Latest news with #homebuyers
The Guardian
2 hours ago
- Business
- The Guardian
As interest rates fall, could Australia be facing another house price boom?
With the Reserve Bank easing monetary policy, interest rates are on the way down. Already this year mortgage pre-approvals have begun to rise, suggesting that many aspiring homebuyers are excited by the prospect of cheaper home loans. With further cuts expected before the end of the year, some economists are predicting Australia could be about to experience another house price boom. Lower interest rates enable people to borrow more and potentially spend more on homes, bidding up prices. So, how might the RBA's actions affect home buying behaviour and the housing market more broadly? Research offers us some clues. Research shows that when a central bank lowers its benchmark interest rate, mortgage interest rates usually follow suit. We saw this after the Reserve Bank's May decision to cut rates. Australia's big four banks immediately announced similar reductions in rates for new and existing borrowers. Lower rates reduce the cost of servicing a loan. This is a big deal for Australian homebuyers, whose mortgages can be very large. With the average house price now hitting about $1m, an 80% loan saddles the typical homebuyer with $800,000 in debt. Back in March the average interest rate on new mortgages was 6%. For the average $1m house, this implies a monthly repayment of about $4,796, using the standard formula for amortising loans. After the RBA cut the cash rate by 0.25 percentage points the new monthly repayment would be $4,669 – $127 less. That's a small but surely welcome relief for mortgage holders. Combined with the Reserve Bank's rate cut in February, such borrowers are now saving more than $250 a month relative to the start of the year. Lower rates can also improve the borrowing capacity of new homebuyers. Before a bank issues a new mortgage, it weighs the ability of a borrower to service the loan. It does this by considering the amount of income the applicant will have left over after meeting typical expenses. This is known as a borrower's 'net income surplus' and the proportion of this that is used to service a loan is known as the 'net surplus ratio'. The maximum ratio is capped at 90% but the typical mortgage is lent against a ratio of less than 70%. If a household earns $100,000 a year and allocates 25% to expenses, it can afford $4,375 in monthly mortgage repayments at a 70% net surplus ratio. Given the previous interest rate of 6%, this maximum monthly repayment implies the household can afford to borrow $680,000. But, after a 0.25 percentage point rate cut, this household can now afford a $695,000 home loan. And after the 0.50 percentage points of cuts we've seen since January, this household's borrowing capacity is up by $30,000. For an individual homebuyer, this extra borrowing may be enough to secure that dream home. But the rate cut affects everyone at the same time, increasing the borrowing capacity of homebuyers across the country. All of this extra mortgage credit feeds housing demand, which is likely to pour more fuel into an already overheated market. Indeed, research indicates that a 0.25 percentage point cut in the cash rate is likely to lead to a 1.5% to 2% increase in average house prices over one to two years. That's an extra $20,000 on the $1m average home value. Research also suggests that the impact of interest rates across local housing markets may be strongest where housing supply is tightest and houses are already more expensive. While lower rates reduce the cost of a given mortgage, the average mortgage size needs to grow to keep up with higher prices. Recall that the monthly payment associated with an 80% loan on a $1m home at 6% interest was $4,796. If the interest rate falls by 0.25 percentage points but house prices rise by 2%, the new monthly payment is little changed, at $4,762. On top of this, the 20% down payment on that new home will now have increased – by $4,000. Despite the initial excitement of lower rates, aspiring homebuyers may be disappointed to see the price of their dream home climb further out of reach. Some may end up no better off. Others might try to snap up a home before lower rates are completely priced in – motivated by a fear of missing out. Research suggests it can take a year or more before house prices peak after a rate change. And others still may decide to keep renting for the time being. Fortunately for them, research shows that changes in interest rates do not materially affect the rents that landlords charge their tenants. Finally, one option is holding savings in the stock market while they wait, perhaps diversified via exchange-traded funds, as these assets usually rise in value after an interest rate cut. It's never a good idea to panic. It's always important to think through your options before diving into the market. And remember, this is general information, not financial advice. All investments carry risk. This article was originally polished in the Conversation. James Graham is a senior lecturer in economics at the University of Sydney
Daily Mail
11 hours ago
- Business
