The Smartline Report – March Edition

The month in review: Newcastle

By Herron Todd White
March 2015

Getting straight to the heart of the matter, interest rates have been cut (at the time of writing) for a couple of weeks now and the volume of valuations we have undertaken has increased substantially in that short period. If that is an indicator of market activity surging, then we have seen activity significantly increase in a short period of time. If it’s not an indicator of that, then this is probably a waste of a perfectly good introductory paragraph.

Digging a little deeper however and we note that the increase in volumes came off the back of a fairly sluggish January period when school holidays reigned supreme and people seemed nice and relaxed after a hectic end to 2014. Volumes are traditionally low in January so it may be a false reading to suggest that interest rates have increased demand significantly. It may be that the January lull finished at the same time as the interest rate decrease.

Talking with agents around Newcastle, the familiar theme is that stock is still difficult to come by with well-priced dwellings selling in a heartbeat. It is noticeable that poorer quality stock is still meeting with resistance and the age-old philosophy of correctly pricing your house is so important, it does not matter if the market is flying or conversely crashing. Optimistic asking prices simply make it easier for potential purchasers to gloss over your house when surfing the net. You don’t want to lose that freshness to the market that attracts purchasers like teenage girls to a One Direction concert. The recent drop brings interest rates to all-time historic low levels and prior to this drop they have remained extremely stable for a considerable period of time. It may stimulate some activity in the sluggish Hunter Valley areas although it is hard to see this becoming a trend without the required improvement in general macro-economic factors. Given that the Reserve Bank usually only decreases interest rates in a sluggish and under performing economy, it is unlikely to lead to increased speculation from any but the most audacious (we could have used many descriptive words here, this was deemed by general consensus as the most positive and generous) investors. The usual caveats here apply with the improvements in resource prices, the Australia dollar and the employment outlook all potentially helping the Hunter Valley to rebound.

Low interest rates are likely to help the holiday focused areas of Nelson Bay et al, Hawks Nest and Tea Gardens. Both these locations (only a few kilometres apart as the crow flies, much further by car) have been steadily picking up steam over the past 12 months or so. This appears to be on the back of the holiday buyer becoming more prevalent and competing with locals for stock. Noticeably Sydney buyers are looking for beachside holiday spots within a two to three hour drive from Sydney and are finding what they are looking for at much lower prices than are on offer in and around Sydney.

The danger is when the market turn sour, the first property that goes is the holiday home and as such Hawks Nest and Nelson Bay properties are subject to a shorter, sharper boom-bust cycle. This should always be considered when investing in spots that are reliant on tourist income and visitors to the area.

The danger with interest rates being as low as they are at present is that they inevitably increase. How will purchasers (especially novice purchasers with limited experience of fluctuating rates) cope with the rising interest payment burden? If enough invest at current levels and don’t factor in potential increases, then a world of hurt could be coming to the market in the shape of debt defaults and mortgagee in possession sales. As always, it will take a while for this to play through the market.

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2015. Australian Credit Licence Number 385325


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