Answering Australia's Most Asked Real Estate Question Right Now

Hello and Welcome to the Property and Lending Show 

Today Mark Kilada, Fadi Youssef and myself (KM) discussed Australia's number one most asked question right now! 

Should i buy or should i wait?

Tune in to find out!

If you would like to get in contact with Mark or Fadi, you can find them here:
Mark@powerloans.com.au

Fadi@powerloans.com.au

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Transcript

Kyrillos (KM): 0:22

Hello and welcome back to the Property and Lending podcast. US. Joined me, as always. Fedi and Mark from power loans. How are you gentlemen?

Fadi: 0:31

Yeah, good, very well, how are you?

Kyrillos (KM): 0:34

I'm excellent. We have a run sheet for all our episodes and the first part says Intro, which we've just done, and the second part says Mark's tip of the week, Evan Ferdi has added and your feelings and how you feel. So Mark, what's your tip of the week and how do you feel?

Mark Kilada: 0:56

So yeah, just something I've noticed with conversations with our clients. Obviously no feelings here, but all business when you look at the news reports and everything like that after that last RBA rate rise, this time last month they were sort of saying this might be the last rate rise and there was all this speculation about it. I don't think any of these reporters really looked at the minutes of the RBA meeting, which is one of the best indicators because these are the guys that make decision at the end of the day, the people on the board. So just two quick things that they said in the minutes of the meeting, these are their words, not mine. So a lot of people thought 25 basis points would be the last one. There was actually arguments for them to write an increase by 50 basis points for a 0.5% increase rather than a zero point 25. So what they actually said was members of the board acknowledged that there were arguments in favor of both options but concluded that the case to increase the cashier by 25 basis point at the present meeting was the stronger one. So surprisingly there are people that are still pushing for 50 basis points on the board. If that doesn't tell you that there's going to be further rate rises coming this month, in next Tuesday actually, and the following months, then I don't know, I think the news will be diluted. They also mentioned here, members noted that the forecast for outpouring 1 second consistent with this, members agreed that further increases in interest rates are likely to be needed over the months ahead to ensure that inflation returns to target. The target is 2%. So I think tip of the week is if you're waiting for the interest rates to stop going up for some reason, if that's one of the reasons why you're not getting into the market now, which I don't imagine, I can't come to a conclusion why that would be reasonable, but you're going to be waiting a bit more. And because the rates are going to continue going up, that obviously means for existing mortgage holders, repayments are going to continue to increase. So reach out, let's review your rates. The free check takes two minutes. Just tell us your rate, your repayments, we'll tell you if it can get better and if it can, let's check the servicing, let's get the ball rolling and save you some money every month. Sorry, I was just going to say as well, the inflation figure for January just got released either today or yesterday and it came back at 7.4. That's down from December at 8.4. So, again, these are the one of the main things that the RBA look at when they come to increase or decrease the rates. So it looks like inflation is headed in the right direction, but I definitely don't think we're there and we're not close. So maybe a few more rate rises to come to expect.

Fadi: 3:34

And I think it's funny to note as well, we had one of our lenders that when RBA passed the point 25 and all the other lenders were passing the point 25, or the .21 of our lenders passed the zero point 44 just out of the blue. So it really comes down to like the RBA do pass those rates, but it really comes down to what the lenders want to pass that. So there's to keep in mind as.

Mark Kilada: 3:56

Well, which if we go for the last sort of 910 months when they've been increasing, there hasn't really been a lender that hasn't taken on every single one of those rises and taken it to the customer. That very particular bank was very strange and they actually went higher, which is not sort of the norm from what we've seen the last nine months. They obviously can do that if they want, they don't have to. RBA rate rise, but I think what we're seeing is that they're sort of just copying the RBA, but we'll see next Tuesday what they're doing, how the banks react over the next ten days after the increase.

Kyrillos (KM): 4:31

Well, that's a great segue into what we're going to talk about today. I don't know if you did that on purpose or not, but we'll do. I guess today's topic, something that I get asked a lot, and I know you guys are getting asked a lot as well. What's the number one question you're getting asked right now as a mortgage broker? I hope it's the same thing that I'm thinking, otherwise this is going to be offered.

