If you're looking to buy a house or even just get your finances to get a deposit together, you might be wondering why buying property in Australia, getting a mortgage, working out the amount you need to borrow, and the exact price you'll need to pay seems so complicated.
We don't have a crystal ball for the future and even industry experts can have a hard time keeping up with all the developments. The Australian housing industry is famously a tumultuous roller-coaster ride and all we can say is that you have to accept it for what it is.
To make the whole thing clearer, however, let's see what's been going on recently, what's happened this year, and try to piece everything together so we can attempt to work out which direction the industry and the market will be taking in the future.
We'll also look at a few ways you can get help understanding the various financial products available to you including home loans, mortgages, etc., saving money for your deposit, and the other costs that every homeowner will need to pay like stamp duty, tax, etc.
Here goes...
The Affect of the Pandemic on the Housing Industry in Australia
The COVID-19 pandemic affected the economy in a lot of ways, and not just in Australia. It was responsible for one of the biggest recessions since the great depression and people all over the world felt the effects both on their lives and in their wallets. The costs of different goods changed and so did financial products such as home loans.
Houses and properties take longer to buy, which you'll know if you're considering becoming a homeowner, and this means that housing markets are naturally slower to reflect what's going on in the economy whether it's domestically or internationally.
In some ways, this makes the housing market more predictable, but if you know anything about the housing industry in Australia, then we fully understand if you don't give much credence to this sentence.
Closing cities and cutting interest rates were bound to affect housing prices and they did. Regional and detached properties saw an increase in popularity and the government's incentives to help first-time buyers also meant that more of them entered the market.
The number of first-time buyers or first-home buyers (FHB) was the highest it's been since 2009 and 2010 following the government's 2008 First Homeowner Grant, which offered grants of up to $21,000 to FHBs for newly constructed homes. Established homes were still eligible for grants of up to $14,000. If you're looking to buy, be sure to check the government website to see if you're eligible for a grant when buying a home in Australia.
In the housing industry, downturns are usually shorter than periods of growth and even the global COVID-19 pandemic only took around 2% off housing values between April and September of 2020.
Homeownership wasn't the only part of the industry affected. The rental market also saw rates increase. In the years since the start of the pandemic, the median advertised rent has increased by around $30 to $470 a week, which is one of the reasons driving people to think seriously about owning their own property.
While a lot of people renting weren't necessarily in the ideal position to save money for a deposit on a home, especially given how much prices had risen, the amount they were paying on rent made saving for a home at any cost feel like a no-brainer.
However, saving for a deposit on a property doesn't happen overnight and as you'll see right now, much like with the pandemic, the upheaval in the housing market didn't stop at the end of 2020, either.
Last Year Was a Record-breaking Year for the Australian Housing Industry
2021 broke records with median house values across all Australian capital cities being over $1 million. However, it should be noted that the median prices across the capital cities aren't all over $1 million, and higher medians in capitals such as Sydney, Melbourne, and Canberra are pulling the national median up.
In any case, the amount by which property prices rose made buying far less appealing (not to mention all the extra costs) or even possible for many in 2021. With the costs of buying property skyrocketing, it was becoming almost impossible for first-time buyers to find an affordable property, much less put together enough savings to cover the costs of a deposit, loan repayments, stamp duty, etc.
That doesn't mean you should disregard this statistic, though. Even some of the capitals whose median house value is under $1 million saw a massive year-over-year (YOY) increase between 2020 and 2021.
Sydney, which has the highest median house prices at $1.6 million, still saw a YOY increase of 33.1%. Darwin, Hobart, and Canberra all saw median house values increase by more than 30%.
The medians in Adelaide and Brisbane were more reflective of the national median with YOY increases of 27.5% and 25.7% respectively. Nationally, the median increase was 25.2%.
With an increase of 18.6%, Melbourne is somewhat of an outlier, but with the third-highest median prices behind only Sydney and Canberra, it still leaves the median house prices at $1.1 million.
