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3 common first home buyer mistakes First home owner mistakes Purchasing your first home is one of life's great milestones, up there with graduation, getting married and having children. Just like any achievement, it takes a lot of time, effort and can be a very stressful process! Research from the Australian Bureau of Statistics shows that in the 40 years to 2007 our nation consistently had one of the highest rates of home ownership in the world, and this is unlikely to be any different today. In spite of the obvious popularity of owning a home, the constantly evolving property market can be a fickle thing. Sometimes even expert investors can make blunders, so here are a few of the most common mistakes made by first time buyers. Being unaware of first home owner grants in different states In 2000, the federal government introduced an initiative to help first time buyers onto the property ladder. Requirements, conditions and the amounts offered do vary from state to state so it is important to enquire with your local authority. Despite this, people often don't take advantage of the government funding. Reasons vary, from not meeting the requirements, to buying a home that isn't included in the financial backing or simply not being aware. For example, if you were buying your first home in NSW you could be eligible for a $15,000 grant, provided the home's value is below $650,000. Spending more than they can afford Often first time buyers commit to a property for sale without fully understanding their financial position, or the ongoing costs of owning a home. Expenses like insurance, council rates, stamp duty and unexpected repairs can all add up, so it's important that you don't spend all your money on the initial purchase. Getting your home loan pre-approved can be a good way of protecting your financial future. Knowing your maximum limit before entering the property market means you will be aware of your boundaries and know not to exceed them. It's likely that you had an effective budget in place for saving your deposit – now you can use it for planning your mortgage repayments. Not analysing the local market Given the significance of a purchase, it makes sense to be well informed before you buy a home. If you've found an area you like, you should get to know it and the market in general like the back of your hand via market reports, blogs and books. Find the answers to questions like: What have prices been like in the past? How does it compare to surrounding suburbs? Are there any future developments in the area like new infrastructure? Real estate agents will also be able to give you an idea of the current trends, values and growth in the area.
Regulator issues warning on home lending Australian homeowners are taking on increasing debt and could struggle to repay their mortgages once interest rates start rising. Wayne Byres, chairman of the prudential banking regulator, APRA, said household debt levels are now at the “higher end of the spectrum” due partly to high housing prices. “Furthermore, after plateauing for much of the past decade, the household debt-to-income ratio has begun drifting upwards again,” he said. “Households still have a significant and growing net worth, as housing assets are increasing in value faster than debt. Nevertheless, the trends in overall level of debt bear watching.” Mr Byres said these debt levels have been manageable for households partly because interest rates are at record-low levels. However, he warned that if rates return to anything like long-term averages, the interest burden would become quite high. The “subdued income growth” that has become a feature of the economy will also make it harder to support significantly higher debt levels, he added. Mr Byres also said that APRA has been worried that competition among lenders could produce a slow but steady erosion of credit quality. One piece of good news Mr Byres offered is that banks appear to be reducing their investor lending, which is generally riskier than owner-occupied lending. He also noted that high loan-to-value lending doesn't appear to be a cause for increasing concern. “This declining trend in high-LVR lending has been evident most obviously in the case of owner-occupiers, but also applies to investors as well,” he said.
