Despite the continued upward surge in property prices and many Australians believing now is not the best time to buy, NAB data released at the beginning of July showed that the appetite for home ownership was still robust. The bank also recorded strong growth in mortgages, with April being the bank's strongest month on record (for mortgages), especially among first home buyers with a fear of missing the boat.
The NAB survey reported with the current housing supply shortage, and increasing house prices, many purchasers are concerned about being priced out of the market. However, that hasn't deterred everyone, with almost 40 per cent of 18-29-year-olds reporting saving for their first property.
On the one hand, interest rates are at record lows. Although some lenders have already increased fixed rates, the RBA has flagged its intention not to lift rates until 2024. At Oxygen, we believe there will be mortgage rate increases in the third quarter of next year. Link to article found here.
However, the low-interest rates and eased lending criteria currently available are counter-balanced by rising property prices, which many worry may make home ownership unattainable.
There is an old saying in real estate when someone nervously asks, "is it the right time to buy?". My answer is always, "The best time to buy was three years ago. The second-best time to buy is right now!"
Essentially it means, if you buy real estate for the long term, it will almost always increase in value.
One thing we know is that despite short-term fluctuations in property prices, ultimately, they always rise. On average, property prices have risen 5.4% per year over the last 20 years, which is a solid return. If you bought a property just before the last property price crash in 2017, you would likely be ahead in terms of its current value. In short, it's always a good time to consider purchasing.
According to ABS data, house prices have surged by 287 per cent over the last 20 years. For example, in Sydney in March 2002, median home prices were a mere $365,000.00. Fast forward twenty years later, median Sydney prices are an eye-watering $1,050,000. All capital cities have shared similar gains.
We have seen both hot and cool property markets in that time, but ultimately house prices have continued to rise. According to a CoreLogic report from 2019, Sydney's median house value could climb to $6.35m by 2043. The house price statistics in the report show similar percentage gains across all capital cities.
The key take-out is that it's always a good time to buy property, and prices are likely to continue rising, even if they do occasionally falter for a few months.
If prices in the area you are interested in have inflated beyond your reach, consider buying in a "bridesmaid" suburb. Bridesmaid suburbs neighbour property hot spots and are the first to feel the ripple effects when house prices in some areas become too high, or housing stock becomes too low.
The "ripple effect" is when a property hot spot becomes unattainable for most purchasers, so purchasers start to buy in surrounding areas, thus pushing prices up there. Properties will increase in value, and purchasers buying before the area becomes popular can realise significant capital gains.
Buying in a bridesmaid suburb often means you can still afford all of the features you want in a property, often without compromising quality.
An alternative strategy is to buy the "worst house in the best suburb", but that may mean a trade-off in the size or condition of the property.
When borrowing for a new property, an independent broker, not tied to any one lender, is the best way to find the most competitive interest rates. They can search a panel of lenders to select the best mortgage products for your needs.
By finding the most competitive rate available, a broker can help you offset the effects of increased property prices, and by being smart about the areas you search for property, there's no reason to delay getting into the property market.