Fadi: 5:00

I think we're all on the same page on this one. Is that should I wait or should I buy? It's pretty much the main question at the moment. Was that right? Is that the right one?

Kyrillos (KM): 5:08

Yeah, correct. Good job. Thank you for reading the show notes. Yeah, so that's perfect. Segue into from what Mark was discussing with his tip of the week and yeah, the number one question you guys are getting, and I'm getting it as well, is should we buy or should we wait? I'll start with you, Betty. I guess we'll discuss our thoughts and opinions and our processes and see if we can help some people out there.

Fadi: 5:43

Yeah, well, as you all probably already know, I'm a pretty conservative person. So I guess when people are asking those questions at the moment, I'm always going to say, listen, if you're able to purchase in this market at the higher rates here and a lower marker, I like to believe what I advice the customers. If you're looking to borrow in this market and you're able to service and you keep your heads above deep waters for the next year or two, when the market starts to stabilize, the rates start to come down, they're really going to be left in a pretty good position where the rates are going to start to come down and the property are going to start to go back up as well. Just how it really does work, doesn't it? In regards to if the property markets peaking, the rates are lower, like we saw now, the property market is coming down a little bit more lower and we're seeing the rates increase as well. So I do believe if you're able to buy in this market, if you're able to borrow and keep in mind people were to come through to market myself, we do those buffer rates. We also increase those buffer rates in regards to servicing to make sure they're able to service in a year or two. And if you're able to borrow in this marker, I think it's a great opportunity to get in at the moment. I already do.

Kyrillos (KM): 6:53

Yeah, for sure. Mark, do you have any winners or different opinions to fear to you on that one?

Mark Kilada: 7:01

No, I think it's the same. I mean, we've seen a lot of customers pick up steals. Like, there was one particular one in More Bank just a few weeks ago. I really couldn't believe the purchase price he got for the plot for 800 square in More Banks. Quite ridiculous. And you can build it to your tech. So I think we're seeing a lot of people, a lot of the investors picking up on these deals. In that particular one I'm talking about, they sort of had zero competition whatsoever. So their first offer that they put in, which was under market, was accepted and was done in a day. I think real estate agents understand where the market is and they're informing their customers, they're informing the vendors that there's not going to probably be a bidding wall going to auction, it's probably going to be more expensive for them and it's not really going to get them the outcome that they want. So purchasing properties nowadays, whether it's investment or occupy in a market where you're not bidding against anyone, for me, definitely makes sense. The other sort of way that I explain to my customers is that when you're coming to purchase, there are a few things that impact your repayments. The loan amount and the interest rate and the loan term. Obviously, the loan term is always going to be 30 years if it's a brand new loan and you're buying a property. So that's not really a factor. But we're looking at the rate and the rate and the loan amount. And I asked the customer, what exactly is in your hand? What can you control? Can you control the rate from the bank? No. You can pick the bank that provides the best rate for you, that you service with the lowest fees, which makes sense. But what you can control is the time in the market that you buy to ensure that the loan amount is lower than it would have been if you bought this time last year. I mean, a lot of people are waiting for the rates to start going down, but because so many buyers are waiting for that time, you're going to be left with a loan amount that's higher, so the repayments probably won't even be left. The rates aren't going to go low quickly as well. It's going to be a very slow sort of grind when they come down. Inflation is very high at the moment, so if you're sitting on the fence and you're waiting for rates to come down, you're going to be waiting for a while and the market is going to not wait for you as well. I mean, we saw one of the things we saw in the last sort of the data for February was that Sydney actually increased for the first time in I don't know how long. Correct me if I'm wrong, it might be like nine months, ten months, I don't know how long it is, but Sydney actually went up and all the other states had a decline, but it was a very small decline, maybe 0.3, something like that. Again, came. Correct me if I'm wrong, but for me it looks like we're sort of making a turn. A lot of people are waiting for this. Sorry, I know I'm talking a lot, but a lot of my customers as well are talking about this mortgage lift that they keep hearing about. All these people are coming off fixed rates and whatever. Anyone that has a home, it's going to be the last asset they're going to give up. They're not going to give it up quickly, they're going to get a second job, they're going to not go on holidays this year. They're going to pull their kids out of this childcare or whatever it is. They're going to not go childcare as many times. People will hold on to their assets for as long as they can. If they absolutely can, they'll contact the bank, they'll make a payment plan. The bank will sort of tell them just to interest only payments now, or they'll put some sort of payment plan together for the customer to have maybe six months to get their head above water. So I don't think there's going to be this massive crash that people are talking about. I think the Australian market is very resilient and I don't think we've seen historically where multiple years in a row we've seen the Australian market as a whole decline. I don't think that's something we've ever seen historically, so I don't think it's something that's going to be seen moving forward as well. What do you think?

