Introduction:
As the Australian property market continues to evolve, it's essential to keep track of the latest market trends to make informed decisions. In this analysis, we compare the property prices and affordability of Ipswich and Toowoomba with Brisbane as our benchmark. We release our forecast shortly after each Reserve Bank of Australia (RBA) meeting to account for financial institutions' response to updates and market sentiment changes.
Current Interest Rates in Australia:
The current official cash rate is 4.10%, marking a 0 basis points increase from last month. Finder.com.au reports the lowest variable rate from their lenders at 5.59% and the average variable rate at 6.74%. For fixed mortgage interest rates, the lowest rate is 5.39%, and the average fixed rate is 6.20%.
Effect of Current Interest Rates on Existing Home Loans:
For a home loan balance of $400,000, the cumulative increase in the cash rate since May 2022 translates to a rise in monthly home loan repayments from $1,511 in May 2022 to $2,592. This signifies an increase of $1,081 per month.
Interest Rate Projections:
Based on the ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve, the market anticipates a cumulative amount of 29 basis points hike from next month to February 2024, taking the official cash rate to 4.39%. The market also expects the RBA to begin lowering interest rates from January 2024, gradually reducing the cash rate to 4.07% by December 2024. Trading Economics analysts predict a 6.30% inflation rate by the end of this quarter, trending around 2.90% in 2024 and 2.30% in 2025. This aligns with the anticipated decline in the RBA cash rate starting in the new year and beyond.
Affordability Forecast Analysis:
Brisbane Real Estate: Affordability Forecast
According to SQM Research, Brisbane sellers are seeking $974K for a house and $527K for a unit. The housing market is expected to remain above the serviceability affordability range for median to average income earners, while the unit market is now looking to trend above the threshold.
Ipswich Real Estate: Affordability Forecast
In Ipswich, sellers are asking for $641K for a house (34% less than Brisbane) and $486K for a unit (8% less than Brisbane). The Ipswich housing market is now above the serviceability affordability range for median to average income earners, while the unit market is also now trending above the threshold.
Toowoomba Real Estate: Affordability Forecast
In Toowoomba, sellers are asking for $599K for a house (39% less than Brisbane) and $392K for a unit (26% less than Brisbane). Similar to Ipswich, the Toowoomba housing market remains above the serviceability affordability range for median to average income earners, while the unit market still falls below the threshold.
Conclusion:
Our affordability tests show that Ipswich and Toowoomba are still more attractive choice than Brisbane for both houses and units for households with median or average income despite the forthcoming increases until the end of the year. House price increase in Ipswich has been soft over the last year and we anticipate Toowoomba to follow suit in the new year. We anticipate unit price increase in Ipswich to also start showing signs of softening while unit prices in Toowoomba should continue to increase given the affordability. It is important to note that other factors such as economic conditions and housing supply can also affect prices.
Methodology:
We use SQM asking price when analysing property market trends because it provides an indication of the current market sentiment and helps in estimating the level of supply and demand for properties. It's important to note that asking prices do not always reflect the actual selling price, as sellers may have to adjust their prices based on market conditions and competition. Nonetheless, SQM asking prices are a useful tool for analysing property market trends and making informed decisions.
Our analysis assumes a median weekly gross household income of $1,786 and a mean weekly gross household income of $2,329, sourced from the Australian Bureau of Statistics Household Income and Wealth, Australia report on 28 April 2022. We further assumed an 80% loan-to-value ratio for principal and interest loan repayment, with a spread of 30 years.
When determining property price affordability in Ipswich and Toowoomba, we relied heavily on the 30% mortgage serviceability test. This benchmark helps ensure that homeowners are not overstretching themselves financially, reflects the reality of household budgets, and promotes responsible lending practices. Nevertheless, it's important to note that various factors impact property affordability, and the 30% test is just one of several measures used to assess this metric.
To predict future mortgage interest rates, we utilised the ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve. Nevertheless, we want to emphasize that other factors such as economic conditions, housing supply and demand, and government policies also significantly impact the property market.
Disclaimer:
The information provided in this article is for informational purposes only and should not be considered financial, legal, or professional advice. The content is based on the author's personal experience, research, and opinions, and is intended to provide general guidance and insights. Every individual's situation is unique, and it is recommended that you consult with a qualified financial advisor, legal professional, or other experts before making any financial decisions or taking any actions based on the information presented in this article. The author and publisher of this article are not responsible for any errors or omissions, or for any actions taken based on the information provided herein.
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