AUSTRALIAN HOUSING VALUES REACH ALL-TIME HIGH
The Australian property market has experienced considerable growth over the long term as housing values gradually increase every year. That’s why so many Australians want to own their own home or delve into property investment to build wealth over their lifetime.
As the cash rate increases for the third month in a row, it’s important to note that the value of your own home is also increasing over time.
For the first time, the combined value of Australian residential properties exceeded $10 trillion in March this year, doubling in value over the past seven years ($5.1 trillion in 2014). These promising values indicate that the market is steadily growing over time, a positive sign for homeowners.
While those Australians who are yet to enter the property market may feel wary of the increasing prices, the historically low interest rates right now provide an opportunity for first-time buyers to secure a low interest loan before rates continue to rise.
According to the Australian Bureau of Statistics, the average price of residential dwellings in Australia was $920,100, an increase of $44,000 since the September quarter of 2021. The growing value of Australia’s 10.8 million dwellings is due to record low interest rates and strong demand. According to CoreLogic, dwelling values are 11.2% higher over the past 12 months, as every capital city has experienced a peak rate of growth. With both gross rent yield and rental value remaining high across the country, it is a profitable time for investors who are currently in the market or looking to enter.
While there is uncertainty in the market regarding the increasing interest rates, it is not the first time Australia has experienced challenges in the market, having always managed to bounce back from downturns.
The average interest rate from 1990 until 2022 has been 3.87 percent, which indicates that the current rate, at 1.35% (July 2022) is significantly lower than previous rates over the years.
To control inflation, the cash rate is likely to continue rising over the near future; but according to the RBA, the inflation rate is expected to drop back to the target range between 2 and 3 percent next year.
The negative media attention surrounding the RBA’s monthly decisions may ignite uncertainty in Australians. With record low interest rates and rising house values, it is still a suitable time to enter the market and work towards your property investment goals.
In Australia, rising rates historically means rising prices
It might seem counter-intuitive, but interest rates aren’t the sole determinant in whether house prices fall or rise.
While a great deal of attention is placed on minor monthly movements, up or down, Aussie housing prices are more inclined to rise than fall during periods of rising interest rates.
During 2002 to 2008, the Reserve Bank increased official cash rates 12 times and, through the same period, the price of most homes more than doubled.
In the 1970s and 1980s, rates increased repeatedly and property prices simply boomed. In the eighties in particular, despite interest rates increased from 10% to a lofty 17%, house prices didn’t fall – they just kept rising.
Holding off buying and waiting for prices to fall?
Well, that might be your game plan but even saving several tens of thousands on your purchase price can rapidly turn into comparative losses, when interest rates are rising and you have bought six months later and locked into a higher rate. Doing the math quickly proves the scenarios.
WHAT’S IN A HEADLINE?
You might find it hard to believe but although headlines may loudly proclaim a housing price ‘crash’, the reality is that across Australia’s capital cities, the average drop in prices is just a small half a percent.
The fact is that every time ‘experts’ have predicted ‘crashes’ of between 15 and 20%, nothing of the sort has transpired.
While there have been significant reversals in Sydney & Melbourne recently, prices are still rising in Perth, Adelaide and Darwin – albeit at a slower rate. And, while regional markets have weakened in NSW, QLD, TAS and VIC, they’re outperforming capital cities and still rising in SA and WA.
There are reasons why house prices will fall further, but equally, there are reasons why they could rise. Mortgage stress is not yet evident amongst homeowners, post-pandemic Australians are sitting on historically high levels of household savings, and banks say a majority of customers are ahead on their mortgage repayments.
Most economists foresee falling interest rates next year, rents have risen 10% on the back of low vacancy rates, which is tempting property investors back to the fold, and more Australians can now buy a home with a 2% deposit.
For many reasons, it’s likely that Australia’s housing market could return to growth, after a short period of adjustment.
MORE AUSSIES CAN NOW BUY WITH JUST A 2% DEPOSIT
The thought of purchasing a home in today’s market might seem far-fetched, which is why the Australian Government has introduced the Home Guarantee Scheme, to support lower-income earners in entering the property market.
Coughing up a 20% deposit may seem an impossible task for many, but with the new Guarantee, Aussies will be able to purchase or build a home with a deposit as low as 2%. Furthermore, buyers will avoid Lenders’ Mortgage Insurance, as the government guarantees their loan.
From 1st July 2022, the government has expanded the previous First Home Loan Deposit Scheme to introduce:
- First Home Guarantee
- Family Home Guarantee
- Regional Home Guarantee
Under the Home Guarantee Scheme, eligible first home buyers can purchase a modest property that does not exceed the price cap for their relevant area. For example, the property price cap for capital city and regional centres in New South Wales is $900,000 and $750,000 for the rest of the state.
Across the country, 32 lenders will offer the scheme, including Credit Union SA, Illawarra Credit Union, IMB Bank, Commonwealth Bank, and NAB, offering various options for borrowers.
The First Home Guarantee (FHG) will support up to 35,000 places each financial year, enabling eligible first home buyers to purchase a home with a 5% deposit. Under the new FHG, the National Housing Finance and Investment Corporation (NHFIC) will guarantee to a lender up to 15% of the value of the property that is financed by the buyer’s loan. Low- and middle-income earners can now purchase their first home sooner and avoid paying Lenders’ Mortgage Insurance.
Lenders’ Mortgage Insurance protects the lender in case the borrower defaults on their loan repayments, usually if borrowing over 80% of the property value. With the FHG, the government will guarantee your loan. As part of the scheme, you’ll save money by not paying Lenders’ Mortgage Insurance or the interest associated with it.
The Family Home Guarantee will support up to 5000 places each financial year for single parents to purchase a home with a 2% deposit. Single parents with at least one dependent child are eligible, regardless of whether they have previously owned a home. By contributing a minimum 2% deposit, the NHFIC will guarantee up to 18% of the loan to the lender.
The Regional Home Guarantee allows Australians to purchase a home in a regional location with a 5% deposit. To avoid paying LMI, the government will guarantee the loan. However, this Guarantee is available only to those who have not owned a home for at least five years.
There are eligibility criteria that need to be met for Australians to apply for the scheme including but not limited to:
- Household income thresholds (up to $125,000 for individuals and $250,000 for couples)
- Property price caps
- Prior ownership of a property
- Citizenship
Check your eligibility before applying for the scheme, as there are limited places available.
If you are a low- or middle-income earner in Australia and are eager to purchase your first home, the Home Guarantee Scheme is an excellent way to achieve your property goals. With greater access to the market, the lower deposit requirement will enable Australians to purchase or build the home of their dreams sooner than they imagined.