Well, it looks like we’ve hit the point of household de-leveraging in Australia. Instead of credit expansion and mortgage growth we are entering a phase of people paying down their debts.
This seems like good news but it will have a profound impact on areas that have high levels of debts. A slowing down of new entrants into the market will mean downward pressure on pricing in many areas.
For instance, it’s been reported today that the suburb of Melton now has a delinquency rate of 3.37%. You get bet your bottom dollar that prices are going to come under huge pressure in this area and it’s probably just the start of large price falls.
Now Melton is considered part of the ‘mortgage belt’. So what about the higher priced areas?
Areas like Brighton and Hawthorn show incredible strengths in booming times. The demographic is normally not shy of high debt ratios and tends to have a high level of people working in the financial industries. Evidence included ‘margin call selling’ in 2008.
In 2008 we noticed these example suburbs as ones that experienced rather large price falls as with many others.
In making investment decisions from here on out, I’d be looking at the pockets of resistance. The pockets of resistance are areas with low debt burdens, therefore they are not forced into selling when the conditions are not favourable. When buying, always be thinking about selling.
Conservative, low turnover and close to the city are good signs. I’d put areas like South Melbourne, Carlton North, North Melbourne and Toorak is this camp. While areas like South Yarra, Brighton and Hawthorn would be areas that can increase rapidly yet drop quickly when the hype departs.
Also factors are the types of property being sought. New apartments in Carlton in my opinion are going to get clobbered over the next 6 months. Yet a solid Art Deco apartment in Parkville is going along just fine.
In buying resistant property, the area and type of property need to be carefully chosen. If I could offer one opinion however, stay away from suburbs with an overall high debt burdens. While you might be able to pull off a bargain, just remember that one day you’ll be the seller, not the buyer.
