#18: Property Yields Rise, Rapid Rent Increases, Buyer Demand Shifts, Doubling Loan Sizes & Low Forced Selling.
Christian Stevens ?
Helping You Build Wealth Through Property | CEO of Flint & Farmers' Finance Australia - Available 7 days ??
Yields Rise in Six Capital Cities: Positive News for Investors
In good news for property investors, gross rental yields have increased in most parts of the country. Between the March quarters of 2023 and 2024, gross yields rose from 4.52% to 4.62% in the combined regions and from 3.55% to 3.74% in the combined capitals. Of the capitals, yields increased in every city over the year, except Brisbane and Canberra.
Yields rise when rents increase faster than prices. Currently, most property investors are in the fortunate position of experiencing growth in both rents and prices. As rents are growing particularly quickly, yields are rising in much of Australia. This trend provides a promising landscape for investors looking to maximise their rental income and capital growth.
Rents Have Been Rising So Rapidly: Understanding the Drivers
The main reason for the sharp increase in rents since the pandemic has been the shortage of rental accommodation, not because investors have been passing on interest rate rises to tenants, according to Reserve Bank Assistant Governor Sarah Hunter. “Growth in demand for new dwellings slowed rapidly in 2020 before rebounding strongly. Supply, as measured by dwelling completions, has been much less volatile and has trended down in recent years. Overall then, growth in demand is currently running well ahead of supply,” she explained.
Hunter further elaborated that the imbalance between new supply and new demand for dwellings impacts both the rental market and the established housing market. In most capital cities, rents are growing at a relatively rapid pace, and established housing market prices have risen significantly in recent years. The undersupply of properties is the key driver for market rents, not interest rates.
“At first glance, it does appear that there could be a positive relationship between interest rates and market rents – the two often move together. However, our preliminary analysis suggests that market conditions (captured via the vacancy rate) explain most of the movement in market rents, and there is little to no evidence of direct pass-through to rents from higher interest costs in the short term,” Hunter concluded.
Where Buyer Demand is Rising and Falling: Market Dynamics
At a macro level, there has been little change in the property market over the past year. However, at a micro level, the situation looks very different. Between the April quarters of 2023 and 2024, median days on market (the time it takes to sell a home) for the entire country barely moved, from 30 to 31 days, according to CoreLogic.
But at a capital city level, there was quite a lot of change in days on market over the year:
Rising days on market correspond with falling buyer demand, while falling days on market correspond with rising buyer demand. As the above data shows, most cities have experienced meaningful demand-level shifts over the past year. These changes highlight the dynamic nature of the property market and the varying levels of buyer interest across different regions.
Loan Sizes Have Doubled in 16 Years: Growth and Implications
The size of the average home loan doubled between August 2008 and March 2024, from $304,000 to $608,000, according to the latest data from the Australian Bureau of Statistics. This increase roughly corresponds to the growth in property prices across the country over that time.
领英推荐
Price growth varied significantly among the states during that 16-year period, leading to considerable variation in the growth in average home loan sizes:
This loan growth presents both challenges and opportunities. On the one hand, saving for a larger deposit is required to enter the market. On the other hand, if historical trends continue, once you purchase a property, it is likely to appreciate significantly in value over time.
Forced Selling Low and Falling: Stability in the Market
Despite higher prices and interest rates, the vast majority of borrowers have demonstrated foresight and commitment to maintaining their mortgage repayments, according to the latest data from SQM Research. In April, there were only 5,256 distressed property listings across the country, which was 1.8% lower than the previous month and 9.3% lower than the previous year.
When interest rates began rising from record-low levels in 2022 and some borrowers started reverting from lower fixed rates to higher variable rates, some commentators predicted it would lead to a wave of defaults. However, forced selling has remained at extremely low levels.
This stability can be attributed to two main factors. First, many borrowers got ahead on their mortgages while rates were at record-low levels, providing a buffer when rates rose.
Second, many borrowers have tightened their belts over the past couple of years, cutting back on consumption to continue paying down their home loans. These behaviours have contributed to maintaining low levels of forced selling in the market.
Available 7 days - 0404 242 033 | [email protected]
Christian Stevens - #1 Mortgage Broker in Australia
IMPORTANT DISCLAIMER: This is not advice. Readers should not act solely based on the material contained in this newsletter.