Looking to buy our first house/property in the Northern/Northwest side of Melbourne, we have a 120k deposit and both have stable jobs despite the current climate.
Would you:
a)aim to find something bigger/newer but further away or
b)something smaller closer to the CBD and potentially older?
It would be just for my partner and i, no kids.
Would you consider this a good time to enter the market, and if so why? besides the lower interest rates.
Cheers,
Thanks mate :) We dropped 20% for the last two recessions so it might be the same. Or may be different. Let's find out :)
two similar sounding comments but with very different meanings
'We dropped 20%' - sounds like to expect prices 80% of previous
'better houses for less than 30% of their current value. Good luck … we need shit loads of just luck to stop at 30% loss'
oh OK - that's just confused - 'less than 30%' sounds like prices 30% of previous, but then '30% loss' sounds like prices 70% of previous
OK - so I'll guess they're not really expecting to buy a house for 30% of the previous peak - aw shucks you had me going there for a minute …
@Hangryuman: Haha yeah, irrespective of the meaning behind the 30% comment, my rationale is based on potential 20% decline in house value over the next few years.
I think the main message is that if you buy now, don't sell if the house devalues. I think we can take this as good advice irrespective of timing.
You could also say that by buying now, you are potentially missing out on a bargain in the future, I think we can also take this as good advice irrespective of timing.
In previous downturns did the government prevent banks from selling properties and were official interest rates at 0.25%? There is a lot of government interference in this downturn so I remain doubtful that prices will drop at all.
@capslock: Like any investment, it's a gamble hey? But we wanted our rent to go to an asset and found a nice house where the repayments are the same as our rent so yeah, seems like an ok idea to us :)
The 20% drop has already occured. It will end up being 70% by all international and historic standards (price to income ratio):
https://www.abc.net.au/radionational/programs/rearvision/the…
https://www.abc.net.au/news/2018-11-10/house-price-to-income…
Interesting - would you suggest that all homeowners sell their houses now and rent instead?
No. Now is not the time to panic sell you will only lock-in the loss. But equally it is the worst possible time in a generation to buy.
- Homeowners (who own outright) should not worry at all. Prices are relative.
- Homebuyers (with a mortgage) should continue paying down their mortgage ASAP and focus on keeping their jobs to avoid unemployment/default/bankruptcy in the coming recession/depression.
- Prospective homebuyers should run for the hills. Trying to catch a falling knife will only end in tears.
- Investors with portfolio's of properties with mortgages being paid by renters are absolutey up sh!t creek without a paddle (deservedly so)
It is never a bad time to enter the property market if you look at it as a long term investment
However with the ban on evictions it is a sh!t time to enter the landlord space with tenants given free reign to fcuk ya
As a tenant who recently lost my job, I don't have any empathy for you. Greedy people like you are the ones who have made property unaffordable for the rest of us.
You want to invest your money, invest in a productive industry next time
Enjoy some of our pain now.
And I guess with attitude like this, how do you expect the landlords to show empathy for you? Yes losing jobs in this tough situation sucks, but don't make it sound like it's the landlord's fault. They might have also lost their jobs, have mortgages to pay and family to feed. Just because they bought a property as investment instead of other forms of investments (i.e. shares, terms deposits), that doesn't mean they are greedy.
Landlords should know that it's an investment at the end of the day and there's always risks associated. In times like these there's really nothing else you can do but maybe show some compassion to make it easier for the tenants with rent reduction or delay payments.
But wishing someone else lose their investment just because you are having a tough time, that's just not cool. Nobody forced you to sign the lease contract did they?
That attitude makes you always be a looser in property market. You will end up renting all of your life. This world is capitalism. Enjoy your free days without wages. Landlords are the ones saving for their future, creating cash flow on the market, and add value to this society. Jealousy makes you look small on you. Grow up man
It is never a bad time to enter the property market if you look at it as a long term investment
Perfect way to over pay. That is why even owner occupiers believe they are investing rather than living. Regular houses on a block of land isn't much use other than a family to live on. It doesn't create money only than perceived scarcity.
