The coronavirus has had a major impact on the economy, leading to market shifts in housing that could spark serious price drops.
National Australia Bank has predicted a 10% fall by the end of this year with a 2.6% growth rate in the following year. ANZ has also weighed in with their forecast of a 4.1% decline by the end of this year and an additional 6.3% drop the next year.
Meanwhile, 10% of all rental apartments in Sydney’s city centre and Melbourne’s Docklands are now empty. If you’re weighing the merits of buying vs. renting, it may be a better idea to own. We’ll look at the reaction to the global disruption and how it applies to you.
The chief executive of Commonwealth Bank, Matt Comyn, has stated that he doesn’t expect to see a pronounced change in the short-term to the housing market. This is because there are currently low levels of supply, ensuring the properties that are on the market will be in high demand and may prevent a significant price drop. But if unemployment continues and the economy spirals into a downward trend, Australia will begin to see some larger changes.
This domino effect makes it difficult to model home prices. It’s impossible to predict what the numbers of unemployment will look like as the public readjusts to a new daily routine. The projections put forward by the major banks have notable discrepancies, yet, they all predict a significant drop in housing prices and increased affordability.
The Commonwealth Bank is responsible for more mortgages in Sydney than any other financial institution. If CBA’s numbers are correct, we could see the median home price go from $1,026,000 to $698,000. These projections are based on a severe and sustained economic downturn, but they’re worth noting for anyone who wants to own property in the area.
In the city’s CBD, the rental vacancy rate in April was 12.8%, according to SQM Research. For reference, this is twice as much as the vacancy rate at this time last year. Even the popular Ultimo area has seen vacancy rates quadruple compared to last year to 8.2%.
There’s no doubt that we’re seeing rental prices beginning to fall as a result. But before you jump on the bandwagon, you’ll want to think about the implications of renting if you’re in a position to buy, especially in the long-run.
It’s obvious that the numbers predicted by the banks have a notable range, but it’s not unusual to see this serious spread. Given all the uncertainty, the big banks can only be expected to know so much. Even with a tentative future though, it may still be a better time to buy right now.
An Investment in the Future
Rental prices may be low now, but they might not stay that way. If you buy in the near future, you have the potential to capitalise on lower home prices. As the market eventually rebounds after COVID, as it certainly will, you could be sitting on some very valuable property in just a few years.
Buying Is Cheaper in the Long-Term
If you’re not planning to move out of Sydney anytime soon, buying is likely to be cheaper than renting. With rates at an all-time low right now, the savings are more substantial than you realise. It’s never been more affordable to purchase property.
You’re Not Paying a Landlord
Rent may not be equivalent to throwing your money down the drain, but it is the equivalent of building up your landlord’s wealth. During uncertainty, your wealth and financial stability must be your top priority. You may be getting a service in return, but you’re investing in the property owner. Unlike other kinds of investments, the owner of the property will not give you a dividend if the price of the property shoots up.
You Can Do What You Like
When you own a home, you won’t have to worry that they’ll sell the property out from under you in a year or two. Buying a home offers the stability that you and your family need. Furthermore, lease contracts with landlords often include all kinds of fine print that can eventually come back to haunt you. When you own a home, you have the peace of mind that it’s yours.
It Can Transform Your Spending Habits
Not everyone is prudent with their money, but there’s something about owning that gives home buyers a sense of responsibility. In a survey by Genworth, it was found that renters and homeowners have very different spending habits, with homeowners more likely to put their money toward more practical matters — like savings. Especially in times like these, it’s best to start thinking about your spending habits and keep more cash on hand.
The big banks’ projections are all but clues on how much consumers can be saving with these drastic house price falls. If you’re not sure where to start or just not convinced, start by having the right people guide you. Shore Financial is here to answer your questions. Contact us today to get the ball rolling so you can strike while the iron is hot.