The signs of a thriving property market

The signs of a thriving property market

Whether you’re thinking about home loans in the big capitals or considering property in one of Australia’s regional areas, you want to make sure you’re buying in a strong market. This is particularly the case if you’re hoping to use this property for investment purposes.

As a buyer, there are a variety of metrics you can use to evaluate the strength of a particular property market. Below are some of the major signs you can look for to figure out whether or not the market is oriented to your purposes. 

Auction volumes

The number of auctions taking place is a good indication of where a particular market is headed. Auctions are one of the most common ways of buying a house, so large auction volumes indicate that there are plenty of sellers out there looking to hand over a property. It also suggests that there is strong demand in a particular market for real estate, which is feeding this sales activity. 

The clearance rate — or the percentage of successful auctions — should be analysed together with auction numbers. For buyers, higher auction volumes coupled with a lower clearance rate are typically more favourable, because it means less competition from other buyers and more competition between vendors. For sellers, it’s usually the opposite. 

The strength and high activity of the Sydney market, for example, are well-reflected in these figures. For the week ending February 15, CoreLogic RP Data noted that auction volumes were stable in Sydney, albeit less than the huge number recorded the same time last year, while the clearance rates over the weekend hit a high 77.9 percent. It suggests there’s continued strong demand in the Harbour City, where buyers are facing stiff competition for property. 

House prices

There’s been much talk about property prices in Australia over the last few years, and it’s no wonder. The price of a home is your chief entry point into the market — while you can always potentially outbid another buyer, if a home loan calculator tells you you can’t afford any of the real estate listed in an area, there’s not much you can do about it. 

House price growth is an advantage for sellers (and home owners) more than buyers, but it is also typically a sign of a healthy house market. If prices are growing, it indicates there continues to be good, steady demand for property in an area — though this also depends on the nature of the growth. 

For instance, in 2014 and even now, a potential Australian property bubble has been talked about in hushed tones, mainly due to the meteoric growth in average house prices experienced last year. Until around September, according to RP Data’s Hedonic Home Value Index, dwelling values were climbing at high rates in practically every capital. Only on February 2 did CoreLogic RP Data Head of Research Tim Lawless say: “In a sign that housing market conditions are gradually cooling, the rolling annual rate of capital gain has been trending lower.”

So the key is not simply general growth, but sustainable growth that doesn’t leave buyers relying desperately on saving enough through a high interest savings account. 

Building activity

Before you can attempt to buy houses, those houses have to be built. This is why the amount of building activity and the state of the construction industry is often a good portent of a thriving real estate market. 

If builders are getting work and construction projects are popping up all over the place, this means an injection of a new supply of housing. With a greater amount of supply, buyers not only have more choice, but price growth tends to level out or even move into negative figures.

Master Builders Australia CEO Wilhelm Harnisch recently said as much, when he called for further construction of new housing “to exert downward pressure on house prices and to ensure that the intergenerational home ownership gap does not widen for first home buyers”.

By contrast, a market with a low level of building activity could be stagnant — it suggests a lack of demand for new housing, lower levels of financing and even a lack of will to construct new properties. 

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Learn more about home loans

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

How do I save for a mortgage when renting?

Saving for a deposit to secure a mortgage when renting is challenging but it can be done with time and patience. If you’re on a single income it can be even more difficult but this shouldn’t discourage you from buying your own home.

To save for a deposit, plan out a monthly budget and put it in a prominent position so it acts as a daily reminder of your ultimate goal. In your budget, set aside an amount of money each week to go into a savings account so you can start building up the ‘0’s’ in your account.  There are a range of online savings accounts that offer reasonable interest, although some will only off you high rates for the first few months so be wary of this.

If you aren’t able to save a large deposit, you can consider ways of entering the market that require small or no deposits. This can include getting a parent to act as guarantor for your home loan or entering the market with an interest only loan.