I would rather to keep my property vacate than having someone to stay for free. This is bad
You will be amoungst the first against the wall, come the people's revolution…
That can be arranged
If you're looking to buy an investment property, then DEFINITELY DON'T BUY NOW.
However if you've looking to buy an owner occupied property, the answer is not as simple. One should look at factors other than the price of the property, e.g. Location, neighbors, land size, layout, etc etc.
It really depends on how picky you are, as I feel many former investment properties on sale are not quality dwellings that aren't necessarily to scratch to be an owner occ that'll keep you happy for many years to come.
Owner occ purchase is a long term "investment", if you've found a perfect property, 2-3 years of downturn shouldn't stop you from getting it. Unless it's not that perfect afterall.
'Would you:
a)aim to find something bigger/newer but further away or
b)something smaller closer to the CBD and potentially older?'
I would start looking in both areas until you find something you love.
We exchange money for time -
a) we spend more time commuting to save money with cheaper bigger housing - or
b) we spend more money to save time commuting to and from places we need/want to be.
Consider the above - prioritise where you'd rather save and spend - the average world-wide commute is around 20 minutes.
As for now - in a falling market - in the end we're all doomed - you say stable jobs - that's what a lot of casuals would have said before they lost their jobs recently with the virus shutdowns.
You could wait, rent cheaply now - there's great deals for renters who have stable income - and buy cheaper later - I wouldn't rush to buy right now.
or if you're itchy to buy - look around until you find something you Really like - I would say it's a buyer's market right now (speaking as an ex-real estate saleperson)
What has become clear now is that working in the city is no longer a necessity at least for those with desk jobs. That proximity to the city is therefore not as important as it used to be.
Important to note is that the property scare for 'drops' predicted by news articles often refers to more the inner city suburbs; if you're looking at outer-city, you might pick up some panic sales now, but the drops won't be anywhere near that 30% quoted by some of the above. You might have a $2m home in an inner-city drop to $1.5m, but a $700k house on the outer-city may not drop lower than $650k.
Reason for this is, over-inflation is generally located in the inner city suburbs which will be hit the hardest; virus panic is generally more concentrated in populated areas (inner suburbs); and remote working is becoming increasingly popular, which is seeing currently affordable outer suburbs grow in popularity.
Important to note as well that the government is starting to pump money back into the economy to keep businesses running, and people employed, or receiving benefits.
Also important to note; is that people have a limited care factor, and slowly people are getting used to this way of living, and stepping out of panic mode, and back to familiarity, which means consumer confidence will be restored. The market will return to stable and current trends soon enough; much like the share market, which has suffered big losses, but is already starting to return to confidence as people have started buying back in.
If you're waiting on a bargain for a big ticket home, it may be worth waiting; but for an affordable outer suburb home, you may be able to get a better price now if you bargain well, and the seller is urgent to sell - but won't see the price drop as significantly.
remote working is becoming increasingly popular, which is seeing currently affordable outer suburbs grow in popularity.
NBN is great out in the middle of no where.
Outer suburbs unless you live near amenities you basically pay for an extra car (all the expenses) and time / congestion you're talking about the same cost as inner city.
Inner city is great right now because everyone is staying at home in the outer suburbs. Zero congestion.
Good time to be in the market. Confidence is lower.
Agents can't run open homes in the same format.
Drop in the stock market, Property prices will rise as more investors shift across into different asset clases, but rental yields are under threat.
Place depends on your lifestyle really.
Property prices will rise as more investors shift across into different asset clases, but rental yields are under threat.
Sounds like a liquidity squeeze. Asset that doesn't make enough to pay for itself. Or yields go down and prices go up usually means over value.
