Australasia boasts some of the most unaffordable housing in the world. If you’re a first-time homebuyer and have done everything right, including saving for a down payment, maintaining good credit and a steady income, you still might find yourself in a situation where you’re priced out of what you can comfortably afford. What do you do if you want to get your foot in the door? What do you do when you want to trade up from your starter home, and still can’t meet your housing goals?
How can a buyer smartly navigate a home purchase in a seller’s market?
Sydney in particular gets a lot of press for their sky high home prices, but data shows that the rate of increase is slowing there, as well as in Melbourne. Let’s face it, though, even when the hottest markets inevitably slow down, prices are still going to be high for many buyers. So when you finally find a property you can afford in a great area, you want to jump on it immediately.
Before you leap, though, you have to know from the outset both how much you can borrow for your home loan as well as what you’re willing to pay. In a market where property moves quickly and supply doesn’t meet the demand, there often isn’t enough time to get the necessary finances together after you’ve found a property that you want to buy. Sydney buyer’s agent Roslyn Hayes says that one of the most important things to do when navigating through a hot market is to show the sellers that the buyers are serious, and that means having the appropriate funds ready to go. If you don’t have a conditional pre-approval for your home loan, you’re already beginning the search on the back foot. Here’s where using a loan repayment calculator can come in handy to help you figure out the implications of different loan terms, and you can approach your lender with an idea of the best option that meets your goals. Once you’re pre-approved for a home loan, you can be ready to make a decision on short notice. “When you find the home you want, do not hesitate,” Hayes says.
Make sure you know the market, or at least that you’re working with an experienced buyer’s agent who will act in your best interest. It’s often said that a property is worth what someone is willing to pay for it – and that’s true – but if a property is priced to encourage a bidding war instead of being priced at its true market value, you need to know the difference so that you can strategize accordingly. Another strategy that Hayes advises for her clients is to keep an open mind. Just because a property ticks all of your requirements on paper doesn’t mean that it’s the right one. Conversely, something that you might not think of going to see based on its listing could end up ticking all of the boxes. Buyers in a hot market very rarely get everything that they want in a property.
According to the Australian Bureau of Statistics, first-time homebuyers made up just 14.7% of total owner occupied housing finance commitments in March 2016, which means that the first-timers out there are competing with more experienced buyers, who have not only been there and done that, but who also have more cash upfront. Property moves quickly, and the adrenaline – along with the fear of missing out – can lead buyers to commit to more money than they can afford when they get caught in competition with other experienced buyers. But allowing your emotions to get the best of you is not the way to buy smartly in a hot property market. Take a step back and remember that while buying a home is certainly an emotional purchase, it’s primarily a financial one. Losing a home to another buyer can be heartbreaking, but if you’re not prepared and educated on how to make a smart purchase in a seller’s market, your financial outlook will look bleaker than a broken heart.