RBA reveals the downside of rising house prices The Reserve Bank of Australia has warned that rising property prices are creating risks in the economy and are unlikely to improve the wealth of the nation. In an address to the 54th Shann Memorial Lecture, deputy governor Philip Lowe outlined the significant implications of rising property prices on Australian households. “Ever-rising housing prices, relative to our incomes, do increase risks in the economy and are unlikely to make us better off as a nation,” Mr Lowe said. Mr Lowe said that rising property prices have significant implications on future generations of Australians, who could struggle to afford their own homes. This in turn has negative ramifications for Australian parents who are increasingly using capital gains to help their children purchase property, he added. “For an older person who owns their own home and has no children, the capital gain from the higher land prices more than offsets the expected higher future housing costs,” Mr Lowe explained. “Such a household is better off.” The same is true for owners of investment properties, since they own multiple dwellings on which they earn a capital gain, Mr Lowe said. However, for young homeowners with multiple children, it is possible that the higher future expected housing costs could exceed the capital gain on their dwelling, he said. “Many parents around the country look at the high housing prices and worry their children will not be able to afford the type of property they themselves have been able to live in, even if their children were to have the same lifetime income profile as they have had,” he said. “In effect, these parents are doing the present discounted value calculation and they see the potential problem.” Trends in the intergenerational transfer of wealth are gradually changing. The RBA is now seeing more first-home buyers receiving loans from family and friends. The RBA has also seen evidence of younger generations receiving increased assistance with household expenses from older generations, including by continuing to live in the family home. “It is quite likely that these trends will continue with it becoming more commonplace for parents to help their children in the property market,” Mr Lowe said. “This has both economic and social consequences.” The result means that fewer parents will be able to use the capital gains that they have benefited from to boost their own consumption, Mr Lowe said. “Instead, they will be using those capital gains to support the following generations with their higher housing costs,” he said. “Alternatively, if it turns out that today's generation use their capital gains to increase their own spending, then they will have less ability to help their children.” If this were to happen, Mr Lowe said he suspects that, over time, there would be some downward pressure on property prices relative to incomes, as future generations deal with the high cost of housing.
Do you think the rates need to be cut any more? RBA open to cutting rates despite Sydney boom Reserve Bank deliberations suggest another interest rate cut may be coming in the months ahead. Board members made a clear decision at the monthly meeting on 5 May to leave the door open to future rate cuts, according to the minutes, which were released earlier this week. The Reserve Bank cut the official cash rate by 25 basis points in February and then by the same amount in May, bringing the official cash rate down to two per cent. “Members agreed that, as at the time of the reduction in the cash rate in February, the statement communicating the decision would not contain any guidance on the future path of monetary policy,” the minutes revealed. “Members did not see this as limiting the board's scope for any action that might be appropriate at future meetings.” One thing the minutes make clear is that the board had already decided ahead of this month’s meeting that it had to cut rates – the only question was whether to do so in May or June. Board members also discussed several other factors that suggest another rate cut might be coming, including a sluggish local economy. Compared to earlier forecasts, growth and unemployment statistics are now likely to take longer to improve, according to the minutes. At the same time, inflation is also expected to be slightly lower than previously forecast, giving the board scope to cut rates. One argument against a third rate cut in 2015 would be the fear that this might foster imbalances in the housing market. However, while board members expressed concern about “very strong” price growth in Sydney and “strong” growth in Melbourne, they saw “much more muted” trends in other capital cities. They also noted the most recent data, which showed that there had been no increase in housing credit in recent months, either for investment or owner-occupancy purposes.
Regulator warns about property bubble... Financial regulator ASIC has expressed concern about the “historic highs” of the Sydney and Melbourne property markets. ASIC chairman Greg Medcraft said the heated property markets in Sydney and Melbourne have the characteristics of a bubble, according to Fairfax reports. Mr Medcraft said the SMSF sector is of specific concern, and warned investors against borrowing to invest in the current market. While the current interest rate environment is clearly fuelling investors’ appetites, he stressed that rates will not stay at these historic lows for the long term. "History shows people don't know when they are in a bubble until it's over,” Mr Medcraft said. "There is always danger when rates get so low. That's when people start borrowing when they can't afford it. “What generally happens is rates start to rise, which affects your ability to pay, and rate rises can actually bust a bubble so you end up with a double whammy.” ASIC is continuing to target SMSF property spuikers through a dedicated taskforce and recently stressed that property spruiking is the “largest concern” facing the SMSF sector.
