Without over-complicating things, the cause of what is happening at a high level is simple. The aggressive rate hikes and continued hawkish stance by the RBA has resulted in a significant burden for those with a mortgage. As we progressively fall off a mortgage cliff, first home owners are also very mindful of the increased living and borrowing costs which compounds on top of the already unaffordable real-estate market.
Renting looks like it is the easy way out, at least in the short-term until interest rates stabilise, and spear-headed together with an increase in returning international students and migrants, has led to an extreme imbalance between available supply and the demand.
With inflation still relatively rampant and yet to feel the effects of the aggressive rate hikes so far, RBA warns that there will be more pain, and likely to be throughout 2023 before we see any signs of easing and stability. Remembering that there is a good amount of delay between the OCR and its effect on the greater economy (due to fixed rates and other factors), it is likely that peak pain will be felt well beyond 2024.
The real-estate market overall however, are expected to stay relatively resilient. This is especially true in the sought-after suburbs where mature and established infrastructure exists and further development is severely limited due to shortage of vacant land.
If you are a home owner and are not in an over-leveraged position, then you are already in a position of strength as stability has been established. Renovations are difficult and inefficient at current, and should be confined to urgent and properly strategised projects only. Like-wise, an investor with enough equity and liquidity to withstand the more expensive borrowing rates, the uptick in the rental market should help de-risk against the more expensive rates as long as equilibrium (at a minimum) or better is struck.
Being in an over-leveraged position when the rate hike is forming a parabola is risky. As these hikes are not forecasted to slow down anytime soon (albeit slowing down now), it is essential to mitigate risks accordingly.
During peak demand for renting, it is smart to strategise how best to ensure current rental agreements are locked in for a longer period of time to provide financial stability. Searching for rentals in the current market is also increasingly becoming more difficult. Proportional sacrifices need to be made, either financially, or in terms of location, in order to out-compete others that are in the market.
It is a difficult market both for home-owners / investors with mortgages as well as people seeking for rentals. The increasingly high rental prices and mortgage rates are the result of a parabolic increase in the OCR recently.
Whichever position you find yourself in, ensure risk mitigations are in place and play from the position of strength. Renovations are still tricky due to global issues; tread with caution and make absolutely sure deliverables and milestones are met on-time every step of the way.
Reach out to Simply Frameless and see how we are able to help with your next renovation project, despite the tricky macro-economic landscape.