Banks are lending money for purchasing property, even more exciting, they are competing for a reduced pool of buyers.
Now that the budget has been tabled and an election date has set, the outlook for the year is a little clearer, but it is still characterised by uncertainty.
And when it comes to the long-term nature of residential property investment, short-term uncertainty is never good for the market.
That would be a mistake, I believe. However, good the reasons for delaying your decision to buy or sell may seem, the truth is that the current market offers value for both sellers and buyers – if they know where to look.
One factor to consider is the general economic climate. Yes, our growth looks set to remain disappointingly sluggish (the budget revised the growth estimate for 2023 to 0.6%, with 1.6% for the next two years), but at least inflation is now within the SA Reserve Bank’s preferred range of 3%-6%.
Most economists believe interest rates will drop by between 0.5% and 1% during the year. Reduced interest rates will mean reduced mortgage payments.
Another important point is that the banks are lending money for purchasing property. Even more exciting, they are competing quite vigorously against each other for a reduced pool of buyers.
It’s a great time to be negotiating a favourable repayment rate on your home loan. For buyers, this is a great time to buy a first house or to get more value for their property buck.
Ooba, one of the bigger lenders, reports that 48% of all loan applications are coming from first-time buyers.
Although this figure is down about 8% compared to a few years ago, it shows people are still buying homes, and it feels like people buying their first home are making a bet on this country.
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Access to bank loans to buy property
Access to bank loans needed to buy property is one component of the value equation.
As important is the fact that, in all but a few areas, property prices have been steadily declining for a number of years.
This means buyers, including first time buyers, can get a foothold in the property market at prices reminiscent of five and, in certain areas, even 10 years ago.
With this in mind, it’s no surprise that we’re seeing lots of buying and selling activity in the mid-market range in most segments. In short, it’s very much a buyer’s market.
Buyers realise they can obtain more value for their money in this market, and they are deciding what that value is.
For some, it’s a bigger property or better finishes for the same money, while for others it’s being able to downscale in terms of price, while still getting all the features they truly want.
On the flipside, of course, sellers are under pressure in such a market, but they’re not necessarily as disadvantaged as it might appear.
If you’re selling to rebuy in the same type of market, the same value calculation applies. Your property might not fetch what you think it’s worth, but then the property you buy will also be cheaper.
In other words, it’s all relative: if you sell in a soft market, make sure you buy in a soft market so the value equation evens out more or less.
But what about if you’re moving to a more expensive market – for example, if you’re semigrating to the Western Cape? Because properties there are more expensive than in Gauteng, you might feel tempted to hold off selling your Gauteng property until prices improve.
That thinking seems to make sense but it’s actually false logic. When the property market improves and Gauteng prices rise, the Cape market will rise faster and higher than Gauteng.
So while you may have realised a higher price for your Gauteng property, the equivalent Cape property will have gone up even more, and the gap you will have to cover is even larger. v Jawitz is CEO of Jawitz Properties
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We are all geniuses in retrospect. Still, we can confidently say predictions of a housing market slump in 2023 were very wrong. Interest rates rose to levels not seen since 2008, but the housing market remained surprisingly sturdy.
First, we should give the forecasters some credit. House price data is a fiendishly tricky thing, and not everyone is on about the same numbers. The Office for National Statistics (ONS) measures prices at completion; Halifax and Nationwide use data from their mortgage customers; Rightmove measures asking prices; and Savills measures house value, which ignores transactions entirely. Still, the consensus assumption from many experts was that over the 12 months to the end of 2023, house prices would sink between 5 and 10 per cent by some metric or another.
Admittedly, the 2023 calendar year is an arbitrary window for forecasting or recording data. Still, the slump did not happen. Not even close. Nationwide ultimately recorded a 1.8 per cent fall in prices in 2023, the ONS said 1.4 per cent, Rightmove 1.1 per cent, Savills said house values dropped a mere 0.3 per cent, and Halifax said prices rose by 1.8 per cent. For housing forecasters, 2023 was a predictive error equivalent to the Brexit vote, or Donald Trump’s presidential win. An anomaly they should have seen coming but did not.
In theory, rising interest rates hit buyers and owners alike. The former can no longer afford higher house prices because mortgages are more expensive. Meanwhile, many of the latter are forced into selling because they can no longer afford their mortgage.
Yet in 2023, owners held onto their homes because many more were on fixed-term mortgages than during the 2008 downturn, when variable-rate mortgages were much more popular. Rising wages and low unemployment, unlike in 2008, also helped them keep up with payments. So, even though buyers’ budgets shrank, sellers had less need to sell. The stand-off kept house prices as they were.
