Australia has a strong culture of home ownership and property investment. This is due in part to historical and economic factors, such as the country's abundant supply of land and the government's promotion of home ownership through policies like favourable tax treatment for investors.

Some investment experts also point to a lack of financial literacy for many Australians as to the strong attachment to property. As property is what they know, what they can see, and what they can use.

As a result, owning property is often seen as a sign of success and a key component of the Australian way of life. Many Australians are willing to make significant financial sacrifices in order to own their own home and build wealth through property investment.

“Safe As Houses”

The phrase "safe as houses" is a idiomatic expression that means something is extremely safe or secure. It is often used to refer to investments that are considered to be very stable and unlikely to lose value, such as property or government bonds. The origins of the phrase are uncertain, but it may come from the idea that a person's home is their sanctuary and a place where they feel safe and protected. Alternatively, it may refer to the historical stability and relative immunity to loss of value of property investments.

For many Australians, property is “as safe as houses” which implies that property prices are relatively immune to loss of value. However, this is getting tested at the moment. We are seeing the continued interest rate rises putting further downward pressure on property prices across the country, as some home owners with mortgages start to feel the pinch.

On average, across the country property prices are down 3% over the past 12 months. However, there are several cracks starting to appear through the numbers being produced by Core Logic.

We are seeing the volume in sales down over 13% compared to the previous year,
Listings are down over -26% compared to this same time last year & a whopping -41% in Sydney, as many home owners sit and wait to see what is happening with interest rates.
The average median days on market has increased, to over 39 days in Sydney (comparative to 20 days this time last year), as with every interest rate rise, buyers are being re-rated by the banks, and the buying pool is shrinking.
Vendors (people selling their homes) are providing discounts. The median vendor discount across Australia is -4.3%, however this is closer to -5% in Sydney. Vendors are starting to feel the pinch and are cutting their losses to ensure they are not stuck with two mortgages, and are starting to understand that if they are transacting in the same market, they may receive less for their sale, however they will pay less for their purchase.
Clearance rates have taken another dive, averaging 58% across combined capital cities. That means 4 out of 10 houses that went to auction each weekend are not selling.
Rents are up a staggering 10% across the country, with low vacancy rates.
Yields reflect these rent rises, pushing up to 3.71%

However, many experts expect only one more small rate rise (0.25%) in Feb 2023, before the RBA presses pause and assess the affect that the nine interest rate increases have had on the economy.

Speaking to accountants, mortgage brokers and real estate agents who are at the forefront of this, many are saying they are starting to see the the pain, with more pain set to come after Christmas.

Cracks are starting to appear, with real estate agents and mortgage brokers reporting that some people that have stretched themselves too far over the past 18-24 months have sold their investment properties and/or downsized their home, comfortable with crystallising a loss in this transaction, to ensure they have more personal cashflow to meet their lifestyle needs. They simply could not afford the property they purchased.

This is only set to increase as many mortgage holders are set to roll-off their fixed terms in the next 6-12 months.

Unemployment is at record lows and is set to start to rise, which will add further complexities into the economy and property market.

Investment experts are expecting that there will be a lot of pain felt by Australians in the months to come, so much so that we will see rate cuts towards the end of 2023.

In saying all this… what does this mean for you.

Homeowners - For those that are feeling the pinch - hang in there there is light at the end of the tunnel - review your budget, speak to your mortgage broker, speak to your financial planner, put a plan in place to get you through this next 6-12 months.

Selling home owner - If you are looking to sell and buy, it doesn’t really matter about waiting for the market to move, as you are transacting within the same market. You may receive less for the sale of your home, however you will also pay less for the property that you purchase.

Investors - For those that already have investment properties, understand what is coming. Look at increasing the rent, review your cashflows. Consider your long term financial plan, review your investment strategy and understand the role property plays in your portfolio.

New Investors - For those looking to purchase an investment property, hold strong… Don’t get convinced to make a rushed decision from a real estate agent. There will be significant opportunities over the next 3-6 months. Start getting all your ducks in a row. Speak to your financial planner, get your plan in place, speak to your mortgage broker to understand your borrowing capacity (as what you can borrow now compared to the start of this year is significantly different).

Remember to not make long term financial decisions based on short term metrics.

And is property isn’t “as safe as houses”?

Safe as houses