Recent research suggests that, as of March 2024, national home values have reached a record high for the fifth consecutive month. Of course, property growth is great. But what happens when property values grow too quickly… and create unaffordability issues and barriers to market entry? In other words, how can aspiring investors and homeowners get a ‘foot on the ladder’ when prices keep breaking records? Let’s take a look.
Independent research suggests record growth
According to CoreLogic, the national home value index rose by 0.6% in March this year (a figure consistent with February’s growth), bringing median home price to $772,730. This marks a significant recovery, with prices rebounding just over 10% since January 2023’s low. Similarly, PropTrack’s index demonstrates a similar gain, indicating a 0.34% rise in March and a 6.79% year-on-year increase. It seems that Australian property values are growing at a breakneck pace.
The causes of this growth are complex in nature, but simple to understand. This rise in home values is fueled by a combination of a booming population, which is growing at rates unseen since the 1950s, and a slowdown in new housing approvals. This is creating an imbalance in supply and demand.
However Tim Lawless, the research director at CoreLogic, highlights that despite high interest rates and cost-of-living pressures, housing demand remains robust.
“Demand has been quite resilient in the face of very high interest rates, high cost-of-living pressures, affordability challenges and very low [consumer] sentiment,” Lawless said in a recent statement.
This demand is also partly due to historically low unemployment rates and the anticipation of interest rates potentially decreasing later this year, which could sustain, if not increase, the pace of home price rises.
The rental market is also tightening, with CoreLogic reporting a 2.8% increase in the national rental index for the March quarter, marking the quickest rise in nearly two years. This spike in rents, coupled with low vacancy rates, is adding another layer of urgency for renters to enter the homeownership market despite rising costs.
How can aspiring homeowners and property investors get their first step up the ladder?
For prospective homeowners and investors, particularly those eyeing their first property purchase, current market dynamics present both challenges and opportunities. The increase in property values may enhance asset wealth for current homeowners, yet the barriers to entry are higher than ever for new entrants. Here are some general strategies you may be able to use to get ahead:
Strategies for First Home Buyers
- Government assistance programs: Various government initiatives like the First Home Owner Grant (FHOG) and the First Home Loan Deposit Scheme can help reduce your initial financial responsibilities. These programs often offer grants or allow for a smaller deposit without the need for lender’s mortgage insurance.
- Shared equity agreements: Some states offer shared equity schemes where the government effectively takes a stake in the property, reducing the amount the buyer needs to finance.
- Buying in growth areas: Identifying upcoming areas with potential for future growth can offer more affordable entry points. These areas might not be in central locations but could provide better long-term value.
- Adjusting expectations: Purchasing a smaller property or considering different types of homes, such as townhouses instead of detached houses, can also be a more affordable way to enter the market.
- Co-ownership: Buying property with a partner, family member, or friend can split the cost and make it more attainable. This method requires clear agreements and an understanding of property ownership and exit strategies.
Strategies for First-Time Investors
- Look for positive cash flow/positively geared properties: Consider seeking properties where the rental income covers the mortgage and other expenses, known as ‘cashflow positive’ or ‘positive gearing’ (depending on how tax is treated). This can mitigate the impact of high purchase prices. Read more about this here.
- Investing in diverse locations: Instead of focusing on hotspots or major cities, consider diverse locations like regional or suburban areas where initial costs may be lower, and the potential for rental yields is still good.
- Utilising investment structures: Using structures such as a self-managed super fund (SMSF) to purchase property can offer tax benefits and additional funding sources. Please note, this isn’t taxation advice.
- Research and education: Thorough market research and investment education can help first-time investors identify the best opportunities and avoid common pitfalls.
- Professional advice: Consulting with financial advisors, mortgage brokers (that’s us), and real estate experts can provide insights and strategies tailored to individual financial situations and goals.
How to get ahead: You need a Finance Strategy Session with a broker from Trilogy Funding
If you’re looking for an expert team (and a broker with premium status) to guide you through these complex dynamics and get you started as an investor or home owner even in a hot market, request a Free 30-Minute Finance Strategy Session during which you will…
- Get a better understanding of the lending options available to you
- Discover ways to save money on interest, fees, and charges that are specific to your unique situation
- Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure loans
- Learn about our process to find you a loan that could save you thousands.
This no-obligation free session will be held with one of our experienced mortgage brokers. Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.
Schedule Your FREE 30-Minute Finance Strategy Session Today
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Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.
Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)