Is now a good time to buy a home?

If you already own your home, the good news is that its value is likely to steadily increase this year. The latest Bendigo Bank/REIA Real Estate Market Facts report, released this month, revealed that the median price for property has risen so far this year and the Real Estate Institute of Australia (REIA) is forecasting continued growth in 2014.

For new home buyers, now may be the time to buy before prices go up even more. According to REIA, all capital cities across Australia posted price increases with the weighted average, capital city, median price increasing by 5.7 percent for houses and 4.5 percent for other dwellings.

“At $763,169, Sydney’s median house price is the highest among the capitals,” REIA president Peter Bushby said. “Hobart remains the lowest at $370,000, which is 38.1 percent below the national weighted average.”

“Compared to the same time last year, the weighted average median house price rose 13.1 percent.”

Prices will continue to rise

“We see 2014 generally, if conditions stay as they are, as a year of continued growth,” Bushby added. “It’s fair to say that history shows that if home buyers can get into the market, now is the time to do it. Prices might move up and down a bit, but overall they will always go up.”

The current record low interest rates are likely “to stay relatively low in the foreseeable future”, according to Bushby, which helps keep home loan repayments at affordable levels.

Marc Bineham, director at Noall & Co and vice president of the Association of Financial Advisers, agrees that buying sooner rather than later is the smart way to go. “Prices will always go up, the earlier you get in the better,” he said.

Some buyers can spend too long trying to save a sizeable deposit, which declines in value proportionally as property prices rise, Bineham added. “Getting in now allows you to lock in the value of the home at today’s price. The longer you wait, that property will keep growing in price.”

That said, starting with a reasonably sized deposit will stand you in good stead when you buy your first home. And bear in mind you will need additional funds to cover the associated costs of buying a property, such as legal fees, inspection fees, loan application fees and lenders’ mortgage insurance (charged if you are borrowing over 80 percent of your home’s value).

Owing more money creates more risk. Two risks in particular, according to Alex Parsons, CEO of RateCity.

“The first is if rates rise – because you have a larger home loan, each rate rise affects you more than someone who had a larger deposit and borrowed less,” he said.

“Second, you’re much more susceptible to reductions in your income – even if you don’t lose your job, what happens if your partner needs to reduce their hours worked?”

Parsons suggests to use a home loan calculator to see the impact of a rate rise on different amounts borrowed.

“There’s nothing bad that can come from entering the housing market with a larger deposit. While a loan on a smaller deposit is tempting, it’s probably not the wisest course of action.”

As for future house prices, Bushy added, “We don’t think we’re headed for a bubble despite some commentary around that.”

“There will be steady improvement in the market throughout the year, but there are hotspots no doubt and conversely there are areas that are under performing, such as Tasmania and South Australia. Sydney is still strong and Melbourne is similarly still performing very well.”

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