How To Start House Hunting
It often takes much longer than anticipated to find a house you want to buy, even when you already have the deposit saved up. Research conducted by Domain suggests that the search for a home takes a minimum of six to nine months, on average, with many buyers taking years to find the right one.
In a rising market like Australia’s, delays can be extremely costly. Can you truly afford to spend so long looking for a house to buy?
What To Look For When House Hunting
It doesn’t have to take that long to find your dream home but people usually start out on the wrong foot when it comes to house hunting. They begin without being clear about what they want.
Think of it like grocery shopping. Instead of deciding what you want to buy after going to the mart, make a list of things you want and then go look for them. To decide what you want, it’s a good idea to think first about what you’re trying to achieve with your purchase.
You can make a list of attributes that are:
- Essential: you can’t do without these
- Desirable: you would like to have these
- To be avoided: you do not want these
Because there are so many housing options available, you should start by narrowing down your list using these parameters:
- Would you like a house or an apartment?
- What are your preferred suburbs?
- What is your average commute time from the property?
- Would you like to be in a particular school catchment zone?
- Would you like a back yard?
- How many bedrooms do you need?
- Do you need a garage/garages?
- Search for and inspect properties that don’t meet your standards. It will help clarify what you want.
- Look at various suburbs. People often buy in the suburbs surrounding the one where they first wanted to buy.
- As you inspect more properties, update your criteria accordingly.
- There is no such thing as a perfect property. Expect to compromise.
- Let your mortgage broker know what you want, just in case it’s a property type that’s hard to finance.
- You are committing to buy the property now.
- Settlement might take another two years and you can’t get approval for your loan until it’s close to that date.
- A pre-approval typically expires after three months, so you have no guarantee you can get a loan at settlement time.
- If you lose your job, your financial situation gets worse, interest rates rise, lending policy changes or property prices fall, you may not be able to settle and risk losing your deposit.
- It is particularly risky if you have a small deposit or unstable income. It can be considered relatively safe if you have a large deposit and a stable job.
- Off-the-plan purchases also come with other risks, such as the developer getting into financial trouble, the builder cutting corners with construction or construction being delayed. So, the reputation of the developer and builder must be considered before beginning construction.
Make use of these quick tips when selecting your criteria:
What Properties Catch Out Home Buyers?
Although all property purchases come with their fair share of hassles, we find that it is the new properties that cause the most trouble for home buyers. These include:
While land goes up in value over the years due to its limited availability, the building on that very land loses value, in let’s say 100-200 years, due to deterioration. There are some exceptions, like terrace houses that have a limited supply, but it’s a good general rule.
For this reason, new properties on sale are often overpriced. Sometimes there are first home benefits just for new properties, which inflate prices even further.
Much effort goes into organising everything for building a home and there are usually a number of things that go wrong. Most people go over their budget limit while building one.
It is great to build a home to match your exact needs, but you must have realistic expectations that it’s going to be a bumpy road getting there.
Off-the-plan purchases are extremely risky and most people tend to miss these basic points about them:
If you decide to buy or build a new property, remember that there are many things to be considered.
What Will House Prices Be In The Future?
You’re not just buying a place to live; it’s also a valuable asset that has a high probability of going up in value.
Most people focus on buying a property they want to live in, and do not consider which ones are likely to increase in value. Others see their first property as a stepping stone to get to a bigger home, so they want to buy in a location that is going to grow.
What Causes House Prices To Rise?
Location is the single most important factor. You can renovate a house, but you can’t move it.
House prices are set by supply and demand. This basically depends on how many properties there are in an area versus how many people want to live there.
Here are some things you should consider about the location of your future property:
1. Population growth: A higher population means more people need a place to live, which in turn can cause the prices to go up. This is often about big trends, not a specific suburb.
2. The economy: This is particularly true of country towns that have a new industry or locations involved in mining. When there are opportunities for jobs, the people’s income rises and more people are attracted to that location, which increases the demand and ultimately the prices.