Short Answer: No
Long Answer: If you buy now, you will end up with a mortgage debt double the value of "your" (the banks) property and you will be indebted to the bank forever, even if you sell/default (the property will only pay out half the debt). Wait 1-2 years for the market to drop and settle (in 6 months when mortgage holidays and rent moratoriums end all hell will break loose). Now is definitely not the time. I pity the poor buggers who bought into this ponzi in the last few years, they won't be able to keep paying boom level prices in a bust economy, it will crush many.
Fun Fact: The word mortgage is a French Law term meaning "death contract", meaning that the pledge ends (dies) when either the obligation is fulfilled or the property is taken through foreclosure.
Good luck. Don't be left holding the bag!
I totally get the rationale, but wouldn't this statement:
I"f you buy now, you will end up with a mortgage debt double the value of "your" (the banks) property and you will be indebted to the bank forever, even if you sell/default (the property will only pay out half the debt)."
….only work if the housing market never recovers, and inflation stays at 0%? I do get otherwise that you shouldn't buy with the intention to sell in the next 2 years.
After the Melbourne Land Boom collapse in the 1890's it took 70 years for prices to recover to those seen during the boom (in real terms).
Source
It will always recover, the issue becomes if you will live to see it. I can easily see prices reset (50-70%) to 2001 levels due to mass unemployment in the next 12-18 month with countless mortgage defaults and repossessions. People are endebted to their eyeballs (200%+ on average! Source). Do not be left holding the bag. Certainly don't buy now!
Interesting - would you say that the unimproved value of peoperties will decrease then too?
@AlanHB: My guess would be yes, when measured in real terms (against GDP/currency/gold) not raw dollar values.
Wait 12 months. Evaluate. Possibly wait another 12 months.
The housing market moves slow.
I use to believe the market would drop. But the government has invested enormous amounts of energy to keep it up in the past.
The jobkeeper grants and all the other stimulus will result in inflation, things will get more expensive. Personally i dont think savings will ever catch the inflation now and a big drop is unlikely. Remember a lot of people have made a lot of money and could reenter the market if housing ever became cheap pumping it back up.
You can't keep taking Viagra without having a heart attack one day.
Next step i predict will be a living allowance. When you are addicted to taxation that is based around property. The government wont let it drop now.
the government has pretty much lost all its money from taxing property
Hi Everyone
Your answer is right here, directly from the Chief of ANZ Bank
Happy reading:
https://www.smh.com.au/business/banking-and-finance/australi…
My non profession but experienced advice is to always buy cheap.
The market is going down, there are no buyers and no one knows for how long or how far the drop will be. It's a guess. My guess is 80/20 rule where 20% of people are over extended and will need to sell if they loose their jobs or rental income drops too low. "Asset fire sales".
Banks play games too. the valuations come in low and under what you want to pay so they force you to add more equity or take out mortgage insurance. Banks reneg on pre-approval all the time. Pre-approval is worthless and you need to make all offers subject to final finance approval, not pre approval. I've heard this is a major issue atm with banks refusing to honor finance pre approval so don't brush this off otherwise you may loose your 10% deposit.
I think it takes 1-4 months for the 20% of unemployed people to run out money and then it's up to you buy. July or August. The longer you wait the cheaper it might go but I'd also look at this virus thing ending in Australia sooner than later due to the infection rate dropping. The rate of daily infections is going down each day now so the impacts will not be so great but the international experience is very bad in UK, USA, Indo, Malaysia etc. China numbers can't be trusted but I have many family and friends over there and they are now out of lock down, restaurants are open in many cities and school starts next week for several friends kids. China may help drive demand for aussie products but their European and US markets will be dead so there focus will be on domestic supply only.
Do some research, make an educated guess on what will happen here and overseas, save more money and offer maybe 15-20% less then the price was 3 months ago. Longer term if you have a job you'll be ok. Don't rush in, be tough negotiator and walk away from deals,. There is always another property next week to buy.