Kyrillos (KM): 10:48

Yeah, for sure. I agree with everything you said. And the recent Cologic data showed that Sydney increased by 0.3%. That's really more of and kind of really backing off the premium locations in Sydney not declining as much as they have been and kind of have been steady. Which goes to show that Sydney as a whole, that metric without context is somewhat useless. But also telling you that okay, well, if these because what the data is saying is that Sydney has dropped so much 1%, 2%, whatever it is over the last few months. But that's all Sydney, which, when they look at the data, includes Point, Piper, Volclus, Bondi. One also includes Campbelltown, Liverpool, Parramatta and surrounding suburbs Penrith. And the price differences are so drastic that it doesn't make sense to group these suburbs. We got your 5 million plus locations in areas at around 700 grand. And when Piper or Clues Bondi drops a percent or two, it's a big number, it's a couple of hundred grand, if not more. Whereas when, say, Campbell town goes from 700 to 720, that percentage increase is so small that it gets eaten up in the wider data. And now what we're seeing is that the Sydney has come up 0.3% based off these top areas, not even not going up, but just not going down. It's indicating that a lot of these areas have been stable, if not have increased actually over the last few months as well, which is kind of what we've been saying all along as well. There are definitely deals to be found like that. More bay Quinn you mentioned. I mean, the issue still remains, there's a lack of stock across the country and like you said, if people are in economic strife, the last thing they're going to do is sell their house. And it was the same situation we had with COVID and it's a very similar conversation that we had on this podcast at the time when COVID was first starting back in 2023, years ago. Now it's been that longer and where Matt Coleman said 30% drop in property prices in matt.com is the CEO of Commonwealth Bank and I'm sure he's a very intelligent guy to get that job, but it was one of the dumbest comments he's ever made. And I'm happy to say that because we had that podcast straight after he said that real estate is not run on logic, it is purely run on emotion. And real estate, property is not just an investment, it's someone's home and it's a fundamental need. So people will do whatever they can to hold onto that property. So during COVID people didn't go overseas, obviously they go on holidays. They saved every dollar they had and there was a lot of government stimulus as well to help hold on to those properties. So we saw a lack of stock on the market because no one was selling, because if they didn't have to, they weren't. And we're seeing a very similar thing now where it is still very difficult to purchase. We were looking at property client in Adelaide over the last few weeks and the property was up around 400. We were around that kind of price point and it ended up having 15 offers on it and selling for about 480 grand. So the market is competitive, you just have to look at some context and not just listen to what the media says. So I agree with everything you said there and I figured I take it one step further as well. And I've been trying to create this post for our socials, but I'm not very good at graphic design and it's quite a difficult post to create. But essentially I've been looking at the data since 1970 till today, in every city in Australia, I've been cross referencing it with the RBA every year's average interest rate that the RBA has put out and then cross referencing any notable economic events 911, the GFC when GST was introduced in all V six. And without giving away and going into too much detail because it probably bought some people, there's a lot of numbers. I can guarantee if you bought property in 1970, you'd be very happy person right now and if you bought it in 1980, you'd be very happy as well. And the earlier you purchased, essentially the happier you were. Despite these economic events, despite interest rates going up and down and interest rates are going to go up and down every month for the rest of our lives. It's just how it goes. Every Tuesday except for January, there's going to be an announcement and if we are continuously making investment decisions, these decisions should be for 20, 25, 30 years based off the last Tuesday and that last Tuesday rate announcement, you're not really building off the strategy. You're going to be living in fear for the rest of your life and you're not really going to make a decision. We made a post a couple of days ago that actually showed the difference of waiting one or two years only. And so fairly. If you purchased a property today from 500 grand and was getting 5% compounding growth and Mark bought one, the exact same property next door next year, whatever it was, and I bought one two years after you would be ahead of Mark. After 25 years, purely based compound, you're getting the same growth on the same purchase price, you're going to be ahead of him by 150 grand. You'll be ahead of me by almost $300,000 simply because he started earlier. So I think that the idea is to cut raise and whatnot is time in the market is way more important than timing the market. And I think that's why I speak to all my customers about is if you are financially capable to purchase property now, that's the big number one thing that you got to be able to make sure you're going to be okay. We can't ignore that interest rates are higher and you have to be able to make these repayments. You have to be able to live. But if you can and you can afford it, now is the time to buy. If you can't afford it, it's not the time to buy. The best time to buy is when you can afford it. Because the longer you hold that property, the more money you're going to make. And compound growth is the eight funder in the world for a reason. It is going to make you more money than trying to time the market. It's also impossible to time the market today might be the bottom of the market, we don't know, right? Because well, it wouldn't have already been. We've already passed the bottom of the market technically, because we've already come on a little bit of an upswing with Sydney technically 0.3% in the green. That might come down next month as well. It might go back down to zero or whatnot. But trying to time this perfectly impossible. It's impossible. So you're always going to miss the bottom anyway. And then when you're trying to time it, you're playing on short term time frames. And in the real estate market, you're not trying to make money in short time frames. In short time frames it is really much, really definitely about the long term growth. So I agree with what both of you have said and I think history has shown us that it's pretty simple. It's pretty simple. If you can afford it, now is the time to buy. And we just got to buy in the right areas.