- Daily Mail
Realtors panic as buyers pull out of deals at near record levels
The US housing market is teetering — and buyers are running for the exits. Spooked by high mortgage rates, mounting insurance premiums, and growing fears of a shaky economy, an astonishing one in seven buyers are bailing at the last minute. In April alone, 56,000 home purchase contracts were canceled — equal to 14.3 percent of all pending deals, according to a new report from Redfin. That's the second-highest April cancellation rate ever recorded, topped only by the early pandemic chaos in 2020. Reasons for would-be buyers to bail are stacking up fast. A shaky economy and fear of jobs as a result has caused many to get cold feet as they worry they will not be able to cover the monthly payment. Stubbornly-high mortgage rates that hit 7 percent mean those payments are higher than many want to pay. Growing evidence of the house price bubble burst are the icing on the cake for many. They do not want to buy now, only to see property values plummet. The Miami housing market is on a knife-edge as spiraling numbers of homebuyers pull out of deals. It's the latest area in the Sunshine State at risk of a crash. Desiree Bourgeois (pictured), a Redfin realtor in Detroit, said that at a recent open house, younger buyers were worried about how tariffs, and the economic uncertainty around them, was going to impact the housing market. 'They're hearing the words "tariffs" and "recession," and it's making them nervous that if they buy now, the value of their home will decline, and they don't know whether mortgage rates will go up or down. 'There's a lot of uncertainty out there, with buyers trying to understand how their purchase would fit into their personal finances and the broader economic puzzle.' Meanwhile, Efosa, CEO of Fire Cash Buyer , said he has pulled out of two contracts recently because he's not optimistic about where the US housing market is headed. Instead, he's waiting for the market to crash, then he plans to buy. 'I'm waiting on the market to cycle as it did in 2008. This is a perfect storm for an eventual market crash due to this affordability crisis,' he says. 'I will be one of the smart ones waiting on the sideline to buy at the right time, not at the top of the market.' Once again, Florida is proving to be a problem. The Sunshine State accounts for five of the ten areas with the highest cancellation rates, including Orlando (19.4 percent), Tampa (19.1 percent), and Miami (18.9 percent). Other cities hit hard with last minute cancellations include Atlanta, with 20 percent of pending sales falling through, That was followed by Riverside, CA (19.1 percent) and Fort Worth, TX (18.7 percent.) Buyers are also being met with too many choices, which is causing them to back out of deals at the last minute. Housing inventory is at a five-year high, and some buyers are backing out during inspection in hopes of finding something better. In disaster prone areas like California and Louisiana, skyrocketing insurance premiums are killing deals. 'Some lenders won't sign off if buyers can't insure the home affordably,' Efosa says. But despite many potential buyers ability to seal the deal, savvy house hunters are on alert. Redfin reports that when deals fall through, there's a window of opportunity for those who are serious about buying. 'Two of my buyers got great homes this way,' said Alison Williams, a Sacramento-based agent. 'When a deal collapses, we jump in before the home even relists.' Williams advises that if a buyer is outbid, they should have their real estate agent submit a backup offer anyway. If the winning bidder backs out, you're up next – likely at a discount. In the current housing market, sellers are also having to come back to reality on pricing on concessions. It's a buyer's market. 'When buyers pull out, sellers are lowering prices and offering concessions just to seal the deal' Efosa says. While Florida sits atop the cancellation study, the biggest year-over-year jumps in contract fails came from Anaheim, CA (up 3.1 points), Seattle, Milwaukee, and Los Angeles — areas all dealing with too many listings flooding the market. On the low end, Nassau County, NY had the lowest cancellation rate in the US at 4.8 percent. With the mass cancellations, Efosa says believe a market correction is inevitable. 'It's already happening,' Efosa warned. 'Foreclosures are up. The market will have to come down. The numbers don't lie.' Meanwhile, sellers are panicking about just how much they will have to lower the price of their homes in order to sell. Over the next year, home prices will drop by 1, according to Redfin, marking the end of more than a decade of almost uninterrupted price hikes. Before and during the pandemic, when there were record-low mortgage rates, buyers would often face bidding wars and lose out on homes. Now, the ball is in their court. The average 30-year fixed mortgage rate was 7 percent on Memorial Day. Redfin predicts rates are likely to hover around 6.8 percent through 2025. Meanwhile, inventory keeps rising. The number of homes on the market has shot up 16.7 percent in just a year — to the highest level in 5 years.
