The brakes are failing

The Reserve Bank is trying to put the brakes on our major housing markets by increasing the cost of borrowing. John Lindeman, Head of Research at Residex – Australia’s oldest and leading provider of residential property data – explains why this policy can’t work.

“In the last thirty years, house prices rose fastest during 2001 to 2007, even as the RBA was aggressively raising interest rates.

Raising interest rates failed then and the strategy will fail now, because interest rates hit first home buyers far more than existing owners.

First home buyer loans fell by nearly 50% in the March quarter compared to a year ago. It appears that the RBA’s policies are working with respect to first home buyers. Our figures confirm that house prices are falling in the first home buyer markets of Sydney, Brisbane, Adelaide and Perth.

Yet house prices in million dollar suburbs have soared and the RBA brakes have no effect at all. Sydney suburbs such as Naremburn, Lane Cove North, Chatswood, Willoughby and Vaucluse rose by more than 8% in value during the last three months, while Melbourne’s Elwood, Sandringham, Camberwell, Hawthorn, Balwyn and Kew went up even more by an amazing 10%.

Increased equity is the key. Owners are playing leap frog as each seller buys again further along the line, but they use the equity that growth in the market has given them. In the last twelve months, the median value of a Melbourne or Sydney home has grown by around $100,000.

Now is the time to seriously consider using your increased equity to invest in the housing market. Such an opportunity to take advantage of market growth comes rarely and should not be missed.

Speak to your mortgage broker to find out how much your property could be worth, how you could unlock equity and explore some of your refinance options,” comments Lindeman.