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    Categories: Financial PlanningPersonal FinanceSuperannuation & SMSF

Surging house prices – when will it end?

An article by Roger Montgomery, writing for the Weekend Australian, reminded me of something that we have been saying for several months now. Surging property prices in most capital cities and regional centres will end in tears for many that believe increasing prices and low interest rates are here to stay.

The alarm bells

Probably the scariest statistic is in Brisbane where not only did the supply of new units increase by 5,500 in 2016 but they are now set to increase by a whopping 13,300 this year. Buyer inducements, lower revaluations of up to 30%, higher vacancy rates, and, most recently, banks starting to tighten up on borrowing limits are all signs of a looming collapse.

The question we may now ask is how soon will this occur and what will be the flow-on effect for other areas of the property market?

 

Accessing super to fund a home deposit – let’s hope not!

One can only hope that the federal treasury is advising government to scrap the ridiculous idea that some politicians have been discussing about possible access to superannuation to fund a first home deposit.

This would only exacerbate the problem and potentially lead to a situation where a young person not only lost all the equity in their home but potentially their retirement savings as well.

 

Take a scenario where someone borrowed $450,000 to buy a $500,000 home, using $50,000 saved up in their superannuation fund as a deposit. Six months later, the property market corrects 20% and the property is revalued at $400,000. Even if the bank does not foreclose on the loan at this stage, there is still a high risk that the individual loses their job or interest rates rise. In this situation, a forced sale is likely which would lead to a position where all the money in super is lost and the individual still owes the bank $50,000.

This reads like a recipe for financial disaster which is one good reason why we don’t expect to see this initiative as part of the 2017 May budget.

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Peter Kirk: Peter Kirk, Managing Director, Quill Group and a Certified Financial Planner.