Have Prices Maxed Out in Sydney and Melbourne?
In an article for the website Property Update, Michael Matusik sheds light on how capital growth is relatable to a rise in household income, interest rates and the demand-supply dynamics, among other things.
Spare borrowing capacity
He starts his approach by talking about the spare borrowing capacity. When supply tightens up, consumers become more optimistic and borrowing capacity increases, prices do rise. The reverse is just as true, argues Matusik.
Household incomes and loan to value ratio
Matusik talks about a detailed study which uses assumptions like household incomes, loan to value ratios and subsequent level of deposits. The study finds answers to rising prices and borrowing capacity using a variety of interest rates for calculations. The study aims to figure out how price moves at record low interest rates and how rising prices affect borrowing capacity.
Prices in Melbourne and Sydney maxed out
The inferences have some food for thought for us. While Perth and Brisbane can still make do with 9% and 14% price increase before the affordability question comes into the picture, prices in Melbourne and Sydney have already maxed out and are sailing 16% and 19% respectively above manageable levels.
Prices could fall 1% for every basis point rise in the interest rates. This study categorically examines extraneous factors like Chinese appetite for Australian properties and impact of residential SMSF investments.
You can read the original article here.
SMSF investment is a potent indicator
Talking of residential investments through SMSFs, one can safely say that SMSF is only going to become a more dominant force in the future. Presently, less than 4% of SMSF money is directed towards residential real estate but changes in regulations are all favouring a greater foray of Self managed super funds into the residential property market.
Once that happens, we can see the small fishes (read FHBs) practically elbowed out of the race for properties. A lethal axe falling on the parameters of affordability one supposes!
How do you see Sydney faring in terms of affordability?