The numbers bear this out. IC analysis of HMRC data found that 2023 saw the lowest number of transactions in over a decade (see chart), and although mortgage arrears rose, they were nowhere near 2009 levels. In other words, most from the limited pool of sellers were not in dire straits.
The ‘I told you so’ award goes to the Joseph Rowntree Foundation (JRF), which outlined precisely how and why everything that happened would happen in a report from February 2023. In summary, its view was that all of the above combined with the persistent housing crisis keeping supply low would keep demand high even if budgets dropped.
But the JRF might turn out to be wrong, too. Bank of England data confirms that many homeowners will need to remortgage at higher rates between now and the end of 2026. As such, the central bank predicts monthly payments will rise to 9 per cent of post-tax income. It might not sound like a high figure to Londoners spending 35 per cent of their income on rent, but the figure is an average, meaning many homeowners will be in worse positions. It would also be the highest level since 2009.
Will this lead to a slump in house prices between now and 2026? Many of the same forecasters who were wrong about 2023 have revised their forecasts for 2024, anticipating anything from a 3 per cent drop to a 3 per cent rise. Your guess is as good as mine, but predictions of a significant fall have clearly tailed off.
Affordable housing is such a hot-button topic that simply mentioning it is guaranteed to bring out neighbors opposed to proposals nearby. That public pressure often makes local politicians reluctant to approve plans for affordable multifamily housing.
But Glen Ellyn officials found a commendable compromise for property the village owns near Roosevelt Road and Park Boulevard.
Last week, village trustees unanimously agreed to sell nearly an acre of the land for $1.75 million to a nonprofit developer planning to build affordable housing. As a result, Chicago-based Full Circle Communities can pursue its goal of turning the former hotel site into an apartment complex with up to 42 units. At least 30% of the units would become permanent supportive housing for people with disabilities.
“Families will now have a chance to stay close to each other,” Village President Mark Senak said. “Young adults who would have been forced to move miles away to find a place to live will now have a chance to stay in the community where their family and friends live, where they grew up, where they go to school and where many of them work.”
Indeed, affordable housing allows young people starting their careers to live in the town they call home. It also lets older empty nesters downsize without leaving their community.
Senior writer Katlyn Smith reported that Glen Ellyn’s decision received praise from advocates who have spent years trying to boost the affordable housing supply in DuPage County. They hope the project by Full Circle Communities inspires other suburban communities to address a critical shortage of this much-needed resource.
We wholeheartedly agree.
Glen Ellyn leaders also deserve credit for not ignoring the concerns of some nearby residents who argued against the proposal and pushed for commercial redevelopment instead. While the village agreed to sell the western portion of its property to Full Circle Communities, it recently signed a letter of intent with a commercial developer for the parcels on the east side of Exmoor Avenue. That developer has offered $1.5 million for the land.
So, Glen Ellyn intends to add commercial development while increasing its housing stock that meets the criteria for affordability.
Affordable housing generally is defined as housing that costs a renter or homeowner no more than 30% of their monthly income.
Meanwhile, advocates have pointed out that the hotel site “checks all the boxes” for an affordable housing location. It’s accessible to public transit, schools and health care. It’s across the street from a park and within walking distance of grocery stores.
Adding more affordable housing throughout the suburbs will take effort and political will. Perhaps what happened in Glen Ellyn can be a blueprint for other communities to follow.
I wasn’t the best or worst maths student, but managed an A or B grade, according to years 8 and 9 report cards recently rediscovered atop my wardrobe.
One teacher suggested I talked too much.
Touche. Some would say that hasn’t changed.
But the formula for home ownership is becoming harder than algebra.
When I graduated high school in 2000, the average annual income in WA was $33,620 and the median house price was $170,000.
Now, 24 years later, house prices have more than trebled to be up 305 per cent while income is up 190%.
Interest rates were 8 per cent of a much lower base.
Even if you subtract the smashed avo from your weekend routine, none of that adds up to good news for the next generation.
Our neighbours put the For Sale sign up last week, making the most of the property cycle to pursue a new renovation dream.
But in between mowing the lawn and sweeping the driveway for the next home open, they echoed the growing concern of many parents: how are our kids ever going to afford to move out at these prices?
I wondered out loud if Australia has become a nation where home ownership depends on generational wealth.
Our parents worked long and hard to climb their first rung of the property ladder but by the time it was our turn, that meant they were able to help.
My husband and I needed that leg up to buy our first humble abode and again, later, to upgrade to make room for a family of four.
Suburbia’s continuing price trajectory up means we’ll be able to help our children out in turn.
But what about families who missed the first step of the ladder?
How do their kids catch up now that hard work and a single income isn’t enough?
A property boom that is outpacing both wages and new builds is resulting in a new class divide, in a nation that was born out of the idea of equal opportunity no matter the circumstances you were born into.
