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It has been a dynamic couple of years for the housing market in Australia. Property prices jumped by 25 per cent, as pandemic-induced economic factors, as well as record low, sustained interest rates buoyed market interest. And, while interest rates have been lifted slightly, the expectation is still that housing will come at a premium for some time to come.

To give another perspective on just how runaway the growth has been: In many marketplaces and cities across Australia, the growth in the value of a home was outpacing the average income for people in that area. In other words, the house was “earning” more for the family than the people living within it!

With a change in government, and the promise to tackle housing affordability, what might the future months hold for those who are interested in getting into the property market?

Trends In Property

It’ll be cheaper to build: While the property market won’t experience any kind of rapid declines (and, once you’re in the property market you’re not going to want that to happen yourself), one thing that will become cheaper will be the cost of construction. Supply disruptions and material shortages meant that new dwelling construction has been increasing more rapidly in price than the overall market.

The expectation is that this will shift over the rest of the year, and construction costs will ease, making it easier than ever to build your new home.

Property prices will continue to grow: As the old adage goes, the best time to get into property is now. The runaway growth of the sector will ease, but 2022 will see continuing growth, meaning that the sooner you get in, the better your asset will appreciate in value.

Rents are going to explode in price: Another good reason to get moving into a home of your own is that rents are going to explode in the year ahead. The market is already facing a severe supply shortage, and as international students and migration picks back up, the demand for rentals is going to be even greater.

But, wait, there’s another opportunity in this! Investment properties. If you’re able to afford a second property, then you will be able to attract a premium from people looking to rent. Especially if you’ve built a comfortable new home, rather than the squished apartments that most renters rely on.

People are moving: The rise of working from home has opened up an intriguing new opportunity: People are able to live where they want. No longer constrained by the need to be within striking distance of a CBD or other area of work, people are able to instead base their property purchases on areas that are further away, and enjoy the lifestyle of regional and even country Australia without worrying about the availability of jobs in those areas.

This means that the price of property in regional Australia is set to accelerate more quickly than the price of property in some of the cities. So, again, if a seachange or treechange is something that you’d like to pursue, then getting the jump on the trend can save you significant money on what’s on the cards ahead for property.

In short, the major dynamics within the property market do point to an easing in the rate of growth for property. However, while demand might ease, now remains the right time to make investments. Remember – property is a long-term asset, so even if declines in property value are to occur in subsequent years, the overall trend for a property over 20, 30 or more years is upwards, and trying to time your purchase with market conditions is never a good idea. What if property prices never decline, and you’re sitting there waiting for it?

The Interest Rate Question

The one thing that is giving many people cause for concern is what will happen with interest rates. In May, the Reserve Bank increased the interest rate for the first time in over 11 years, and this now has many prospective buyers concerned. An increase in interest rates means an increase in home loans and loan repayments, and for those already in a borderline position with their repayments, the potential of further interest rate hikes can be a major concern.

Currently the interest rate sits at 0.35 per cent, and commentators expect that it will continue to rise – potentially to two per cent by mid 2023. This will have a significant impact on mortgage repayments. For example, if the interest rate were to increase to two per cent, the national average mortgage repayment increase would be $668/month.

Why is the Reserve Bank of Australia (RBA) doing this? Australia is currently experiencing high levels of inflation, and the most powerful economic tool is to increase interest rates. While it does mean a higher mortgage, high interest rates can affect the cost of living in every other way, and so this will be a stabilising force for many Australians.

Furthermore, if you are concerned with the potential movements in interest rates, there is the option to approach banks for a fixed-rate loan. This insulates the loan from interest rate movements (on both sides, so if the RBA should decrease the interest rate again you won’t benefit from it), allowing you greater certainty over how much your repayments will be over the entire mortgage.

As a final note, the new Prime Minister, Anthony Albanese, has confirmed that the cost of living is a core concern of his, with nearly 41.1 per cent of households experiencing financial stress. Clearly low interest rates haven’t helped alleviate that, and Albanese’s plan to attack the problem by raising wages and reducing inflation should help provide people a greater buffer for their mortgages.

Interest rates will cause some people to put off buying property, but this will further assist those that aren’t concerned about the rate lifting. There are already smaller pools of people making offers for property or participating in auctions, so, if you’ve been waiting for the ideal time to start investigating the property market, now is that time.

Consult with the team at Kitome today on how they can best meet your property needs – your dedicated Design & Delight Consultant will guide you every step of the way, from design, to navigating council through to the build and move in, so you can focus on getting the home you want, without the hassle.

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