Fadi: 18:21

I think that's basically what it comes down to. And I think that's something that we all mentioned as well. And I guess you said in a better way than I did Km, in regards to if you're able to borrow now and you're able to service the loan. And like we discussed, we also put buffers in place as increases in the near future, in the next six to twelve months, if you're able to purchase now in this market. And to be honest, every time we talk about when is the right time to purchase or not, it really isn't the best one because either interest rates are low and then the purchase prices are high. You need a higher deposit. You got steam duty costs have gone up as well. Or interest rates are higher and the market is low and you can't afford or you're not able to service the loan because the rates are higher. So it really does come down to if this is the best time or you're able to borrow and service a loan now. I honestly think it's rate idea because let's say you keep your head above water for the next six months, twelve months, 18 months, two years, you're going to see growth, you're going to see those rates coming down, your loan repayments coming down as well. And also I like to think the property was to always go up. Like we always discuss, it's always going to go up. I understand, like, I want to be a bit of devil's advocate here, but in regards to the COVID period, I think we just saw too much money being blended out, which did remind me of nine. And the reason why I say that is because this is money that was lent out. Have we ever been in a position where they've lent out this amount of money out? Has the buffer ever been that low, the assessment rate? No, it was covered definitely the lowest. Correct. So that amount of money being given out, that's the only worrying thing that I want to come down to in regards to do. I believe there's still going to be a bit of market decreases towards the end of the year, towards the middle of the year. I believe that we will see a little bit more reductions. I see marks in regards to Mark's customer. We see a lot more bargains like Mark discussed in regards to bargains coming on the market, not having that much of a competition. But we have to also consider that the amount of money that was given now, we're also going to pay for it as well. And we hope that Lockmark said, man, I want to do everything I can to hold onto my asset. At the same time, let's keep in mind that once you come up with a fixed interest rate, you're looking like anyone with an average of a million dollar home. You're looking at a minimum $600 extra to your monthly repayment as well. And that doesn't include everything else. Groceries, petrol, Reggie, everything has gone up as well. So if you can keep your head above waters and also fall into this market, I don't know, this might be a good time.