Forbes
a day ago
- Business
- Forbes
Housing Market Uncertainty Reaches 3-Year High, BofA Report Finds
Homeowners and buyers are cautiously optimistic. getty Both homeowners and prospective buyers find the current housing market unpredictable. In fact, 60% of both groups don't know if this is a good time to buy a house, according to a new Bank of America report, which notes this is a 3-year high. However, 52% of those looking for a new home express optimism, and believe the housing market is better than it was last year. Matt Vernon, head of consumer lending at Bank of America, provides insight from the report. According to the report, 60% of homeowners and prospective buyers can't tell whether it's a good time to buy a house of not. This is up 3 percentage points from 2024, and 12 percentage points from 2023. However, the majority of prospective buyers are optimistic. In fact, 75% expect both prices and interest rates to fall, and they're waiting until then to purchase a new home. This is compared to 67% who felt this way in 2024, and 62% who held this view in 2023. 'Housing affordability is definitely a concern, but I think both housing experts and prospective homebuyers see things heading in the right direction,' Vernon says. While the market still needs to improve, he says the report shows that buyers are still optimistic, and believe things are better now than they were a year ago. 'As new market data emerges, we're seeing more inventory (although delistings have also increased) and a slight cooling in price growth, which could give buyers more breathing room,' Vernon explains. 'So, while it's still a tough market, there's a sense that the tide might be starting to turn.' In spite of any financial obstacles, Gen Z is committed to homeownership – as well as the sacrifices that may be necessary to achieve this goal. In fact, 30% of Gen Z homeowners said they took an extra job to get the money for a down payment. This is up from 28% in 2024, and 24% in 2023. Some Gen Z homeowners are also open to living with other people in order to reach their homeownership goal. In fact, 22% of Gen Z homeowners reported that they purchased their home with siblings, compared to 12% in 2024, and 4% in 2023. The report also found that 34% of Gen Z prospective homebuyers would consider living with family or friends while waiting to purchase a home. This generation is also open to receiving help to purchase a home. The report reveals that 21% of Gen Z prospective homebuyers plan to get a loan from parents or other family members for the down payment, compared to just 15% of the general population who say the same. Among all prospective homebuyers, this number is up from 12% in 2024 and 9% in 2023. Last year, weather-related home losses reached record levels This increase in severe weather events did not go unnoticed by homeowners and prospective buyers. The report reveals that 62% of both groups are concerned about the impact of severe weather and natural disasters as it relates to homeownership. Also, 73% believe it's important to purchase in areas with a lower risk of these events occurring. The report reveals that 38% of survey respondents have changed the location of their preferred home purchasing location based on that area's risk of severe weather. Also, 23% of current homeowners say they have experienced property damage or loss in the last 5 years. due to severe weather events, and 65% of current homeowners report taking measures to prepare their home for the risk of severe weather. If you plan to purchase a home, Vernon recommends that you start preparing early—even if you're not ready yet. 'This market can be unpredictable, but the more prepared you are, the more confident you'll feel when the right opportunity comes along,' he says. So, what does this entail? 'Get a handle on your credit, build a savings cushion, and understand what you can realistically afford,' Vernon suggests. In addition, he says you shouldn't underestimate the power of getting preapproved, as it can make a huge difference when you're ready to make an offer. 'A lot of buyers right now are waiting for rates or prices to come down, but in the meantime, use this time to strengthen your financial foundation so you're ready to act when the timing feels right,' Vernon concludes. If you're a homeowner, check out these 5 home renovation trends in a sell'ers market. Read the full Bank of America 2025 Homebuyer Insights Report here.
