It seems Australia’s most popular spectator sport over the past year has not been cricket, or even the various codes of football, but making backyard bets on when property prices will peak.

Following an extraordinary pace of growth in 2021, the cost of real estate down under has been a hot topic of conversation at barbecues, dinner parties and throughout the media. Now we are nearing the end of the first quarter of this calendar year, it’s worth taking score of where the market is headed.

What is a property market peak?

Real estate traditionally has cycles where prices go up and then plateau, or possibly go down. These cycles tend to last between seven to 10 years, but are highly susceptible to the economy, politics, and now global health crises.

It goes without saying, no one wants to pay a premium for something if they can avoid it, therefore switched on homebuyers and investors are keen to pick the peak of the property market and buy when prices are falling or even at the cycle trough.

Have we passed the peak?

Last year was a remarkable year on paper for property. By the end of February 2022, a modest (yet still positive) 0.6 per cent gain in dwelling prices marked the 17th consecutive month of growth for Australian residential real estate.ⁱ CoreLogic’s Home Value Index hasn’t recorded such a surge in three decades. By early March, home values were 20.6 per cent higher than they were a year prior with the combined capital cities recording a 19.2 per cent increase and the combined regions up 25.5 per cent.

Despite the huge growth over the past 12 months, some key indicators are showing the steam is finally coming out of the heated market. February’s national growth marks the lowest national monthly movement since October 2020, with every capital city and broadly the regions are now slowing in value growth.

Signs a peak is approaching

The most obvious sign a peak is in motion is a consistent downward trend in monthly movements, which is yet to happen. Sydney was the only city reporting negative growth in February, albeit small at – 0.1 per cent, and its first dip in a year and a half.

Price growth, however, is just one of the puzzle pieces. The direction prices are headed is significantly impacted by;

• • Policy-related factors such as interest rates and credit availability,

• • Market factors such as the trend in advertised stock levels and affordability, plus

• Economic factors like labour market conditions and wages growth.

While the official cash rate remains at a record low of 0.1 per cent – and is not tipped to move upwards until the second half of this year or early next year – lenders have been inching up their fixed rates for months. This tightening of borrowing power will translate to lower buying budgets.

“The slower growth conditions in Australian housing values goes well beyond the rising expectation of interest rate hikes later this year,” Tim Lawless, CoreLogic’s director of research noted.

“The pace of growth in housing values started to ease in April last year, when fixed-term mortgage rates began to face upwards pressure, fiscal support was expiring and housing affordability was becoming more stretched. With rising global uncertainty and the potential for weaker consumer sentiment amidst tighter monetary policy settings, the downside risk for housing markets has become more pronounced in recent months.”

And finally, one of the most recent signs of a cooling market has been the “normalising” of supply and demand. This trend is most advanced in Melbourne, where total listings are now above average, but also in Sydney where listings are approaching average levels. The cities where housing values are continuing to rise rapidly show a lack of properties available for purchase.

If you want to discuss whether it’s the right time for you to buy, or refinance in the wake of recent market movements, then reach out for a personalised chat.

i https://www.corelogic.com.au/news/growth-australian-housing-values-continues-lose-steam-sydney-records-first-decline-17-months

There’s good news for first home buyers. The First Home Super Saver (FHSS) scheme which allows you to save for your deposit in your super account, is increasing its maximum release to $50,000.

How it works is a little complicated, but we’re here to guide you through the steps. Here’s what you need to know.

The FHSS scheme helps first-home buyers save for a deposit through their super. It allows you to reduce your taxable income as you save money for your future home. From 1 July 2022, the maximum amount you can access will increase from $30,000 to $50,000.

How does FHSS work?

Under the FHSS scheme, first-home buyers can use voluntary super contributions of up to $15,000 each financial year to help them save for their first home. You make voluntary super contributions from your salary or savings. The benefit is that the money you save in your super is taxed at a lower rate – only 15%. This means you pay less tax on the money you put towards your deposit, and it may earn more than if it was in an ordinary bank account.

