The big problem with Australia’s struggling housing property market

The one question I’m asked more than any other is whether now is the right time to invest in property. Has the good ship real estate finally righted itself and is now sailing for calmer waters? Or is there yet more pain to come?

Usually I’d try and answer, but the truth is that right now, my view is largely irrelevant.

That’s because if you can’t borrow money to invest with, it does’t matter if the property market is heading for boom or bust, you simply won’t be on the train either way. 

A term that we hear all the time in the fallout from the Royal Commission is ‘responsible lending’, the catch-all used by governments and lenders alike - though usually with differing interpretations - that covers how much money you can borrow while being able to comfortably make the required repayments. 

Traditionally, lenders use the HEM - or Household Expenditure Measure - to tally up your total living costs, and what was left over was how they calculated how much you could afford to repay.

But the HEM has been put under the microscope, with Commissioner Hayne worried we were all borrowing too much money, and were at risk of defaulting. 

The issue, though, is that the pendulum has swung too far in the opposite direction, and we have what I think are some of the toughest lending conditions I’ve ever seen. In short, the term ‘responsible lending’ now simply translates to ‘bloody hard to borrow money’.

The problems with that are many; for one, it's hard for a property market to see any real recovery if nobody can access money to buy a house. But equally, it doesn’t matter if the interest rates drop to zero (or minus 10, for that matter) if the banks can’t find a way to loan that cheaper cash to the people who need it. 

That the property market is now beginning to stabilise really has nothing to do with monetary policy, or our worrying economy, and everything to do with the result of the federal election. In my opinion, we would have seen this stabilisation as early as January or February, if not for all the negative messaging around housing pumped out during Labor’s campaign.

But with the dust now settled on a Coalition victory, the next steps are critically important.

If the recent rate changes, the increased spend on infrastructure, and the proposed tax cuts all have the impact on the economy their architects think they will, then we can expect to see house prices begin to climb. If they don’t, then the property market will suffer - as will the whole country. 

So, is now the right time to invest? I think if we’re not at the bottom of the cycle, we’re close to it. The market could go down a little more before it settles and starts to climb, sure, but over the mid to long term, the only way is up.

But all that is absolutely meaningless if we don’t let banks open their lending taps again. Because access to the cheapest money in our nation’s history means nothing if it’s locked away from everyday Australians looking to invest in property.

MB

Article originally published on news.com.au