Kyrillos (KM): 20:51

Yeah, I think it's all what we sometimes tend to forget when we see this doom and gloom of the property market crashing or going down. What not down 2%, whatever. 5%. This is backing off a historic 40, 50, 60% growth. Right, so you haven't lost money, you've gone from 500 grand to 800, back down to 750. You have not lost money, you 250 grand ahead of where you were, or from 1 million to 1.4, then back down to 1.25. You're way ahead. The issue is obviously where people purchased at 1.4 and then that's kind of come down a bit and they're in negative equity at the moment. But obviously, if they can hold onto their properties, real estate is a forgiving market and eventually time will heal that wound. So I think that's something to consider as well. But going off what you're mentioning there. I had another point, but it's lost. It's gone into the crowd. So I'll let Mark take over.

Mark Kilada: 22:07

I was going to say just as well, like you guys were chatting. I just put down three quick points. First thing is, if you're buying a property with the intention that this is going to be positive, your property covering itself, this is a great time to buy. I mean, rent is absolutely insane. If you open the news, you'll see a report about it every few days. Anyone that's a landlord would see their rent increase a lot since last year. And anyone that's trying to rent is going to have a very difficult time as well because they have such limited supply pushing up these prices. So in terms of being a landlord at the moment, although your mortgage is going up, rent is also maybe not keeping up, but it's still going up quickly as well. The same thing I was going to say is you guys were saying now is the right time to buy. If you can afford it right now, your loan is being assessed at minimum 8%. Minimum 8%, probably eight and a half. There are some that are above ten already. So the bank is also very conservative. If you earn any type of income that's not sort of guaranteed, it's usually shed at 80%, sometimes less than that. If you started a second job, we can't actually use that until like six or twelve months because the bank wants to know you can keep two jobs. So the bank is very conservative with how they give out their money at the moment. So if you can service the loan right now with how they're assessing your file, then you should be okay to continue as so long as your income doesn't reduce. That's the second thing. So the third thing as well I was going to say was just a question to put out there for the customer that thinks that they should be waiting until the rates go down. What do you think is a better investment? Purchasing in 2021 when rates were 1.99 2.92.19 with incredibly high prices, maybe 30% higher than now, or purchasing now, whether the purchase price has come down, maybe 10%. But you're at the same rate as that person I bought two years ago, that person I bought two years ago, that fixed rate, that incredible rate with every high purchase price because there's a lot of demand right now. He's going to be at the same rate as you stand, the same position, but with a much higher loan. So would you rather buy with a much higher loan? Given that even if you get a good rate now, in two years time you're going to be in the same position as someone buying in a much higher rate? I'd rather be lower.

Fadi: 24:27

They just told you you can't judge the market like that point just there. You just can't judge the market.

Kyrillos (KM): 24:34

Yeah, for sure. I remember what I was going to say because we bought you talking about as well. It will be different, I think as well, in terms of people trying to time it and why this is probably a good time if you can get in, I think as soon as we see and because this is based on history and historical data that I've been studying for a little while. I think as soon as the official cash rate maybe not when it holds, but as soon as we get a few consecutive months of no. Increases and maybe that first rate decrease, whether it's in six months or a year, whatever. As soon as that happens, I think a lot of buyer sentiment come back like that, and it's going to flood the market and it's going to be extremely competitive. So if you are able to get in beforehand you're going to take advantage of that extreme demand. Obviously you got to be in the right location, as we always say location, location, location come by anywhere and anything. But I think as soon as you see that first decrease, and even if it might not even be a decrease, it might be three consecutive months, no change where the sentiment comes back, where people say, okay, it's not that bad, or we're at a point where we can forecast our monthly repayments and we know it's not going to keep going up. And whatnot. So we can work with this interest rate. But I think definitely that first decrease is going to throw a lot of buyers back into the market. Yeah, it's going to be very competitive. We see it time and again in history. Whenever there's a drop, people flood the market immediately.

