It’s only Tuesday but already it has been a tough week for Aussie property investors and homeowners.

Westpac has raised interest rates. So has Suncorp. And Adelaide Bank.

Mortgage brokers, who often earn lofty commissions from the banks for selling their loans, are also under pressure.

So is it any surprise to hear the news this week that Australian property prices were down for the 11th month in a row?

“Weaker housing market conditions can be tied back to a variety of factors, foremost of which is the tighter credit environment which has slowed market activity, especially amongst investors,” CoreLogic’s Tim Lawless said.

The banks are blaming the Royal Commission and higher funding costs, driven by rising interest rates in the US.

Here’s what I wrote in July:

“…although Australia’s RBA hasn’t budged on local interest rates, rising US rates could lead to higher Australian mortgage interest rates because many of Australia’s largest banks rely on US debt markets to get a meaningful amount of their funding for loans.”

(That was a mouthful.)

Here’s the simple version: higher interest rates could mean more defaults, much higher levels of failed refinancing and further falls in the prices of houses and units.

Data from Digital Finance Analytics and UBS suggests a steep year-over-year increase in the number of investors failing to refinance their loans.

“About 40 per cent of people who tried to refinance were unable to do so,” DFA principal Martin North said. “If you go back a year it was 5 per cent.”

4 Tips To Weather Slower Property Price Growth

Australia is still pushing towards its 30th year without a recession.

That’s right, we’re still growing!

Yes, we could be facing a few years of slower long-term growth in Australian property. But slower growth is still growth — and it’s normal.

Property markets will rise, fall and go sideways, in no particular order, over time. That’s why it’s important to prepare for the worst and hope for the best.

And over the long run, most markets tend to move higher in spite of market falls — not in their absence.

That’s why most good investment advisers will tell their clients: “aim to own a property for at least 7 years”. 

They’ll also say:

  1. Keep 6 months’ worth of living expenses in an emergency savings account
  2. Before investing, rid yourself of all high-interest debt (for me, that means loans or credit cards which have an interest rate of more than 10%)
  3. If you have financial responsibilities, make sure you have adequate insurance (e.g. income protection, car, home, contents, etc.).
  4. Finally, before buying more property consider investing in different asset classes (shares, bonds, cash accounts, etc.), locally and abroad.

That’s the simple strategy behind Rask Invest, the members-only general advice website that I run. (obviously, Rask Invest members get much more detail than that!)

I know it might seem very difficult to achieve those 4 things. But it’s not impossible for some people to be in that position within 12 months.

Consider having a garage sale or get a second job, downsize the car and talk to a good Super fund about income protection. Once that’s done, perhaps add extra to Super or consider using a reputable online broker to invest in local and international shares and ETFs (as I do).

Then, if the worst should happen to property markets, having an extra cash buffer won’t hurt.

Cheers to our financial futures!

Owen Raszkiewicz
Lead Adviser of Rask Invest

 

Disclaimer: This article contains general financial information only and should not be relied upon. This information does not take into consideration your needs, goals or objectives. Therefore, you should consult a licensed financial adviser before acting on any of the information presented here. Past performance is no guarantee of future returns. At the time of publishing this article, Owen Raszkiewicz does not have a financial interest in any company mentioned. 

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