Home buying intentions at record high

Home auctions may soon be even more crowded, with Commonwealth Bank (CBA) reporting that home buying intentions have reached record highs. 

CBA’s latest Household Spending Intentions (HIS) series found that in December, home buying intentions lifted, and tipped that the increase of dwelling prices at the end of last year may continue into 2020. 

The HIS report also included mention that the “economic drag” from falling residential construction may soon be ending. 

CBA Chief Economist, Michael Blythe, said that past cycles show “leading indicators like building approvals turn about three months after home buying intentions start to lift”. 

“A bottoming in the construction cycle would remove a major growth drag on the economy, and also helps retailing,” said Mr Blythe. 

The wealth effect

The economist also said that we may be seeing early signs of a ‘wealth effect’. 

• What is the wealth effect? According to Investopedia, the wealth effect is an economic behavioural theory that suggests people spend more as the value of their assets rise. If for example, housing prices increase, a homeowner may feel more secure in their finances, even if their income and fixed costs haven’t changed. This homeowner may feel richer, and therefore may want to spend more. 

“There are some early signs of a ‘wealth effect’ from the housing market supporting spending on motor vehicles, albeit from a very low level, as well as travel and entertainment,” said Mr Blythe. 

“A positive wealth effect could help other forms of spending as well. In December, travel spending intentions continue to trend higher and entertainment spending intentions are improving at a respectable pace,” said Mr Blythe. 

How to pick a home loan

If you’re like one of the many Australians looking to get a foot on the property market, you’ll want to make sure you know your LMI from your LVR before applying for a home loan. 

Here’s what you should consider before taking out a home loan: 

1. Small steps up the ladder
Firstly, if this is your first property, consider aiming for a smaller property in a cheaper location than your typical ‘dream home’ to begin with. Look into ‘bridesmaids’ suburbs, which are nearby to typical blue-chip suburbs without the expensive price tags. Once you’ve paid down your debt and/or housing prices rise you can consider selling and looking at bigger and more expensive properties. It’s called the property ‘ladder’ for a reason.

2. Do your research
When it comes to home loans, the more you know the better your chances are of getting the most competitive deal. Utilise resources, such as RateCity’s Home Loan Guide, explainer videos, or news articles to deepen your knowledge of how home loans work and how to qualify for the lowest rates.

3. Compare your options
Once you roughly know how much you want to borrow for your ideal property and what type of loan you’ll need, it’s time to do your research to find the best loan for your financial needs and budget. The easiest way to do this is to use comparison tools, such as tables, calculators and comparison rates.

• Comparison tables allow you to compare apples with apples. You can filter down a range of loan options that suit your borrowing type, loan type and rate type. You’ll then be able to view potential loan interest rates, fees and features side by side.
• Home loan calculators crunch the numbers on potential home loan repayment amounts so you can choose a loan that best suits your budget.
• Comparison rates allow you to better compare home loan options. Instead of just looking at the advertised interest rate, a comparison rate takes into consideration upfront and ongoing charges that can add to the total cost. Comparison rates are typically higher because of this.

4. Consider a mortgage broker

There are thousands of mortgage brokers on the market across Australia. If you’re still feeling overwhelmed with choice, consider reaching out to one and see if they can help you get the right loan for you. If you need help choosing a mortgage broker, check out our helpful article.

Compare home loans in Australia