The ups and downs of the property market

Wilson Luna

Okay, so it's no secret that the stock market has been going through a pretty rough time lately, but because the stock market doesn’t exist in a vacuum, all that instability is having a knock-on effect across the economy as a whole. We hate to keep seeming like the bearer of bad news, but it’s not just the stock market we need to worry about – the property market is taking a bit of a beating as well.

To limit the impact that a sinking property market will have on your situation – or to make the most of dropping prices – you need to know what’s happening in a street near you! So, let’s take a look at what’s happening with the property market …

These days the cost of living in Australia seems to be in a permanent upward spiral – and now we can add ‘land’ to the list of things that are getting more expensive. Land in Adelaide has crept past Sydney prices for the first time ever, and it seems that smaller block sizes are the only thing keeping Adelaide real estate anywhere near affordable. But it’s Perth that’s still way out in front where the cost of land is concerned, with blocks in the western capital pricing in at $532 per square metre.

With the prices for everything from land to electricity going through the roof, things are getting harder for families: figures from Fitch Ratings for the second quarter of 2011 show that many Aussies are struggling to maintain their mortgage payments, with as many as one in 50 New South Wales mortgagees behind on payments, and a whopping two per cent across Queensland are in arrears.

Why are so many people struggling? According to a report by JPMorgan, the Global Financial Crisis is probably the biggest culprit. Morgan says that mortgages issued or refinanced in 2009 make up 20 per cent of the total number in arrears, indicating that the doubling of the first homeowners grant and the drastic reduction in interest rates that resulted from the GFC may have led many Aussies to take on mortgages they couldn’t maintain in the face of rising interest rates and living expenses.

So where is this heading and what’s it got to do with the property market? Well, as more people lose the battle to maintain their mortgages, more homes go on the market – and that can lead to a collapse in prices.

Which brings us to the big question – what does this mean for you? Well, if you’re looking to get into the housing market, a drop in prices can only be good news. Just remember to pick a property that you can afford so you don’t wind up in the same position as the people currently being forced to sell. Your budget should be able to handle a two-per cent rise in interest rates, and you need to factor in increases in living costs as well. Your best bet is to get good, independent mortgage advice and base your decision on the numbers, not the property.

But what if you’re on the selling side of the equation? Mortgage stress is causing a lot of problems for families, and a dropping market doesn’t make things any easier. The decision you need to make is whether to sell up or sit tight – and that’s a decision you want to think through carefully, with the help of good advice tailored to your personal situation.

Having said that, there are some things you can do to ease the pressure, starting with these three simple tips:

Fix it
As we just mentioned, most of the big banks have recently dropped their fixed interest rates – if you’re not sure whether you could handle another rate rise, switching to a fixed rate loan could give you some added security. Just remember that fixed loans come with a range of terms and conditions and it’s vital to make sure you understand them completely so you don’t end up in a worse position.

Refinance
The home loan market is pretty competitive these days, and if you’re after the best interest rate, refinancing could be the option for you. But be careful that any costs and fees associated with refinancing won’t cancel out of the benefits, and remember, your bank might be willing to give you a better deal to keep your business, so make sure you have a chat with them to see what they’re willing to put on the table.

Be brutal
If you want to keep the house and your budget won’t cover it, you either need to increase your income or be willing to let some of your discretionary expenses go. This means going through your expenses and getting a better deal on everything from your utilities to your groceries and it could even mean making the tough choices like getting rid of your second (or even first) car.

The ups and downs of any market can be stressful – but the key to not getting caught out is staying informed. The more you know about your situation, the better your chances of making the right decisions and coming out ahead.

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Author's Biography

Wilson Luna is an author, wealth adviser and founder of Your Family Your Money. Your Family Your Money’s goal is to simplify traditionally complex financial strategies, demystify financial jargon and debunk common financial myths, becoming every family’s first stop for financial advice, information and inspiration.