A noble theory, not always reflected in reality.
So what’s the solution?
Negative gearing is an easy horse to flog but property investors are an important piece of the housing bubble.
I can’t understand why stamp duty isn’t under a heavier spotlight.
It’s calculated on property value, meaning the amount an average homebuyer has to pay is increasing much faster than wages.
It’s a State tax that was meant to be axed when the GST was introduced. Also 24 years ago.
Maybe that’s one part of the GST deal WA should revisit?
Or at least ensure the stamp duty-free threshold for first homebuyers keeps pace with prices too, before the great Australian dream becomes a furphy beyond their reach.
House prices are the go-to metric for measuring the housing market. The logic is that if the average cost of a UK home at the point of sale is rising, so is demand. Over the year to December 2023, government data shows house prices fell 1.4 per cent, the impact of higher interest rates having broken a decade-long streak of rising prices.
There is another way of looking at it. Rather than calculating an average house price based on data from some point in the sales process – at completion for the government numbers, at the mortgage approval stage for lenders Halifax and Nationwide, or from asking prices in the case of Rightmove and Zoopla indices – Savills has been measuring the market differently for over 20 years. According to its data, the total value of all UK homes as of the end of 2023, whether on the market or not, and whether owner-occupied, rented, or vacant, was £8.68tn, down 0.3 per cent from 2022 in the first fall since 2012.
This presents a slightly different view of the market. For those who consider a home an investment, whether because they are renting it or planning to sell it, home value makes more sense as a tracker of performance. After all, when real estate investment trusts (Reits) want to judge their portfolio value, they use holding value rather than the price at market sale. Likewise, homeowners are better off tracking the value of their investment instead of scrutinising the entire market for monthly changes in average price at the point of sale.
As expected, home value has fallen as transactions have dried up, but it is not by much. The 0.3 per cent drop looks more like stagnation than anything else. This is very different to 2008 and 2009, when over £800bn in home value was wiped out over the two years, a 14.3 per cent drop. Home values didn’t recover to their 2006 peak until 2013.
With some market data tentatively suggesting house prices are rising again as buyers take higher interest rates on the chin, Savills’ head of residential research, Lucian Cook, does not believe we will enter a 2008 or 2009-level downturn, for several reasons. The first is that the number of people on fixed-term mortgages has spread the pain of higher rates out across a longer period.
Cook says that’s partly because banks have “learned the lessons” from 2008-09 not to lend to those who can’t afford it. So far, this has meant fewer repossessions, which means there isn’t a sudden glut of stock. Indeed, as has been the case for years, housing supply is tight. Finally, there’s an economy which, though stagnant, hasn’t been accompanied by mass unemployment. This further bolsters people’s ability to pay their mortgages.
The data reveals other things. For example, in 2008 and 2009, the market downturn was seen across the country, whereas 2023’s drop was London-led. But the overall returns available remain the most telling statistics. If you bought a home in 2013, the data implies its value has jumped by about two-thirds. If you bought in 2001, you might be looking at a 263 per cent return on investment (ROI). And although home values have gone up and down over the years, the change over any given period has generally been less volatile than for equities. That has helped solidify the nation’s penchant for property investment.
Before the BoE started to push up mortgage costs in 2021, a new buyer earning an average income would have expected to spend around 30pc or less of their take home pay on mortgage payments.
In the wake of the September 2022 Liz Truss/Kwasi Kwarteng mini-Budget, that share for a first-time buyer temporarily surged to near-50pc.
While the cost for a first-time buyer has fallen since then, they can still expect to spend close to 40pc of take home pay on mortgage costs – even on the best-priced mortgage deals at around 4pc. That is still expensive.
But despite the lingering headwinds, demand seems to have turned a corner. The closely-watched RICS survey showed that new buyer enquiries rose in January for the first time since April 2022.
Judging by the average of the Halifax, Nationwide, Rightmove and HM Land Registry indexes, prices at the start of the year have risen by around 1pc from their Q3 low.
While stronger household balance sheets and more resilient banks remain the key reason why rising interest rates have not crashed the market, labour market resilience explains why house prices have held up even better than expected.
During the 2000s, homeowners had been artificially boosting their purchasing power via home equity withdrawal – to the tune of 5pc of their post-tax income in the boom years.
As long as house prices rose, banks had been happy to recklessly over-extend credit to households. But once house prices started to fall, the banks turned off the taps and the game unravelled. The resulting income shock hit consumer spending which in turn caused unemployment to rise, adding to the housing market correction.
But homeowners have been paying down their mortgages over the past 15 years. As a result, the negative feedback loop of falling house prices and rising unemployment via the consumption channel never set in. Instead, employment has remained close to all-time highs.