The market in Melbourne has been slowed by extended lockdowns, business closures, and people moving away from the city, which has put more properties on the market and greater choices for buyers.
At the time, nobody believed that these unprecedented increases would continue and, fortunately for first-time buyers (be sure to check out our tips), they haven't.
The Australian Housing Industry in 2022
At the time of writing, we find ourselves at the end of 2022 and the chaos that is the Australian housing industry is slightly more understandable.
The dust from 2021 has settled and we're able to make sense of exactly what's gone on over the last 12 months.
If you're looking to buy, you may be relieved to hear that the growth from 2021 hasn't continued and housing values across the country have actually decreased a bit. Admittedly, the 3.2% decrease in housing value reported between December 2021 and November 2022 took $2 billion off the Australian housing market and is hardly a dent in the changes seen in 2021, but at least we're not looking at runaway housing prices.
A few things are said to be responsible for this decline. For one, the massive increases of 2021 rendered properties less affordable and with fewer affordable options for buyers, demand decreased.
Rising interest rates also affected the market. Much like the increases seen in 2021, different areas were affected differently and the differences between capitals and regions were also quite apparent. Capital areas declined more than regional areas and the more expensive the market, the greater the decline tended to be.
Future Prospects for the Australian Housing Industry
Understanding past events can make predicting the future a little easier. However, we don't have a crystal ball so these predictions are based solely on what's been said in the industry.
The first good point, especially for first-home buyers, is that it looks like things are starting to balance out between buyers and sellers after the market was hit by interest rate hikes.
With the market seen as a bit of a roller-coaster, a lot of buyers were hesitant and unsure about being a part of it. However, it seems that consumers are now starting to get sick of waiting and are just accepting it for what it is and getting on board.
This is helped somewhat by the rental market that we mentioned earlier and for those sick of renting, the time has come for them to bite the bullet and just get on with buying property at any cost.
Rental pressure and decreasing prices are a good combination for first-home buyers and 2023 is expected to be the year that sees a jump in the number of them.
While property owners have enjoyed the increases in recent years, continued growth looks unlikely as consumer sentiment and affordability play a part.
In 2023, prices are expected to continue falling and some are even saying that 2024 will be the next time cash rate rises are expected. However, the rate of decline is also expected to slow and the Australian housing market is still at risk of decline.
Finally, 2022 was a year of decreased investment in the market, but the trends expected for 2023 are likely to bring them back to the market as well.
How to Make Sense of It All
The housing industry is a riddle wrapped in a mystery inside an enigma and you can't really be blamed for wondering how to make sense of it all.
There are a lot of factors that play a part in how the industry works, how prices and valuations are affected, and what happens when they are.
Here are a few ways to better understand it.
Do Your Research
In the digital age, there are plenty of resources out there to help you. Everything from studying finance and economics to expert blogs and websites to explain everything that's going on. You can use tools like mortgage repayment calculators to see how much of a deposit you'll need, how much you'll pay each month for your mortgage, and how many months it'll take you to fully pay for your property.
Looking online is a good place to start, but there's no reason that you can't also go to a library, pick up some books on the subject, or even look at articles in newspapers, etc.
You'd be surprised how much something gets talked about when there's money involved and the housing industry in Australia is no different.
Get Help from Friends and Family
Admittedly, the important thing here is to look to people that you know and trust and have some level of expertise. Whether you're looking to understand the market or buy your own home, you must speak to the right people and if they happen to be people you already know, that's even better!
Get Help from a Private Tutor
If you're looking to make sense of the market, studying finance or real estate, or just need to know more because you want to buy property, private tutors are an excellent choice.
You can find tutors online and in person who can help you with their expertise in a given field, including real estate and finance. They can help you to get your savings together so that you can put together a deposit, talk you through the different financial products available to you, explain mortgages and home loans, interest rates, stamp duty, how to calculate the cost of repayments, etc.
Of course, you can always choose a combination of the above and become an expert yourself!
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