“A HOUSE is the one investment that is never a risk.”
“Houses always appreciate.”
“This is the bottom of the market. It can only go up from here.”
“Don’t waste money renting a home when you can own one and have a great investment.”
Everyone has heard these comments about the housing market in Australia, but in recent times with housing markets crashing all around the world, insecurity and confusion regarding home ownership have changed the rules.
Although prices are holding steady in many parts of Australia, other areas are experiencing a drop. Real estate agents say the market will hold steady. Brokers and the government say now is as good a time as any to purchase a house with interest rates at around 5.9%, which is down from 12 months ago.
According to the Demographia International Housing Affordability Survey, which takes the median house price and divides it by the gross annual median household income of specific urban markets, Australia is one of the most unaffordable places to live in the world. With the average household income at around $64K/year and the average Australian house price at $470K, people have to look beyond the price tag to justify their reasoning for moving down under. Luckily, Australia has some of the most beautiful waters, terrains and people in the world.
So, once you are living in Australia, the question becomes, do you buy a house now (if you can afford the down payment and qualify for a loan) or do you rent and wait to see what the market will do?
The answer lies in assessing your situation thoroughly:
Where in Australia do you want to live?
Obviously, location matters when purchasing a home in Australia. If you want to live in East Melbourne, the median price is over $1.3 million while a home in a small western suburb of Newcastle will run you just over $300K. Any home near the coast will always cost more, but will also tend to appreciate more over the long run and may be a better investment. Taking into consideration future population and building growth, along with rail lines and other commuter positives will all play a factor in how much housing costs. You might be able to live in a smaller home or unit with little or no land if being close to work and beautiful sites matter. If you have young children, requiring multiple bedrooms and a yard, you may need to compromise on location or price to get what you are looking for.
How do you want to handle your home loan in Australia?
One of the reasons the Australian housing market boomed over the last 20 years is because of more readily available financing. Banks started lending more money to people who couldn’t qualify in the past; therefore, people took out the loans and took advantage of this credit to buy their houses. This is all well and good in a growing economy where people want to live. You must just proceed with caution and watch out if the Australian economy begins slowing down its growth and property values go below their actual mortgaged value. Fortunately, according to the World Economic Outlook, the Australian economy is expected to expand by 3% this year alone.
It’s not uncommon for houses to sit on the market for 6-12 months in this current economy. First-time home buying incentives from the Australian government were withdrawn after 30 June 2012 and while interest rates are down at present, some analysts predicted they will rise again in the near future. Many people have put the breaks on buying a home and chosen to rent for the time being.
Incurring a large mortgage is the norm for a lot of Australians. Home loans are a reliable process, but you must prepare to be able to pay your monthly payments and budget with longevity in mind. The Commonwealth Bank of Australia’s UK website has some useful information to help you make your decision.
How long are you going to live in your home?
If you are looking to make a long-term investment (20 years or more) in Australia, then the up and downs that might occur over the next 5-10 years may not matter. A nice home in a city near the coast in a popular suburb will likely hold its value and increase in value over the long term.
However, if you want to experience 20% growth in home value and sell to “upgrade” or make money over the next five years like many people were able to do in the 80s and 90s, it might be a big risk due to the current market uncertainty.
When looking at your potential investment, the quality of construction matters as well. Poorly constructed homes will actually depreciate over time so be careful not to overpay for something that may not be the best quality home. And, be realistic about how much your home will increase in value if you choose to build a house to take advantage of tax breaks, but then cut corners and expenses in the type of home you choose to build.
Moving to ‘The Lucky Country’
According to the International Monetary Fund, Australia has the strongest economy in the developed world and is only prospected to go up. While the housing market is a bit on the expensive side, the economy and job market is on the rise, balancing out any extreme costs of homes.
Buying a home and moving to a new country is a worthwhile experience, especially when you are talking about Australia. Have your facts in order and know your long-term goals and you are sure to make the right choice in your housing decision.
This article was contributed by Kayla, Editor of The Credit Letter Blog (IMAGE: AAP Image/Paul Miller)
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