To buy or not to buy Clearance rates skyrocket

Jack Han investigates if now is the time to ride the property market clearance wave or wait till the tide turns.

November 9, 2009

A sales splurge has swept the Australian mortgage market, with hundreds of properties clearing out every week. With demand as strong as ever, home buyers are all trying to catch the clearance wave to fulfil their home ownership dreams.

In September, clearance rates averaged 75 percent, with 400 homes auctioned each week for a total value of $1.25 billion, the Daily Telegraph reported.

This trumps 2008 figures, when the global financial crisis held the bidding hand of hundreds of cautious buyers. For example, Saturday the October 25 last year had a clearance rate of only 40 percent for the 189 homes put up for auction.

Figures worsened in 2009, where all of January was met with only 55 properties for auction.

So why the turn around? Experts believe that price expectations are key. Aussie buyers have caught on to predictions that property prices will rise by up to 20 percent over the next three years, making it an attractive investment compared to other ventures such as the stock market.

Rising rents are also driving people to buy, with rental costs rising by 23 percent in the last three years, and set to climb another 20 percent in the next two years.

But buyers looking to make a buck might be surprised by the latest price trends. According to the RP Data-Rismark National Capital City Home Value Index, home values remained mostly unchanged in September, increasing by only 0.1 percent. This has been the lowest monthly result in 2009.

Managing Director Christopher Joye said in a media release that, “We are projecting materially lower and more durable rates of house price growth going forward as home loan rates rise towards seven percent and beyond over 2010.”

So does this make it a good time to buy? Those who buy a property now can start making repayments at lower interest rates, and begin to build equity through rising prices, no matter how low.

Buyers who wait a year can better assess the market under tougher conditions, including higher interest rates and a lack of government incentives. Many home loan borrowers may decide that they cannot afford the new interest rates, and avoid a hefty debt trap.

If interest rates approach 7 percent as predicted, it will be an increase of 2 percent from the 5 percent lows of today’s market. If you can’t afford that margin today, then a home loan may not be the best idea, no matter how attractive it is.

Assess the market tides and compare interest rates online for the best deals. Make sure the clearance waves help you towards your dream, instead of bringing you down to your knees.

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