The beginning of the end? Drop in Sydney house price growth

As the saying goes, what goes up must come down, and for the first time since 2012 Sydney has experienced a record drop in the median house price, signalling an end to three and a half years of growth.

Despite the first drop in the market since mid-2012, house prices in Sydney overall increased by 14.8 per cent in 2015 the Domain House Price Report has shown.

“The remarkable Sydney boom we’ve seen over the last three years is now clearly over, with the market unlikely to record any notable house prices growth until at least spring. While the median house price still remains above $1 million (at $1,013,258), if current trends continue it will likely fall below this benchmark by mid-year,” said Domain Senior Economist, Dr Andrew Wilson. 

Sydney median house prices fell by a dramatic 3.1 per cent over the December quarter and the median unit prices also fell, dropping by 2.8 per cent to $655,845.

Melbourne and Canberra have emerged as the new growth leaders with both cities recording their highest growth since 2009. The Melbourne median house price increased by 1.8 per cent over the December quarter and Melbourne unit prices increased by 1.3 per cent.

Property owners in the nation’s capital would be pleased with the growth figures for median house prices while the median unit price fell by 2.2 per cent presumably due to the increase in new apartment construction that has pushed supply ahead of demand over the past year.  

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“A really good story in Canberra this quarter, with the local market continuing to rise after a subdued period of buyer activity. Canberra’s house price growth of 9.0 per cent over the year is behind only that of the Sydney and Melbourne markets and is the best local annual result since 2009,” said Dr Wilson. 

Similarly, Adelaide, Hobart and Brisbane also recorded strong growth figures with their results attributed to improving local economies and restored market confidence across the nation.

“Even though Sydney, the traditional leader of the pack, has fallen behind in growth rates, the rest of the nation has seen some really strong figures over the last quarter. Home owners in some of our smaller cities such as Adelaide and Brisbane would have plenty to be pleased about and things in Hobart seemed to have picked up significantly with the city recording the highest annual result since 2009,” said Sally Tindall, Money Editor at RateCity.  

It was a different story in Perth and Darwin this quarter with both cities continuing to feel the impact of the end of the mining boom and experiencing price drops. While Dr Wilson sites an oversupply of apartments in Darwin as an ongoing issue things are looking up for Perth this quarter with early signs suggesting that the rate of decline is moderating, as affordability improves and confidence recovers.

“Perth is a city to watch over the next quarter. Even though there has been sharp declines since the quieting of the resources boom the report suggests the decline may be curbing and eventual growth could be in sight,” said Tindall.  

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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.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

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A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

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