This guy is right. This is a long drawn out process. Don't pick up the can from someone else and you run out of cash instead of them!
If you look in the history of the past crisis' they didn't affect Sydney and Melbourne RE markets at all.
Banks will allow 6 months deferral so I don't see many foreclosures in those six months. Whatever happens afterwards is my guess as good as anyones. We might be through this in six months time with life more or less back to normal (or 'new' normal).
RBA will keep interest rates low until at least 2023, which will help to keep prices as they are. Whoever doesn't have to sell already withdrew from the market.
No, I don't think that properties will drop 20%. My bet would be more or less a flat market for the next couple of months.
Yep I agree. Hard for prices to fall when noone will be forced to sell. Heck my wife and I could lose our jobs and even with all our debt wouldn't be under any real pressure!
Last time we had a crisis like this was 1918 the Spanish flu.
Viruses don't respect money. Think differently.
We didn't close the country for 3 months during the oil shock, 1989, 2000 or 2009. Neither did you get a mortgage holiday.
I'd wait and see what happens in the next two or three months. If your jobs are super stable jump in then.
Seems most ppl are talking like they actually know what's going to happen, did you all know this virus would happen? The market could very well bounce back, I would keep eyes peeled for a bargain before good news comes out and this situation passes.
thing is everyone is talking about a bargain, im checking the prices regularly, the prices have really not changed much for the 3 suburbs that i keep checking.. idk if its just those suburbs or what is going on, no one really knows if the market is gonna go down, up or sideways.. but if i had to put my money on it, i would say the worst is yet to come.
Domain and Realestate.com have been artificially hyping the market for a while now. The coronavirus is making the cracks appear and the mortgage holiday can only do so much, in addition the eviction ban will further stress investment properties. Immigration is expected to weaken as the economy takes a hit resulting in reduced demand (as well as a mass fallout from international students.
Overall the market imho is at least 20% overinflated if not more and coronavirus or not, as soon as we hit 0% interest levels everything goes onto life support with the government forced to continually top up the banks to ensure foreclosures don't happen, which would cause a domino effect.
Basically the government has subsidised the banks to ensure house prices stay high, prolonging the inevitable crash pretty much as nature intended. Social subsidies only go so far and i'm afraid the liberal spin that they're effective money manages unfortunately is just that, spin. Only in it to prop up the economy for the short term/foreseeable future. And its the country that will be placed into a deep recession because of it.
You won't know when this bottoms out but you will notice when it started to get out of thr trough…
One wise Ozbargainer just shared his clever opinion with me:
-Every property boom except the current one was preceded by boom in rents. That hasn't happened this time. In fact rents have remained flat or decreased and worse still now possibly due for their biggest drop in years.
-Migration has been a big driver in pushing up property prices but migration has come to a stand still and who knows when we will open our borders again.
100% agree. In the light of these perspectives, I don't understand the rationality behind purchasing a property for investment purpose in the nearest future. It would be almost impossible to rent it out for a good price (even in 'sweet' areas close to CBD/Unis because nobody knows how the job/international studies market will look like soon), but you will still need to pay for mortgage/levies/council rates/gas/electricity/maintenance/repairs etc for your investment property.
I am not even taking into consideration that properties will most likely drop 30-40% in value in the best case scenario because of unemployment, household debt-to-income ratio which was over 200% in 2018 and even worse now etc. But let's assume the values remain the same.
Or am I missing anything? Thanks
I think people keep seeing this preconception of lowest interest rates, and property crashing mean it's their chance to swoop in, unless you stock piled on cash, there isn't a good chance you can, only rich people can do that and people who were probably thought it out more and put investments in place and cashed out before this pandemic. Banks are very unlikely to loan large sums without a rigorous check in place.
The price has not moved much in the last 12 months. If you are asking that are we at the bottom, I don't think so. We are slowly heading towards recession and I would expect 15-30% drop before I consider buying one.
You have your pick of place at moment not big deal on small full it nice but in buyer market you may get your dream house.
