scared of shares after the GFC, they really have no choice…

Those looking to buy property now must contend with a ton more competition. We are seeing markets improve all across Australia in most price points. The top end is where the most pain is still felt.

So initially the phones in real estate agencies start ringing with enquiry for people wanting to view the properties. The purchasers will spend time looking and getting a feel for the values of properties…

Essentially their wallets remain in their back pockets.

Over time though as consumer confidence increases, the offers start to come in… price values are still low as there is generally a lot of stock at hand. Sales increase and as the dead stock ( properties that have sat around for a long time ) start to sell, there becomes a shortage of properties available and it then we start to see increases in listing prices and less discounts off the asking price.

In Cronulla this week a nice two-bedroom unit was listed for sale for $440k+. It sold 4 days after being listed for $488k.

The agent essentially held a Dutch auction where they kept ringing all the buyers and kept saying they had new higher offers… until they fell off one by one and the victor prevails paying way too much… so are they a victor?

The low interest rates allow them to stretch their purchase higher than they normally would as they can borrow more than 12 months ago.

My advice here is that anyone buying in this low interest rate environment, best lock a good part of their loan away. These low rates wont last forever… also do your affordability figures based on 8% or higher… if you can afford the loan at that level then you should be OK… should!!!

& the Ugly…

And now for the Ugly… unfortunately as a Buyers Agent and investor who is not happy unless I get a steal, it is increasingly becoming harder to get the huge discounts we achieve from properties listing prices.

So far we have still achieved great results but it’s definitely getting harder.

The prices we are paying for properties are still way below the height of the last Boom prices… that’s the advantage of buying in the low part of the cycle.

Our office is now working even harder per deal to monitor price corrections, desperate vendors and bedding strong relationships with agents to keep these deals coming.

The great part of all this is that property prices are set to go… meaning only great news for those who get I now…