On top of your contributions, a percentage of the earnings your contributions make is included when calculating how much you can withdraw through the FHSS. This figure is calculated by the Australian Taxation Office (ATO) not your super fund. We can give you an idea of the current earning percentage being used. Here are some examples of how the scheme works.

1. 1. You have salary sacrificed $15,000 every year for three years ($45,000) and the ATO calculates you earned $5,000 from that investment. You can then apply to release the full $50,000 amount.
   2. A couple who have saved in their individual super accounts would have a combined FHSS release of $100,000.
   3. If you salary sacrifice $10,000 a year, you may need to wait four or five years to reach $50,000 or access a lower amount sooner.

Are you eligible for the FHSS scheme?

You must be 18 or older to register for and release money under the FHSS scheme. You must also never have owned any type of property in Australia.

Eligibility is assessed on an individual basis. This means that individuals can access their own FHSS contributions to put towards the same property. It also means that if another person who already owns a property is buying with you, you can still apply for your FHSS release.

Getting your funds in time for settlement

It’s important you understand the process for having your funds released in time for settlement. The ATO can take some time, so it’s a good idea to start the FHSS process when you first apply for pre-approval on a home loan. You’ll need a minimum of six weeks for each step.

The first step is to apply for a FHSS ‘determination’ from the ATO – not your super fund. You can do this using your MyGov account. The ATO will calculate how much you can release and give you their ‘determination’. It’s very important that you receive your determination before signing a contract for a property.

Once you get the determination, you can request the funds be released. Again, do this through your MyGov account and as soon as possible. The ATO website has a summary of all the conditions for releasing money under FHSS.ⁱ

Remember that you can only use the FHSS scheme once. However, you have up to 12 months to sign a property contract from the date you make a valid release request to notify the ATO.

The First Home Super Saving scheme may help you save for your first home deposit faster than a regular bank account – and help you pay a little less tax too.

We can help you manage the timelines and rules involved so your funds are released in time for your settlement. Simply give us a call to find out how the FHSS scheme could help you own your first home sooner.

i https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/first-home-super-saver-scheme/#Howyoucansaveinsuper

Your home should be your haven – a place where you and those you share it with always feel safe and secure. Unfortunately, the home has proven to be a place where accidents can and do happen, however it is possible to take steps to make your house a safer place to live and minimise the risk of an incident occurring.

When you walk in the door and put your feet up, it may seem a little strange to think of your home as being even remotely dangerous. However, the statistics from hospitalisations and emergency department presentations back up the old adage that most accidents happen in the home. In fact, the home is the highest-ranked location of injury requiring hospital admission and half of those who rock up to emergency do so to receive treatment for an accident that happened while they were at home.ⁱ

Danger lurking in the backyard (and living room… and bedroom)

So where are the most dangerous areas of our homes? According to the Monash University Accident Research Centre, the living and sleeping areas are the areas where most incidents occur (51.2%) – although that is where we tend to spend the most time – followed by the outdoor spaces including the garden, garage and yard (27.0%).ⁱⁱ

Removing trip hazards

The most common injury suffered while in the home is falls – and they are not just something that happens to the elderly.ⁱⁱⁱ Slips, trips and spills can happen easily in wet areas or staircases so taking a careful look at your living environment is the first step to making your home a safer place to live. Check out uneven surfaces and ensure all stairwells are well lit and have appropriate handrails. Consider applying non slip solutions to areas that are prone to be slippery.

Where there is smoke…

One relatively easy way to make your home safer is to ensure you have functional fire alarms installed. While there are varying legal requirements depending on the age of a house and which state or territory you reside in, it’s a good idea to have them where they will wake sleeping occupants and make sure you check them on a regular basis – at least yearly. Given that one in three accidental fires happen while cooking, it’s also good practice to have a fire extinguisher and fire blanket handy in the kitchen.