News.com.au
a day ago
- Business
- News.com.au
OK Boomer, what a 1980s house really costs buyers today
Hopeful Geelong home buyers are paying substantially more money relative to the cost of everything else than generations before them, alarming new analysis reveals. The exclusive PropTrack research showed home prices were four-times higher than in 1980 once adjusted for inflation. But today's buyers are paying between two and eight-times on top of the adjusted prices for a typical house in many suburbs. The research measured housing costs across each decade, showing property prices over the 1990s, 2000s and 2010s were also markedly cheaper when compared to other living costs. Geelong's $26,500 median house price in 1980 is equivalent to $136,100 in today's money, while the $470,000 median in 2000 is worth $682,400 in today's dollars. But that's well short of the actual $890,000 median house price in 2025. The study also showed the dramatic shift in Geelong's property market map, particularly as a result of gentrification. Geelong West was the cheapest suburb back in 1980 when a typical house cost $23,075, cheaper than the average house in Norlane at the time. In today's money that's just $118,000. The actual median price in the suburb is more than six-times higher at $872,000. Inner suburbs such as Geelong, East Geelong and Manifold Heights had median house prices less than $30,000 in 1980. A typical house cost $34,000 in Newtown in 1980 ($177,200 in today's money) compared to $1.117m today, while Highton was the most expensive suburb with a $48,000 median house price. That's $338,900 when adjusted for inflation, but is now worth $875,000. Geelong buyers advocate Tony Slack said how typical buyers were entering the market today were different as the cost of housing increased compared to incomes. 'If you're single or a couple and you're renting, it does it make hard to crack in to the market,' he said. 'Without a doubt that there's more family money there,' he said. 'And government schemes are the same thing – they weren't available when I bought the first time. 'I think the cost of living in the old days, there just seemed to be more money left over.' Mr Slack said buyers were less prepared to buy a house that needed to improvements, but worked within a budget that favours lifestyle attributes, such as being close to a network of friends, family, work and social activities. He said buyers often purchased their first home as a stepping stone, considering other factors such as schools with their second purchase. 'That worst house in the best street doesn't seem to have as much bearing as it used to,' he said. The study laid bare the widening generational wealth gap, with long-term home owners sitting on huge capital gains, while today's first-time buyers are confronted with higher deposits, debt burdens. PropTrack senior economist Angus Moore said the rapid growth in home prices since the early 1990s was linked to lower interest rates during that time. The Reserve Bank of Australia this month cut 25 basis points from the official cash rate, now at 3.85 per cent compared to a high of 17 per cent in 1990. Lower interest rates reduce the cost of borrowing, allowing buyers to afford larger loans, which can drive up property prices. But the boost in borrowing power does not offset the growing cost of saving for a deposit. 'The deposit hurdle is just unequivocally harder than it was four or five decades ago, and that has manifested in home ownership rates which have fallen over those years,' Mr Moore said. WHAT A 1980s house really costs today Suburb Property type 1980 median price In today's money Actual 2025 median price Anglesea H $35,000 $179,700 $1,410,000 Barwon Heads H $28,450 $146,100 $1,425,000 Bell Park H $30,000 $154,100 $630,000 Bell Post Hill H $37,000 $190,000 $660,000 Belmont H $34,000 $174,600 $705,000 Clifton Springs H $35,500 $182,300 $652,600 Corio H $29,000 $148,900 $490,000 East Geelong H $26,000 $133,500 $772,500 Geelong H $26,500 $136,100 $890,000 Geelong West H $23,075 $118,500 $872,500 Grovedale H $41,000 $210,500 $669,800 Hamlyn Heights H $32,500 $166,900 $717,500 Herne Hill H $31,000 $159,200 $700,000 Highton H $48,125 $247,100 $875,000 Jan Juc H $30,000 $154,100 $1,250,000 Lara H $35,825 $184,000 $680,200 Leopold H $42,000 $215,700 $657,500 Lorne H $40,000 $205,400 $1,678,000 Manifold Heights H $29,250 $150,200 $1,121,200 Newcomb H $28,750 $147,600 $551,000 Newtown H $34,500 $177,200 $1,117,500 Norlane H $23,500 $120,700 $453,500 North Geelong H $24,325 $124,900 $620,000 Ocean Grove H $35,900 $184,300 $972,500 Point Lonsdale H $39,500 $202,800 $1,200,000 Portarlington H $31,125 $159,800 $848,800 St Leonards H $27,750 $142,500 $720,000 Thomson H $27,500 $141,200 $512,500 Torquay H $31,500 $161,800 $1,185,000 Belmont U $30,250 $155,300 $548,000 Highton U $35,000 $179,700 $520,000 Newtown U $31,750 $163,000 $620,000
News.com.au
a day ago
- Business
- News.com.au
Inside tradie couple's stunning Palm Springs-inspired home flip
Hayden and Madison Cameron dreamed of a sea change after flipping their first home interstate, but were shocked by Queensland's soaring property prices. The couple had a budget of $1m, but found homes were about $300,000 more than they would expect to pay for a similar property in their home state of Victoria. They secured a dilapidated deceased estate in an up-and-coming Gold Coast pocket and transformed it into a contemporary beach house that is now on the market. A generational analysis by PropTrack shows it is now five times harder for young homebuyers in Queensland to get on the property ladder than it was for previous generations. The study compared house prices in every suburb through the decades, with values adjusted for inflation to reveal the real cost of owning a home in today's dollars. In Currumbin Waters where the Camerons bought, a typical house cost $28,200 in 1980, or $150,400 adjusted to reflect rising living costs since that time. But the median house price in the suburb now sits at $1.37m. The data shows it is nine times harder for young buyers today to own a house in the popular beachside suburb than it was 45 years ago, reflecting an enduring demand for coastal property which surged during the pandemic. Mr Cameron is a builder, while Ms Cameron, a midwife, has an eye for design. The couple, who are expecting their first child, engaged buyers agent Alex Pope to purchase a lowset house off market for $1.005m in June 2023. 'The market was starting to heat up from we first started looking to when we bought, but I feel like we got a good deal through going with Alex,' Ms Cameron said. 'Luckily, we had bought our last house in Dromana on the Mornington Peninsula just before Covid and sold in the height of the market,' she said. Despite making good profit on their first project, they faced the reality of Queensland's booming market, with Brisbane home values overtaking Melbourne's last year for the first time in 14 years. 'They had a tricky budget as they only had $1m to spend and were conditioned to what that amount could buy where they had lived, which made it a little challenging purchasing a full-size home in a great location that might also have renovation uplift,' Mr Pope said. 'Buyers who are happy to get a property that is a little more original and then renovate, they are the ones who are really setting themselves up for success to start creating equity in that property very quickly. 'My advice to young buyers is that your first property isn't your last, but it does catapult you to the next.' The Camerons undertook a full renovation, creating a luxurious five-bedroom, two-bathroom home with Palm Springs flair, complete with a coastal-inspired neutral palette of high-end finishes and features including a stunning al fresco zone with a pool and barbecue kitchen. 'The house was a 1980s-style build with a kidney-shaped pool which was green and swampy when we bought it, but we could see the potential,' Ms Cameron said. 'This is the second home we've renovated and after selling in Melbourne we knew we wanted to be on the Gold Coast because we loved the lifestyle and the weather, and Hayden loves surfing.' Their home at 87 Bienvenue Dr is being sold via an expressions of interest campaign with Base Property Group agents Paul and Max Kearney.
