Why buying a home is like musical chairs: Let's look at the numbers
Being at an auction in many capitals right now can feel like a poorly run game of musical chairs. Most players will leave empty-handed and quite possibly bruised.
This is what happens when people want and need homes, but for whatever reason, the rules of the game favour just a few at the party.
Some numbers can help explain how this all works, not least of which are figures showing us what's available.
For example, residential property listings around the country dropped in May of this year by 6% to 245,953, down from 262,617 in April, according to SQM Research. That's more than 15,000 fewer properties available to buyers, at a time when there are clearly many people who want a seat in the game.
And in a city like Sydney, which garners most of the property headlines, there was a notable drop this May in the number of homes advertised for at least 180 days (4,248), compared to May of 2020 (6,589). SQM says this represents a 36% fall.
Are there any new ads for homes going up then?
Listings are interesting to monitor because they can give prospective buyers a sense of how busy the market is and how much competition there might be. At present, SQM says the number of buyers currently outstrip sellers, especially on those properties that have been listed in agent windows for more than a few months.
However, another part of this equation is new listings - those properties that have just come onto the 'for sale' list in the last 30 days.
Nationally, new listings fell 2.4% over May 2021 to 79,673 properties on the market, says SQM. New listings dropped the most in Canberra and Melbourne, down by 7.5% and 6.8%, respectively, SQM reports.
Meanwhile, Perth and Darwin went against the trend and posted rises in new listings. So generally there are new listings going up compared to last year (with a 54% rise over the year to May). But that comparison, in a strange year, is hardly a good way to think about the market.
Lots of buyers, not as many 'for sales' overall
There's an easier way to sum this up. Managing director of SQM Research, Louis Christopher says the downward trend of old listings suggests that a high number of buyers are "absorbing" what's available and that new property listings are not offsetting the falls in these older listings.
This is how you get the proverbial property boom.
"This is contributing to strong growth in asking prices, particularly in regional and coastal locations, such as the NSW mid-North Coast and on the Gold Coast," says Christopher. "The trend is also pronounced in the inland regions, such as the Murray Region. With low interest rates set to remain over 2021, and many households awash with cash as the jobless rate continues to fall, we expect to see sustained gains in house prices over the remainder of the year.”
Christopher's assessment is backed up by rising prices at the high end of the dwelling market, which continues to lead capital growth in Australia’s largest cities, as per CoreLogic RP Data.
For example, in the three months to May, the highest 25% of values across Sydney climbed 12% on average, compared to just a 5% increase at the bottom 25% of values. Put simply, typically expensive properties are being sold at higher prices, while typically lower priced properties are selling at more moderate levels.
Still, no matter where you are, home values are appreciating in every capital city, says CoreLogic.
Despite all the price growth nationally, buyers don't seem turned off. Consider that in three months to May of 2020, it took 42 days on average to sell a property. Over the same three month-period in 2021, it's taken just 28 days to sell.
So in a nutshell, the overall market has been hyper-competitive of late, and prospective buyers are having to fork out more for a home. Indeed, the total value of owner-occupier home loans rose by 4.3%, which was led by a 7% rise in finance to non-first home buyers, says CoreLogic.
It then stands to reason that total first home buyer finance fell by about 2%, the third consecutive month of decline. Investors are also in the mix more recently, with lending to those buyers up by 2% in April all up, the sixth consecutive month of increases across this segment.
It all stacks up to an overly busy marketplace and not an easy one to break into for first-timers. Clearly, saving for a first deposit is very important and perhaps exploring some loan options that offer competitive rates or a slightly lower deposit might help. There are also several home buying schemes in place that can assist.
Lower home loan deposit or more savings?
Above all else, a less experienced buyer might be best placed to look beyond the capitals to break in, and build up some equity to help with a future purchase.
Much of the advice I've had from property experts over the years suggests that buying a home requires research, planning and a longer term view. Though this is a tough market currently, it's never been easy, in fact. Looking at the numbers can at least give you a good start.
Buyers' agent at Brighter Finance, Marcus Roberts says that going with a lower deposit, for example, needs to be weighed up carefully. He says that these borrowers should make sure they understand and are accepting of some of the drawbacks involved, and should carefully decide whether to take the plunge now or later when they have more savings.
"There are a few things to think about, including the cost of lenders' mortgage insurance (LMI), in some cases, the higher interest rates that may apply, potentially a reduction in the number of lenders available to select from, and the lack of flexibility for future refinance opportunities should the property not increase in value over the first few years," says Roberts.
"One potential option to mitigate these drawbacks might be to ensure a good budgeting plan is in place to make extra repayments where possible to build equity in the property quicker, rather than simply via the minimum monthly repayments."
For more tips on how to save for a mortgage or to view some home loan options, visit our Home Loans Hub.