Check this out: Skyrocketing Sydney prices could distort job market - REB http://www.rebonline.com.au/breaking-news/9039-skyrocketing-sydney-prices-could-distort-job-market?hootPostID=34d6e8c40d75ee69018e354b50a5db04
Small business package tipped to provide housing This week’s Federal Budget could provide further stimulus to the record building boom currently underway. Master Builders Australia chief executive Wilhelm Harnisch said the government’s $5.5 billion small business package would boost confidence, activity and jobs in the industry. “In an industry as capital-intensive as building and construction, the immediate write-off of assets up to $20,000 will provide an immediate stimulus,” Mr Harnisch said. “Measures to cut tax for small companies and sole traders will also underpin a reboot of confidence for builders, home buyers and consumers.” Australia is on track to build a record 205,500 homes this financial year, 41 per cent more than the number built in 2011/2012, according to the Housing Industry Association. The HIA also responded positively to the government’s small business package, which it said would provide important support to a wide range of small businesses in the residential construction industry. “The combination of a small business company tax cut of 1.5 per cent, a 5 per cent cut to unincorporated small business profits up to $1,000 per year and the accelerated depreciation allowance on all new assets up to $20,000 provides a positive impetus for the Australian economy,” it said. “In particular, the immediate deduction available on the acquisition of new assets is a policy announcement welcomed by the residential construction industry.”
What do you think will happen..... Big four banks divided on possible rate cut. Speculation about another interest rate cut is starting to intensify ahead of next week’s Reserve Bank board meeting. Westpac has forecast that the board will reduce the official cash rate from its record low setting of 2.25 per cent, where it has been since February. However, NAB has changed its forecast and now expects the board will leave rates on hold at the 5 May meeting. Westpac chief economist Bill Evans said the reason the board didn’t cut rates in April was because it wanted more time to assess whether or not the economy was on the forecast path. “It seems that even the ‘previously forecast path’ would be sufficient to justify another rate cut,” Mr Evans said. He said a key factor might be the Reserve Bank’s next statement on monetary policy, which it will only release on 8 May. “If we are right and the board has decided to cut its growth forecast in 2015 and 2016, probably from 2.75 per cent and 3.50 per cent to 2.50 per cent and 3.25 per cent respectively, then a decision not to cut would seem particularly bizarre. “Not delivering the assumed cut and lowering the growth forecast would be internally consistent, but hardly a likely policy option for a bank that appears comfortable about the inflation outlook but concerned about below-trend growth.” NAB chief economist Alan Oster also said another rate cut is coming, but that it would occur in August rather than May. Mr Oster pointed to a recent speech from Reserve Bank governor Glenn Stevens, which implied that the board would be cautious about cutting rates because they’re already at record lows and household debt is high. Statistics also show that house prices are continuing to rise strongly in Sydney and are also rising in other capitals, Mr Oster said. “Taking all these factors into account, we expect it would be prudent for the RBA to again hold the cash rate at 2.25 per cent on 5 May but again signal they are prepared to cut the cash rate further if that would sustainably lift economic growth.
Metro prices growing twice as fast as regional values. City agents have enjoyed substantially larger fee increases than their country cousins during the past year, if new data is any guide. According to CoreLogic RP Data statistics, capital city house prices throughout Australia grew about twice as fast as regional prices in the 12 months to 31 March 2015. NSW recorded the greatest disparity, with the median metropolitan house price rising 13.4 per cent to $800,000 as the median country house price rose 5.6 per cent to $385,000. Victoria’s median metropolitan house price climbed 6.6 per cent to $550,000, while the median country house price climbed 2.5 per cent to $200,000. South Australian prices grew 5.1 per cent to $426,000 in the city and 1.8 per cent to $290,000 in the country. Tasmanian prices increased 3.0 per cent to $360,000 in the city and remained flat at $252,000 in the country. In Western Australia, the median metropolitan house price climbed 3.8 per cent to $550,000, while the median country house price climbed 1.3 per cent to $385,000. Northern Territory saw metropolitan prices rise 5.6 per cent to $570,000 as country prices rose 4.5 per cent to $415,000. Queensland had the smallest growth gap, with metropolitan house prices up 4.9 per cent to $490,000 and country house prices up 3.8 per cent to $410,000.
