Article 13 December 2021 by Tonya Davidson As we move into the tail end of 2021, it’s clear that the shine is gradually coming off the market. While property prices in Melbourne still edged up by 0.6% in November, this is dramatically down from the 2.4% growth seen in March 2021, according to CoreLogic.The latest data shows that stock levels in Melbourne are 7.9% above the five-year average. Judging from the data and market sentiment, vendors are in a rush to sell before the market cools. While this is a great thing for buyers, the sentiment in the current market is similar to musical chairs before Christmas. Buyers are feeling pressured to pick something up before the end of the year. With physical inspections and in-person auctions back on in Victoria for fully vaccinated people, it almost feels like a crime to waste time.But let’s pause and remember that buying a home is one of the biggest financial commitments you’ll ever make, so it’s not a decision you want to rush into because Christmas is around the corner.As a buyer’s advocate, Davidson Advocates can guide you in making the right purchasing decisions in a hot market. With over 30 years of experience in the industry, we have the insights, skills and relationships to help you secure your dream home.New lending restrictions from APRA One of the biggest changes to come about in November was APRA’s new lending rules on the serviceability buffer. Banks are now expected to assess whether a borrower can afford their home loan with a 3% buffer (previously, this was 2.5%).Some form of macroprudential intervention had been widely expected due to concerns about risky borrowing. APRA expects that the 0.5% buffer increase will reduce maximum borrowing capacity by about 5%.While this doesn’t appear to be significant, the tighter lending rules could have flow-through effects on the property market in two ways. Firstly, investors will find it harder to secure mortgages and this restricted environment could also impact owner-occupier borrowers. Secondly, tighter lending dampens market sentiment overall. Ultimately, this makes it harder for buyers to purchase a home.But that’s not the end of it. APRA has warned that more measures may be taken if trends in risky borrowing continue – watch this space.What's happening to interest rates? One year on from RBA’s decision to cut the cash rate to 0.10%, housing values have surged significantly. In the past 12 months, Melbourne’s median property price are up by an eye-watering $116,312, with the national median skyrocketing by $132,696.But here’s the thing: inflation is rising and we can tell because fixed interest rates are climbing up. Home loan borrowers shopping for a bargain fixed rate under 2% now will find fewer options than those looking just a few months ago. All of the big four banks have lifted their fixed mortgage rates at least once in the past two months. This is in anticipation of the RBA being forced to increase the record-low cash rate earlier than 2024 as previously expected in response to rapid inflation.If this happens, runaway housing prices are tipped to slow. However, Australia’s $9 trillion property market will be a key consideration for the RBA. With so much household debt tied up to real estate, our economy is dependent on the property market. Naturally, any increases to the cash rate will have to be gradual, to cushion the impact on household borrowers across the country.Given this consideration and that credit will still be cheaper than the long-term average, it’s safe to assume that the market will still be strong, but unlikely to match the same level of growth recorded this year. The return of immigration and the new Omicron variant Immigrants, and how fast they return, will be key to driving demand for property.This is particularly the case for units, prices of which have seen lagging growth compared with houses. The unit market, especially in inner-city areas, will bounce back as international students and workers come back to the CBD for study or work. This will probably translate to higher rents in the short term.But in the long run, permanent migrants will come back to the buying market more gradually, which will prop up demand and prices. The ABC has reported that economists believe one extra home is needed for every three migrants coming to Australia.A recent development has been the new Omicron variant, which has already prompted the government to temporarily pause easing of border restrictions. However, our high vaccination rates are a positive for the border reopening. While it’s too early to say how serious Omicron is, it’s clear that all eyes are on the new strain to see its impacts on our reopening, the economy and the property market.The city comes alive as workers return to office With Victoria hitting the golden 90% vaccination rate, most restrictions were lifted across the state in November. While remote work appears to be staying in some form, the city is coming out of hibernation as we return to ‘normal’ life. With masks no longer required in offices, workers are expected to steadily trickle back into the city. The local government is leading and actively pushing for a strong return to CBD offices. Employers ahead of the curve are investing in improving their office spaces, for example by adding spaces for collaborative work which is harder to achieve at home.But it will probably take some time to see things truly go back to pre-COVID levels. The challenge will be finding the balance between offering flexible work options and revitalising a CBD affected by almost two years of lockdowns.For those buyers looking at a Peninsula purchase the return to the office life and the push by business owners may affect these properties. Effectively the Peninsula boom was underpinned by the work from home drive. A beach side market correction could emerge early 2022.