Did you know that over the June 2021 quarter Melbourne house prices increased by 4.1% to a new median of $1,022,927? Domain reports that:
“Since Melbourne emerged from lockdown late-2020, house prices have risen rapidly, producing three quarters of consecutive growth above 4 per cent – not seen since the city’s post-GFC rebound.”
Unit prices are also at new record highs and growth in regional Victoria is staggering… year on year the regions have seen between 10% and almost 35% increase in prices.
While the initial impact of COVID-19 slowed the market last year, it has certainly bounced back, and consumer confidence appears strong. With that in mind, we look at some of the factors to consider if you are buying a house in 2021.
Why are prices increasing?
There are many different reasons that house prices continue to rise. Interest rates play a huge part in the equation. The record lows we are experiencing mean that there is greater access to credit – more people can afford to borrow and in larger amounts.
This has a twofold effect; owner-occupiers have greater borrowing capacity and can outbid competitors for the house they want. And lower rates make rental yields more appealing to investors… as they can easily secure cheaper loans.
Another aspect of price increases relates to property availability. We often hear how the supply of houses for sale isn’t keeping up with the demand and that the amount of time a property is on the market continues to decrease. More people are looking to buy from a smaller number of properties. This situation is only going to do one thing to prices – and that is to push them up!
Tax policies and even age pension eligibility rules also have an impact on prices, as they tend to favour property investment over other assets. Negative gearing can be a tax effective strategy for reducing income tax and is appealing to investors. The age pension assets test does not include the family home… so for some retirees it might be more favourable for them to remain in their big home and pass it on through inheritance to their children… rather than put it on the market for sale.
Despite rising prices, there are still solid investment opportunities available. The record low interest rates do offer you a chance to invest in bricks and mortar in a time where we have seen stock market volatility.
Whether you are looking to purchase outright or borrowing to buy through your super it’s critical that you thoroughly review your financial position and make sure that you are comfortable with your investment plans.
It also pays to be familiar with the various government incentives on offer to property owners. Federal and State Governments offer financial support to home buyers that can save you thousands. And if you structure your property investment correctly, it could be a beneficial wealth building strategy for years to come.
Talk to your financial adviser
Whether you are upsizing or downsizing your family home, looking for a sea or tree change… or perhaps helping your children buy their first home, it’s a good idea to talk with your financial adviser before you make any major decisions.
The team at First Financial can show you what impact your decision may have on your financial future, and help you develop a plan that best suits your individual circumstances. Contact us to discuss your options today. Read more articles about Financial Planning.