Electrical fires can be prevented by replacing frayed cords on appliances and avoiding overloading power points. Outdated electrical wiring is another major cause of electrical fires. While it can be hard to tell if you have unsafe wiring, make sure you pay attention to any signs of hidden electrical issues, including an overloaded circuit breaker, flickering lights or intermittent power issues and call in a professional to take a look at your wiring if you are at all concerned.

Renovating safely

Speaking of professionals, while it can be enormously satisfying and cost effective to renovate your home yourself, you also need to know when to call in the experts as the discovery of asbestos or the removal of lead paint can have profound health impacts if not carefully managed.

It’s important when you are at work on your place to be mindful of safety issues, from working on ladders, to using tools and caustic chemicals safely.

Making it safe for the little ones

And finally, last but by no means least, is the importance of providing a safe environment for the little members of the household. There are a lot of potential hazards for children in the home and the Child Accident Prevention Foundation of Australia have prepared a handy checklist that addresses all of the things you need to consider to keep the kids safe.

The truth is that most mishaps around the home can be easily prevented and having a little awareness of potential hazards will make your home a safer place for all who reside there.

A balancing act

Billed as a Budget for families with a focus on relieving short-term cost of living pressures, Treasurer Josh Frydenberg’s fourth Budget also has one eye firmly on the federal election in May.

At the same time, the government is relying on rising commodity prices and a forecast lift in wages as unemployment heads towards a 50-year low to underpin Australia’s post-pandemic recovery.

While budget deficits and government debt will remain high for the foreseeable future, the Treasurer is confident that economic growth will more than cover the cost of servicing our debt.

The big picture

The Australian economy continues to grow faster and stronger than anticipated, but the fog of war in Ukraine is adding uncertainty to the global economic outlook. After growing by 4.2 per cent in the year to December, Australia’s economic growth is expected to slow to 3.4 per cent in 2022-23.ⁱ

Unemployment, currently at 4 per cent, is expected to fall to 3.75 per cent in the September quarter. The government is banking on a tighter labour market pushing up wages which are forecast to grow at a rate of 3.25 per cent in 2023 and 2024. Wage growth has improved over the past year but at 2.3 per cent, it still lags well behind inflation of 3.5 per cent.ⁱⁱ

The Treasurer forecast a budget deficit of $78 billion in 2022-23 (3.4 per cent of GDP), lower than the $88.9 billion estimate as recently as last December, before falling to $43 billion (1.6 per cent of GDP) by the end of the forward estimates in 2025-26.

Net debt is tipped to hit an eye-watering $715 billion (31 per cent of GDP) in 2022-23 before peaking at 33 per cent of GDP in June 2026. This is lower than forecast but unthinkable before the pandemic sent a wrecking ball through the global economy.

Rising commodity prices

The big improvement in the deficit has been underpinned by the stronger than expected economic recovery and soaring commodity prices for some of our major exports.

Iron ore prices have jumped about 75 per cent since last November on strong demand from China, while wheat prices have soared 68 per cent over the year and almost 5 per cent in March alone after the war in Ukraine cut global supply.^iii,iv

Offsetting those exports, Australia is a net importer of oil. The price of Brent Crude oil prices have surged 73 per cent over the year, with supply shortages exacerbated by the war in Ukraine.^v Australian households are paying over $2 a litre to fill their car with petrol, adding to cost of living pressures and pressure on the government to act.

With the rising cost of fuel and other essentials, this is one of the areas targeted by the Budget. The following rundown summarises the measures most likely to impact Australian households.

Cost of living relief

As expected, the Treasurer announced a temporary halving of the fuel excise for the next six months which will save motorists 22c a litre on petrol. The Treasurer estimates a family with two cars who fill up once a week could save about $30 a week, or $700 in total over six months.

Less expected was the temporary $420 one-off increase in the low-to-middle-income tax offset (LMITO). It had been speculated that LMITO would be extended for another year, but it is now set to end on June 30 as planned.