Big interest rate cuts coming, economist says The Reserve Bank will be under pressure later this year to cut interest rates further should the housing sector experience a downturn or non-mining investment remain stalled. BetaShares chief economist David Bassanese has forecast the official cash rate to end the year at 1.5 per cent and the Australian dollar to sink to US68 cents. According to Mr Bassanese, the monthly level of home building approvals is already near previous cyclical peaks, suggesting there is little room to further increase supply. “Should home building approvals peak within coming months, it would also mean home building activity will start to decline by late this year [or] early 2016 – undercutting what has recently been an important source of economic growth,” he said. Mr Bassanese said the housing sector has enjoyed a decent lift in both prices and building activity over recent years, but there is emerging evidence that suggests the rise in supply has not been in areas where it is needed most. He said that while price rises have been most acute in Sydney, the expansion in supply has been more evident in Melbourne and Brisbane – particularly high-rise developments in inner-city areas. “The RBA’s report noted the ‘risk of oversupply appears most evident in inner-city Melbourne’, while it also cited liaison reports from business expressing ‘concern about possible future oversupply’ in Brisbane.” Mr Bassanese added that non-residential construction accounts for about 40 per cent of non-mining sector investment and, compared with other investment components, has a higher “local value-added component” and is “quite cyclically volatile”. “Accordingly, it seems unlikely that non-mining investment can recover strongly in the coming year and provide much of a sorely-needed boost to the economy without a decent rebound in non-mining, non-residential construction.”
Here are 5 tips to help buyers avoid making a ‘fed up’ purchase: 1. Trust your needs/wants lists Pull out a piece of paper and pen and, if you haven’t already, write a two-sided home wish list. One side is all your needs. The other side is all your wants. The needs list must only include features you cannot compromise on – for real. Must you have 3 bedrooms to house your six children? Write it on the needs’ list. Do you need to have an ocean view? No, but you’d like one? Pop it on the wants list. “This process will help you rule out unsuitable properties before you attend open homes and save you becoming emotionally attached to a house that doesn’t meet your requirements,” Bright says. Ahgrove Brisbane home 2. Become a home values gun Make sure you’ve done comparable market analysis and know current values as opposed to following price guides. Check our Invest section for key market insights “By keeping your search to properties that are in your price range, your top three suburbs and that match your needs list, you’ll become an expert on that particular type of property in your research area … able to spot a quality property and make an informed offer.” 3. Can you get your hands on the dollars? One of the surest ways to seal a deal on a high-quality home is with a deposit cheque (or money transfer) today. If you find your dream home but still have to talk to a lender about getting funds, you run a high risk of losing to a more organised buyer and ultimately making a fed-up purchase of a lesser home. “Have pre-finance approval in place and make sure you’re aware of all the upfront costs of buying property e.g. stamp duty, pest and building inspections, legal fees, mortgage fees, removalists etc,” Bright says. Have a pre-finance approval in place and be aware of upfront property costs. Pulling funds: How do people save their first deposit? 4. Consider hiring an agent Family looking at documents If you’re suffering home-hunter fatigue, minds can play tricks: It may be time to pay for professional (agent) help. Have you tried to convince yourself that lime-green bedsitter with the outdoor toilet is “charming in a retro way”? Yep. You are at dangerously high risk of a dodgy deal. Engaging a buyer’s agent will cost a percentage of your home’s purchase price, but may save thousands in the long run. Ask yourself: Do I need a buyer’s agent? 5. Walk away for a wee rest Guess what? The housing market never sleeps but it also doesn’t vanish if you give yourself a break. You will come back fresher and there are always new fabulous listings just around the corner. Log-off for a week and see what happens. That sweet property you really wanted that you missed by a whisker may just pop up again because your rival buyer couldn’t raise the bucks and the contract collapsed. It happens. It can happen for you. Love story: Ways a house is like a relationship To recap, avoid fed-up buying by: Buying only what’s on your shopping list Studying home prices and values so you don’t overpay/under-offer Getting your money sorted Bringing in outside help if needed Taking a house-hunting holiday.