If you are buying for you to live in, and are particular, good luck trying to find something to buy in 6 months time. It was hard enough finding something at the drop during the beginning of last year!
Ozbargain Barefoot Investor here (flex).
I agree with the first comment of it being awkward.
Here's why.
Stipulation, assumptions and a drive of property prices AGAINST infrastructure.
Australia let alone where I'm from (Melbourne) have barely any solid infrastructure in comparison to other countries.
Don't get me started on the housing prices in Sydney.
We have created this invisible "bubble" which is often referred to.
Would I get my foot in the door as a first-time investor with enough deposit to purchase an apartment? ($450k 1BR)
No.
Would I consider servicing a mortgage to own physical brick and mortar at the current all-time low? VERSUS renting (Townhouse, Unit, Outer suburbs)
Possibly.
I'd probably put that money towards shares once the market picks up.
p.s Not a financial advisor, thank you for listening to my TEDTalk
Tricky situation as there will people under financial stress who may be forced to sell at a lower price. However, the government is doing whatever it can to keep people afloat, so the economic impacts will be attenuated by some degree. I think cheaper properties won't last long as there may be increased competition from those who are looking for a new investment whilst prices are low and whose finances are not as impacted. At the same time, I would expect properties in less popular to have the biggest drop in price where popular suburbs may only experience a mild drop. The prices had dropped slightly in Sydney prior to the coronavirus situation, but popular areas remained stable.
I think if you found a property that you believe is well suited to your needs and it is within your means, then it may be worth (for personal reasons and not necessarily financially) going ahead and purchasing if you believe you will be living in it long term. I would consider it a win if you manage to have purchasing power at this stage compared to the many others who are less fortunate.
I believe property has reached the end of its tether in terms of increases. If all goes well and we get out of the crisis smoothly (which is unlikely), it will have a brief rally because interest rates are so low, but after that property has nowhere to go because rates cannot go down further.
I think it is easy to answer the question. It depends on how much the property is. If the price of the property is around the price you would have paid mid 2016, then buy it else if it is at May 2017 prices (the peak) or Feb 2020 prices - leave it alone.
You’re on the money with your outlook
The big price gains we saw in the past were due to an unprecedented drop in interest rates (after reserve banks around the world decided to pretend that land price inflation is not actually inflation).
Interest rates are now at their floor price. Yes some properties may still increase in value - namely vintage character homes which cannot be replicated, but the market as a whole will dip in price, then recover, but overall price growth over 5 years will be flat. Apartments that are not in the inner cities and newer houses in outer suburbs of Melbourne/Sydney will dip the most.
At the moment prices are high but My opinion is that prices would deteriorate in coming months and if so then target between December to February where price normally favor buyers as there are limited buyers in the market.
If your buying for the long term, buy when you are ready, and you find a home that suits your needs.
a few points
It's your first home, not your dream home. you will be tempted to "keep up with the jones."
Trust me when you've paid your modest home off and are debt-free, your friends and families flash first homes, and they will be still paying them off. Debt-free or low debt feels heaps better than a flash house that has a killer mortgage.
Buy somewhere you like and is suitable for your work circumstances. Buy around the median price for your suburb at your price range.
And buy now or next month or whenever, don't try and time the market at the moment. I think to wait for significant price drops of property in your price range??? Unlikely.
"A climate of fear is your best friend. Those who invest only when commentators are upbeat, end up paying a heavy price for meaningless reassurance" Warren Buffet
We are at all time highs for property and assets despite economic conditions. Lack of stock has held prices fairly stable (a minimal drop).
Asset prices are very much related to interest rates, and with rates at their all time floor I would expect that the boom in properties has run its course.
As housing is very inelastic it will take time to come off.
People are willing shell out large amounts of money believing it will always go up.
You will get better houses for less than 30% of their current value. Good luck … we need shit loads of just luck to stop at 30% loss.