The chief economist at Westpac, Bill Evans, predicted around the middle of this year that the interest rate would move downwards. Experts in media and finance mocked this prediction, and claimed it was either a publicity stunt or an attempt to pressure the Reserve Bank into actually lowering it. But he was right. On July 15 he said the cause of the first cut would be associated with European convulsions, and further cuts would be produced by the combination of the negative effects of these European events on consumer confidence and specific domestic issues.
Dr Evans also stated that domestic interest rates are essentially too high, and predicts a full 100 basis points drop through 2012. Assuming his projections will be correct, considering he has got it right so far, sometime during 2012 we will be paying 6% interest instead of 7% on our home loans.
Owner occupiers will be able to spend over 15% more money on their homes and still have the same repayments when having to pay 7% interest. In other words, interest only repayments on a %500,000 at 7% would equal $35,000p.a and interest only repayments on $583,000 at 6% equals $35,000p.a.
If owner occupiers will be able to pay more for no greater cost, and more people can afford to invest in direct property, there will not be enough supply to satisfy demand. Currently, supply exceeds demand and this has kept prices from increasing greatly.
If Dr Evan’s predictions are correct, we can expect at least a 6- 8% increase in average property prices next year. The media has been strongly focused on “massive” price drops in our property markets. They will quote anyone who says property prices will drop by 40%. The claim that our property prices will follow the United States markets proves that they have no idea what they are talking about. The markets could not be more different. And the fact that we have a total property shortage, a growing economy, growing population and such affordable property means that there will need to be a price correction. It will not be down, it will be up. Now and the first quarter of next year will be the best time to buy property in the strongest market in Australia.
If you are considering a property purchase please come in and have a chat to one of our experienced property consultants.