As analysts celebrate a 1.6% increase in housing prices for Australia’s major cities they’ve also issued warnings that the mining sector could slow down consumer confidence going forward. For home owners hoping to settle in one of the capital cities the current economic climate means that buying now could take advantage of the market improvement and give you a substantial return on your investment value. It also indicates resurgence in consumer confidence, so much so it appears to have caught the eye of several Japanese financial institutions and investors who are hoping to penetrate the market.
The latest data reveals that prices for homes in Sydney, Australia’s priciest city have risen by 2.4% in the three months to August, working off an average loan with a value of $547,700. In Melbourne home prices increased by 2.5% in the same period, after a drop of 5.1% during the first five months of 2012. Every capital city except Adelaide saw an increase in home prices, according to statistics released by RP data.
The news is comforting, especially in light of the fact that a third of Australians have home loans and most of them are on variable interest rates. The national mortgage debt is sitting at $1.2-trillion, a figure that is 1.5 times higher than the national household income. Just a 25 basis point reduction of the interest rate translates to an annual saving of $540 a year for the average home loan. The news has also come as a relief as June data signalled that house prices had dropped to five-year lows and was painting a less than optimistic picture for the future.
House prices appear to have flattened out for the month of August but there is some expectation that the mining slowdown could put the brakes on sales, especially in states where mining is a major economic driver.
Perth is one city that has shown consistency as fewer homes are currently available on the housing market and the vacancy rates are situated at less than 2% of the market. Some concerns have been raised over BHP Billiton’s plans to sack its forecasted $20-billion Olympic Dam expansion project in Adelaide, and the decision is expected to send ripples through the local market.
The Australian home loan market has attracted the attention of overseas investors though, with Japanese banks becoming increasingly interested in the local housing market. The latest news is that the Bank of Tokyo-Mitsubishi UFJ is in talks with AMP to enter Australian home loan financing on second tier level.
While talks are still in process it has been claimed that the system would work on a warehouse structure and home owners would get a residential mortgage backed by institutional investor securities should UFJ enter in the market. It has analysts excited because of its potential to increase the competitive spirit between banks and lenders by increasing the lending power of second tier organizations. The news also follows an announcement by Sony Bank to launch itself in the Australian market.
Consumers and home owners are advised to make the best of the current low interest rates by comparing products on the market. They should also invest their savings back into their mortgages with a view to paying them off faster. Warnings about the mining sector could mean hard times still lie ahead, especially in light of the crippling effect that high energy prices are having on consumers’ pockets. With more than 30% of the population tied up in a home loan investors have breathed a collective sigh of relief as investment values are showing clear signs of recovery.