The extra $420 will boost the offset for people earning less than $126,000 from up to $1,080 previously to $1,500 this year. Couples will receive up to $3,000. The additional offset, which the government says will ease inflationary pressures for 10 million Australians, will be available when people lodge their tax returns from 1 July.

The government will also make one-off cash payments of $250 in April to six million people receiving JobSeeker, age and disability support pensions, parenting payment, youth allowance and those with a seniors’ health card.

Temporarily extending the minimum pension drawdown relief

Self-funded retirees haven’t been forgotten. The temporary halving of the minimum income drawdown requirement for superannuation pensions will be further extended, until 30 June 2023.

This will allow retirees to minimise the need to sell down assets given ongoing market volatility. It applies to account-based, transition to retirement and term allocated superannuation pensions.

More support for home buyers

A further 50,000 places a year will be made available under various government schemes to help more Australians buy a home.

This includes an additional 35,000 places for the First Home Guarantee where the government underwrites loans to first-home buyers with a deposit as low as 5 per cent. And a further 5,000 places for the Family Home Guarantee which helps single parents buy a home with as little as 2 per cent deposit.

There is also a new Regional Home Guarantee, which will provide 10,000 guarantees to allow people who have not owned a home for five years to buy a new property outside a major city with a deposit of as little as 5 per cent.

Support for parents

The government is expanding the paid parental leave scheme to give couples more flexibility to choose how they balance work and childcare.

Dad and partner pay will be rolled into Paid Parental Leave Pay to create a single scheme that gives the 180,000 new parents who access it each year, increased flexibility to choose how they will share it.

In addition, single parents will be able to take up to 20 weeks of leave, the same as couples.

Health and aged care

One of the Budget surprises in the wake of the Aged Care Royal Commission findings, was the absence of spending on additional aged care workers and wages.

Instead, $468 million will be spent on the sector with most of that ($340 million) earmarked to provide on-site pharmacy services.

The Pharmaceutical Benefits Scheme (PBS) is also set for a $2.4 billion shot in the arm over five years, adding new medicines to the list. PBS safety net thresholds will also be reduced, so patients with high demand for prescription medicines won’t have to get as many scripts.

A $547 million mental health and suicide prevention support package includes a $52 million funding boost for Lifeline.

And as winter approaches, the government will spend a further $6 billion on its COVID health response.

Jobs, skills development and small business support

As the economy and demand for skilled workers grow, the government is providing more funding for skills development with a focus on small business. It will provide a funding boost of $3.7 billion to states and territories with the potential to provide 800,000 training places.

In addition, eligible apprentices and trainees in “priority industries” will be able to access $5,000 in retention payments over two years, while their employers will also receive wage subsidies.

Small businesses with annual turnover of less than $50 million will be able to deduct a bonus 20 per cent for the cost of training their employees, so for every $100 they spend, they receive a $120 tax deduction.

Similarly, for every $100 these businesses spend to digitalise their businesses, up to an outlay of $100,000, they will receive a $120 tax deduction. This includes things such as portable payment devices, cyber security systems and subscriptions to cloud-based services.

Looking ahead

With an election less than two months away, the government will be hoping it has done enough to quell voter concerns about the rising cost of living, while safeguarding Australia’s ongoing economic recovery.

The local economy faces strong headwinds from the war in Ukraine, the cost of widespread flooding along much of the east coast and the ongoing pandemic.

Much depends on the hopes for the rise in employment and wages to offset rising inflation, and the timing and extent of interest rate rises by the Reserve Bank.

If you have any questions about any of the Budget measures, don’t hesitate to call us.

Information in this article has been sourced from the Budget Speech 2022-23 and Federal Budget support documents.

It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.

i https://tradingeconomics.com/australia/gdp-growth-annual

ii https://www.abs.gov.au/media-centre/media-releases/annual-wage-growth-increases-23

iii https://tradingeconomics.com/commodity/iron-ore

iv, v https://tradingeconomics.com/commodities