Mark Kilada: 26:26

I think it's well by sentiment will go up the first time RBA holds the interest rate as well. I think we'll see a flood of pre approvals coming at our stage. I was also going to say 1 July when the government scheme comes out with at the moment, the first time guarantee scheme, the threshold in Sydney is 900K. Anything over that you can use the government scheme, the 5% deposit with Lmi Wave, the new government scheme that's being introduced 1 July the threshold is up to $1.5 million. A lot of first time buyers that have contacted me personally are waiting for that scheme. Because this is the scheme where you only need a service to debt of 60% to 70% because the government will actually contribute a much higher amount and will actually own a portion of your home but will allow sort of lower income earners, minimum income earners to purchase a lot higher than what they would now with the first time guarantee scheme. So I think we'll see an uplift in that particular market in Sydney up to one and a half mil after July is all may take a few months but there will be quite a bit more demands. For those particular properties? I think so.

Fadi: 27:31

In regards to those properties, if you are to sell the house later on when you sell the house, the government takes the 30% to 40% out of that and you take the 60 or how does that work?

Mark Kilada: 27:42

Yeah, I believe so because I had.

Fadi: 27:45

Something similar to this in Western Australia. I don't know, maybe it was like five to eight years where you had customers. I think there was 50 50 back then as well. I don't know. I think we've discussed this. I think Mark and I have discussed this. I don't know if I'm a fan of this one. I don't know why.

Mark Kilada: 27:59

No, it's definitely not for anyone. But I see it working for low income that I'm looking to get to a property of maybe a million 1.2. But I can only service really a loan of 600 and only have like a three deposit. It would work for them, definitely their.

Fadi: 28:15

Forever home, their long term hold kind of thing. Do you know what's interesting? I don't know if we know this yet, but how would it be accessing equity in that property?

Mark Kilada: 28:26

Are you able to I don't know. I feel like all the information hasn't come out about it as well. You own either 70 or 60%, depending if it's new or existing home. You wouldn't be able to take out more than the normal, let's say updated.

Fadi: 28:44

Percent of 70% you can probably take out. I think we've discussed this one because I love the 5% government scheme that we've got at the moment for the first time buyers. I think it makes sense and it does work out in their favor throughout the whole 30 year investment. This one is just so much questions coming up. I think it's time for a podcast, but yeah, that kind of topic, for sure.

Kyrillos (KM): 29:09

I think I asked Mark about it a few months ago and we don't have the answers yet. I don't think they've released all the information.

Fadi: 29:19

Do you remember the one in Western Australia came like the one where they did? They pretty much the exact same thing. And I remember running into two to three customers and they purchased this probably ten years ago. Those customers purchased and they're struggling to sell their home at a certain price or they're going to lose money because they owed. They only earned about the 50%. They're going to set at a loss. So I kind of left them with a debt as well and I ran through just caught us out of the blue. So I don't know, man. I don't know how I feel about that one. I'll be upfront in regards to we'll.

Kyrillos (KM): 29:48

Have to wait and see exactly what the details are and we'll run an episode on it. But just based off just finishing on whether we should buy now or wait, I think we're pretty in sync with our thoughts. Anything else to add on to that or I think it's pretty straightforward. If there's anything else to add, now is the time to do so. No? All right, well, thank you guys, as always, for your expertise. And thank you, Mark, for sharing your tip of the week.

Mark Kilada: 30:23

And no feelings next week.

Kyrillos (KM): 30:26

We're going to get some feelings out of it.

Fadi: 30:27

We're going to get some feelings out of you.

Kyrillos (KM): 30:31

The niche is want to know how you feel, mate. That's why we're growing so quickly, because people have a connection to you. Yeah, just give us something mark of the week and how he feels about the weather or something. Yeah, it's what the people want me anyway, if he ever that listens weekly, our numbers are increasing, and if you can subscribe on Spotify or Apple podcasts wherever you listen to it's great for the algorithm and it shows it to more people. And if everyone could just tell one person I think we've just ticked over 6000 downloads, so if everyone tells one person, we're going to hit some double digit thousands pretty quickly, which is pretty cool. It's a lot of people listening.

Fadi: 31:20

Get one of those big balloons with the 10,000 honor and then pop.

Kyrillos (KM): 31:27

Mark will pay for it, and we'll find out how he feels about him paying for that. Thank you to everyone that's listening. Stay tuned for the next episode. And ciao.