You’re on the Property Buyers journey, you are considering purchasing a property. You have contacted your bank or finance broker, and you have been given an indicative loan amount.
Your budget can purchase a property for around $1 Million or maybe a bit more if you can save the stamp duty or squeeze a bit more. Terrific! you feel ready to enter the property market – control your living circumstance and break the rental cycle. The future is looking exciting… IS NOW THE RIGHT TIME TO BUY.
You have heard the market is falling and prices are now better than last year …. However, I just don’t seem to be able to find the bargains or get the property I want, there is so much competition. The news says prices have dropped but every time I find the right property it sells quickly, or the auctions are still competitive. WHY?
The reason for this dilemma is AFFORDABILITY. It is red ocean territory “There is blood in the Water sub $1.2 Million”… where there are so many people in these price ranges looking to purchase due to affordability. The drivers of the market for demand are always – births, death, marriage, divorce, job relocations, home leavers, upsizing and downsizing, ‘bank of mum and dad’ and availability of credit and its cost.
This price range sub $1.2 million is highly competitive because it is affordable for so many entrants and participants. The mid-tier market$1.9M to $3M has slowed typically as existing owners choose to stay put and not sell opting to stay where they are and avoid increased costs or rent out their properties in a rental market that is increasing parabolically. Many of the prestige markets have dropped however demand while not as hot as last year remains high.
Quality will always sell especially in desirable areas. In Sydney, people forget there is not enough Housing supplied to meet the demand. This is a chronic dilemma. The market will always keep cycling with buyers and sellers however the overall trend is always going to be upward over time. THE CREATOR ONLY ALLOCATED A LIMITED AMOUNT OF LAND.
The difference now is that many vendors are serious sellers as they have a compelling reason to move versus the discretionary choice – that saw many vendors capitalise on high sale prices over the past 2 years where money has been accessible and cheap to purchasers.
Will high-interest rates keep driving house prices down?
Currently, there is a direct relationship in a broader property market sense that the rise in interest rates = a drop in house prices.
Firstly, in some cases yes, those who were on fixed mortgages of 2% or honeymoon mortgage rates (fixed and variable) are typically coming toward the refinance phase of their loan. Many of these people will go from having paid 2% of their funds up to 6%. This will cause distress and will drive many more people to sell. We often forget in these times that higher interest rates, and higher inflation, can also lead to increased job losses. The affordability and risk component still plays a major role in the sentiment of potential purchasers – “Can I afford this” the result many who could have afforded $1.5M previously have consciously downgraded to $1.2M and below when purchasing.
Secondly, and a major and often ill-considered option is what about the purchasing power of your bank loan? The juxtaposition often not considered is that – if rates rise again the mortgage applicants will be further discounted in how much they can borrow. Furthermore, they will pay more money for a lesser dollar value borrowed.
See the Blog -DO I BUY NOW? THE REAL IMPACT OF INTEREST RATE RISES & YOUR PURCHASING POWER
What is the answer – Do I Buy Now or Wait?
The correct answer to this is that you should purchase when you can afford it. The market over time still provides the average person with the best leverage of any investment type. As an owner with a 10% + deposit, you can control ten times this amount. You can’t do this in too many other investments. Your gains will be tax-free. In many ways, it is like a forced savings plan while maintaining a roof over your head.
The property market over a duration has always risen. Why? For the same reasons mentioned there is just not enough supply to meet the demand as Sydney continually expands and pushes to the outer Sydney Metropolitan areas. Inflation is also the driver of property prices. The value of $1 today is very different to $1 in 5 to 10 years. In ten years, that $1 is probably matched by $2 to have the same purchase power. This is what also makes property prices rise. When coupled with cheap money, immigration increases, and government home buyer incentives… the prices will only continue to rise in the mid to long term when people compete for the same property.
The principles and drivers of where to buy still apply. Purchasing in poor areas that are oversupplied, poorly supported, badly designed, and saturated in a common product will not grow as rapidly as in other areas. Good access to facilities, schools, transport, road arteries, beaches and recreation are still strongly correlated to the desirability and pricing of certain areas. Position, position, position!
Australia is vested three times more in property than any other asset class (e.g. equities), the government revenues on a Federal and State level are very bonded to property market performance for revenues, duties, and employment so as in the past the government is very vested in seeing property markets maintain their levels as much as possible
So, when you consider the above information it is reasonable to assume that the best time to buy in the market… is when you can afford to. Property is typically a 5-year hold or longer to absorb the purchasing costs and have some gain.
If you require assistance in acquiring your next property and want a genuine edge from a property professional, please Get in Touch at [email protected]
