Housing Market Expected to Boom Ahead of APRA Regulations

APRA will be clamping down on lending conditions in order to cool down Australia’s property market. However, industry experts predict that this may have the opposite effect. 

2021 has seen Australia’s property market soar to new heights.

In just the first eight months of 2021, the median house values across Australia climbed by 15.8%, growing at their fastest annual rate since 1989. 

“In dollar terms, the annual increase in national dwelling values equates to approximately $103,400, or $1,990 per week,” said CoreLogic’s research director Tim Lawless. 

Sydney home prices are up 23.9% for the year, and Melbourne prices are up 14.8%, with mortgage sizes rising dramatically in the process. In New South Wales, the average mortgage size has increased by $200,000  over the past two years.

The soaring property market has come off the back of Australia’s rapidly rising debt-to-income ratio, as people seek to capitalize on the low-interest rates that were introduced at the beginning of the pandemic. 

More than one in five home buyers are now borrowing more than six times their income, up from 16 per cent a year earlier.

This has led to an influx of calls from regulatory bodies demanding a clampdown on Australia’s runaway property market.  

The International Monetary Fund (IMF) last week stated that Australia’s booming property prices could present a threat to the financial stability of the country, with the fund’s Australian division chief Harald Finger saying that: 

“We think that requires a comprehensive policy response. Macro-prudential policy should be tightened to address gradually rising financial stability risks.”

Should interest rates rise, there are concerns that many Australians will be unable to continue repaying what they own, as the number of home loan deferrals continues to rise and a growing list of suburbs are at risk of widespread mortgage defaults.

The IMF’s fears are shared by the RBA, who recently brought up concerns about Australia’s property market when stating:

“A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices. It is these macro-financial risks that warrant close watching. Whether or not there is a need to consider macro-prudential tools to address these risks is something we are continually assessing.”

Discover how to find and secure properties at up to 40% below market value

Pulling the plug on the property market

The Australian Prudential Regulatory Agency (APRA) is looking at implementing various macroprudential policies in order to curb Australia’s housing market growth after the agency announced that “over the next couple of months, APRA plans to publish an information paper on its framework for implementing macroprudential policy.”

Additionally, the Council of Financial Regulators – which includes APRA, the Reserve Bank of Australia, Treasury and the Australian Securities and Investments Commission have expressed a focus on lending conditions, specifically as they pertain to debt-to-income levels. 

“The Council is mindful that a period of credit growth materially outpacing growth in household income would add to the medium-term risks facing the economy, notwithstanding that lending standards remain sound,” it said.

This follows the green light given by treasurer Josh Frydenberg who said that “we must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system. Carefully targeted and timely adjustments are sometimes necessary.”

In essence, it appears that there will be a tightening of lending conditions in order to cool off Australia’s housing market. 

This proposed decision to reduce lending has been met with backlash, with critics stating that the macroprudential measure will do little to help with affordability, and will only serve to create an additional barrier to entry for first homebuyers. 

“Lending restrictions like DTI limits will make it even harder to get a loan – especially for those with little savings,” said former RBA economist and current chief economist at the Centre for Independent Studies, Peter Tulip.

“This restricts homeownership to those with the wealth to have substantial equity in their home. It is unfair and inefficient, for no obvious prudential gain,” said Tulip. 

Is the Property Market About to Boom?

While tougher lending standards will certainly help to take some heat out of Australia’s property market by restricting the number of people that can get home loans, the move could backfire in the short term as homebuyers try to beat the buzzer on the upcoming tightening of lending conditions. 

“I think it will trigger a rush to buy and beat the deadline,” said Sydney-based buyer’s agent and director of Right Property Group, Victor Kumar. 

“Investors would certainly bring their purchases forward, which would fuel another growth spurt.” 

Melbourne-based buyer’s agent Cate Bakos of Cate Bakos Property shares this sentiment, stating that if “the banks will honour all the pre-approvals they have issued in the three months before the lending curb is executed, then we will see some heavy buying during those months.”

Then, following the initial spike in buying activity and the restrictions around lending, Australia’s housing market may finally begin to cool down.

Can you still buy properties at a discount? 

Australian house prices haven’t been this hot for decades. And, as we’ve just mentioned, they’re going to continue heating up.

“Great! So how am I supposed to find a deal in today’s market?”, I hear you say. 

Well, let us show you what some of our graduates have achieved. 

Some have found properties at 10% below market value, while others have bought properties at 40% below market value.

And you can too.

Learn how our students are finding these amazing property deals (even in a bull market!) at our upcoming Real Estate Rescue Masterclass.