3. Changing demographics: As people get priced out of expensive locations, they often opt for the lower-priced suburbs next door. There are many suburbs across Australia where you wouldn’t have felt safe a decade ago that now have developed into great locations with cafes, bars and an influx of young professionals. The cheap suburb next to an expensive one is often a good place to buy.
4. Limited supply: Locations that are not in the centre of but around the city, close to the beach or somewhere with little new construction tend to have an imbalance between supply and demand.
5. Infrastructure and government spending: To explain this in simple terms, let’s look at this example:
Getting around Sydney is difficult. There’s a lot of traffic and many areas don’t have access to a railway line. Adelaide and Perth are much easier to get around. So, when the government built a railway line to North-West Sydney, property prices went through the roof based on the simple fact that travelling became easier.
Quick Tip: You can look at state or local council websites to see what projects are going on in those areas. Infrastructure spending needs to be of a substantial amount. In a capital city, typically at least $100 million is required. In country towns, it is alright for the scale to be lower.
In addition to factors that can cause a change in prices at particular locations, there is a list of things that tend to have an Australia-wide effect:
1. Interest rates: If rates fall, everyone can afford a bigger house, and this puts upward pressure on prices. In Sydney and Melbourne, interest rates have a larger effect because supply is very limited. Prices are often capped by what people can afford to pay.
2. Government regulations/stimulus: Changes to first home benefits and restrictions on lending to investors are two examples of changes that have happened in the last 10 years that have had a major impact on property prices.
Is It A Good Time To Buy Property?
Any investor will tell you it is only through hindsight that you learn the right time to buy a house. Experienced investors focus on time in the market rather than timing the market.
While predictions are perilous, we can look through the past trends in the market for a clue.
1. Announced infrastructure: In the past, price growth has typically occurred when infrastructure was first announced and then again when it was actually constructed. But be aware that sometimes announced projects are never built.
2. Recessions: Both the pandemic in 2020 and the Global Financial Crisis in 2008 followed the same pattern in terms of home prices. There was a huge drop in prices first, which suddenly turned into a huge surge as the government intervened with schemes.
As soon as the crises were announced, people speculated about trouble and stopped buying properties. Next, the interest rates dropped and new first home benefits were announced, which led to a frenzy of buying activity and a price surge.
Some Home Loan Experts customers were very clever in these times. They saw that they were unlikely to lose their job and bought at the early stages, when everyone else was running scared. They were able to buy at a great price and then had significant growth in the following two years.
1. Falling market: Most people would shy away from buying in a falling market. You should know that it’s not necessarily a bad idea, as long as you negotiate a low price. Often, there’s less competition and it’s easier to buy your dream home.
Generally, people’s strategy is to make low offers in these markets. For example, if you believe a property is worth $1 million and you believe prices will fall by 10% then make an offer below $900,000. You may be able to obtain the property for that discounted price.
2. Booming market: It’s hard to buy a property in a booming market. Some people decide to wait until it cools off. Often it doesn’t cool off, however, and they end up paying much more than they would have a year earlier.
Generally, the strategy is to be quick to make high offers and to accept that you will not get a bargain.
How To Manage Your Home-Buying Anxiety
“Be fearful when others are greedy and greedy when others are fearful” Warren Buffett says.
It is a common phenomenon for first home buyers to have home-buying anxiety in both a falling and rising market and delay their purchase. It is understandable, given the unfamiliarity of the situation for them, but fear and anxiety prevent us from making good decisions.
Our customers who are experienced property investors tend to purchase a number of properties when everyone else refuses to buy, such as during a recession. However, they do consider the risks before they buy.
The major banks and the Reserve Bank of Australia release regular property price predictions and QBE releases a Housing Outlook Report every year.
While they might not always be accurate, they are a good sources of unbiased information that can help you make rational decisions.
Our expert mortgage brokers are here to help
Are you looking to buy a property but are not sure where to start?
Call us on 1300 889 743 or fill in the free online enquiry form on our website and we will assist you in finding your dream home with ease.