If you’re hunting for a home, it pays to be on the front foot.
The start of spring usually brings a flurry of ‘For Sale’ signs to neighbourhood streets as property owners capitalise on warmer weather and gardens that look their best, to sell their place. Spring 2016 is also accompanied by some of the lowest home loan interest rates ever seen, and buying activity is expected to be lively. So if you’re home hunting, it pays to be prepared.
The latest figures from CoreLogic show Sydney remains the nation’s most expensive property market with a median home value of $775,000 – far higher than nearest rivals Melbourne ($585,000) and Canberra ($561,000).
Prices have fallen over the past year in Darwin and Perth, taking median values down to $497,500 and $490,000 respectively. Brisbane’s median is currently $477,500, while Adelaide ($417,500) and Hobart ($327,800) are Australia’s most affordable state capitals.
What’s especially interesting about the Sydney and Melbourne housing markets is the high level of recent price gains, which in some cases have eclipsed income growth.
As a guide, the Australian National University estimates that since 2012, Sydney home values have risen by 12.1% annually, yet household incomes in Sydney have grown by just 4.5% per annum. The only way many of us are able to afford today’s home prices is by taking out bigger home loans.
I’m a fan of home ownership but if you plan on entering the property market this spring, it’s important to crunch some numbers. Living comfortably as a home owner means more than being able to afford your loan repayments.
You still need to be able to achieve other personal goals like starting a family, enjoying some decent leisure activities, and ultimately, be able to enter retirement as close to debt-free as possible.
It may all sound like a tall order but it can be done. At the heart of this approach is having the discipline to stick to a sensible household budget. It also helps to avoid borrowing right up to the maximum limit a lender will allow. This way you’re more likely to have cash in reserve to consistently pay a bit extra off your loan – a strategy that remains one of the most effective ways to get ahead with your home loan over time.
When you find the place that’s right for you, it makes good sense to take out income protection insurance or review your current level of cover. Yes, it’s another cost to wear. However if you can’t work for a lengthy period due to illness or injury, income insurance could be the thing that lets you hold onto your new home and your lifestyle.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.