Although separate from the Government, the Reserve Bank of Australia sets interest rates. They're expected to keep hiking, even after nine consecutive interest rate increases. There's a lag between when interest rates increase and when consumers feel it. Banks shift from new loans to refinancing as millions come off fixed loan terms. APRA, the Australian Prudential Regulation Authority, sets the assessment rate. The RBA has the cash rate set at 3.35%, adding roughly 2% on top of the banker's margins, which means the interest rate of the day is circa 5.5%. APRA regulates the banks and has increased the buffer, or assessment rate, from 2.5% to 3%. Which means you're assessed at 8.5%. As you come to the top of the interest rate cycle, the need for the assessment rate comes off, and they will soon meet to decide if it's required at its current level. When interest rates are low, they need a high buffer or assessment rate to ensure mortgagees can withstand interest rate increases.
We asked Shore Financial to produce a list of National Government initiatives as of Monday, Feb 27, 2023. Please note these are subject to frequent change, but here's the question - How many of them do you know about?
First Home Guarantee Scheme
Previously known as the First Home Loan Deposit Scheme, the Federal Government's First Home Guarantee Scheme helps you buy a property at 5% without paying LMI. Property price caps are applicable per state. From Jul 1 2022, there are 35,000 places available for the financial year.
First Home Super Saver Scheme
The First Home Super Saver Scheme lets you make pre-tax or after-tax voluntary contributions into your superannuation account to save a deposit, up to a maximum of $15,000 per year (with a maximum lifetime cap of $50,000). These contributions will then be taxed at 15% instead of your regular income tax bracket.
Downsizing Contributions Into Superannuation
If you have reached the eligible age (55 years and older), you may be able to contribute up to $300,000 from the proceeds of the sale (or part sale) of your home into your superannuation fund. There is no maximum age limit.
Astute real estate agents monitor state and federal initiatives, finding an angle to encourage buyers and sellers to transact.
The fear of overpaying (FOOP), the fear of not getting out (FONGO), and the fear of not getting in (FUNGI) are all terms driven by media sentiment. When you see others buying, you want to buy. Real estate was added to the shopping list globally during the pandemic when excess holiday cash was ploughed into either a new principal place of residence or a holiday home. Now FOOP and FONGO rule consumer sentiment. Auction clearance rates get hammered. We know any auction clearance rate above 65% for a sustained period indicates a growth market.
Low interest rates stimulate a market. In the decade of declining interest rates before the pandemic, they practically made money free.
Inflation rose quickly, based on global demand and supply shortages. Used cars increased in value, and car buyers paid more for a car they could have now rather than waiting 12-18 months to drive away a new car.
Supply (new builds, stock levels)
Supply in the market changes prices. Low stock levels so far in the first quarter have slowed the speed of price declines. With 30 major builders heading into administration in the last six months of 2022, new builds are slow to market.
Demand (immigration, fertility rate)
Immigration projections for Australia have increased from 250,000 to 350,000 people in the next 12 months. Chinese Government policy, where students must return to face-to-face learning to achieve recognition of their University Degrees, saw 30,000 students head to our major cities in under two weeks, driving rental demand. For the first time, China saw its population decline, with a decrease in the fertility rate.
Employment drives confidence. Rapid wage increases with declining margins in business are causing a huge reshaping of the tech sector, with tech companies and prop tech under pressure to survive. All the majors like Meta, Salesforce and Twitter have laid off thousands of employees. Rightsizing of organisations becomes the mood of the day.
Each of the above impacts sentiment. And sentiment drives supply and demand.