As long as people keep their jobs, the sensible improvements in mortgage regulations after the GFC now ensure that new mortgages remain affordable – even if painfully so – in extreme interest rate scenarios.
Leaning back, it is even more obvious why the panic over a housing market crash was overblown. So is it time to turn positive on housing? Yes, but with an important caveat.
OPINION
Q: We are a couple in our mid-50s. Our combined income only recently increased to $210,000. We each have around $70,000 in KiwiSaver. Minimal savings. In 2021 we purchased a two-year-old investment property in
ACCORDING TO THE latest DAFT property index, the average asking price for a home in Ireland is now just over €320,000. That makes the average repayment on a 90% mortgage around €1,300 a month much cheaper than the average rent of €1,721 and theoretically within the reach of the typical renter.
The catch? To buy that home, you will also need to find a deposit of €32,000, pretty much impossible to do when you are paying so much on rent.
For those unable to rely on the ‘bank of mum and dad’ the way around this is to use the Help to Buy scheme to fund the required 10% down payment.
However, the scheme only applies to new build properties which are €87,000 more expensive than average at €407,000 according to the same report. Making the mortgage required too large for many would-be First Time Buyers.
First Home Scheme
This is where the other big housing support, the First Home Scheme should come into play, launched in July 2022 it provides First Time Buyers additional finance for new builds through a shared equity plan.
When used with Help to Buy it gives First Time Buyers a further 20% of the purchase price upfront, in return for the scheme getting the same share of your home when you sell at an ultra low fixed interest rate of under 2% per year on average.
On a new build of €407,000 a buyer could therefore get most of their deposit of 10% funded through Help to Buy (€30,000) and then 20% (€81,400) from the First Home Scheme, leaving €10,700 from savings and €284,900 to be funded through a mortgage.
Including the average interest on the equity, the total repayments in this example would be €1,350 a month, only around €40 a month more than if the First Time Buyer had bought a non new build property for €320,000. If you want to work out your own budget you can use a mortgage calculator to work out your buying options or a mortgage repayment calculator to work out what your repayments would be.
Crucially though, with the new build, instead of forking out €32,000 you only need to find €10,700 for the deposit in this example thanks to the Help to Buy scheme. The First Home Scheme is based on a successful UK scheme introduced in 2013 and used with the Help to Buy Scheme has huge potential to free trapped renters by helping households who can’t access additional funds from family. Based on the UK numbers, the scheme could help over 30,000 Irish households to get on the property ladder. To date though only 1,255 homes have been purchased with the scheme, with 7,530 applying.
Low numbers
Some of the low take up so far is due to the lack of understanding of the scheme, but the biggest issue by far is the property price ceilings currently imposed by the scheme.
In Dublin for example the scheme can only be used to purchase properties for less than €495,000, but the vast majority of Dublin’s new builds are already considerably more expensive than that according to the same Daft.ie report.
The worry in Government circles is that without caps limiting the availability of the scheme new build house prices will rise even further.
They will, but that shouldn’t matter, as those houses are still more affordable due to the subsidies being available. It’s whether houses are affordable after the subsidies that matters, not whether house prices seem high or low.
Contrary to what many think, developers aren’t making super profits on new housing developments right now, as costs have shot up in the last few years. That’s why housing construction and supply are so limited. Higher new build prices will therefore stimulate supply by making developing more profitable and help fix the root cause of our housing crisis, supply.
Politicians and policymakers are paranoid about high house prices and the negative headlines that come with them, but that’s the tail wagging the dog. What they should worry about instead is expanding housing affordability.
The Help to Buy and First Home Scheme have huge potential to help us fix both housing supply long term and help trapped renters in the short term if we have the courage to lift the current caps.
Mark Coan is Founder of Online Financial Guide moneysherpa.ie.
In a recent analysis conducted by the Njuškalo online advertisement website, it has been revealed that house prices across Croatia experienced a continuous upward trajectory throughout 2023. The study showcased a significant surge, with the average asking price for flats soaring by 21%, reaching €3,223 per square metre. House prices experienced an even more substantial increase, rising by 40% to €2,606.
Dubrovnik and Istria Counties: Pinnacles of Property Rates
The coastal regions of Istria, Dubrovnik-Neretva, and Split-Dalmatia emerged as the epicentres of the escalating property market, with these areas commanding the highest prices. In Istria County, the average asking price for a flat reached €3,836 per square metre, and for a house, it was €3,183 per square metre. The Dubrovnik-Neretva County followed closely, with figures at €3,602 and €2,699, respectively. In Split-Dalmatia County, the corresponding prices stood at €3,590 and €2,960.
City-Specific Trends
In the capital city, Zagreb, the average asking price for a flat reached €2,987 per square metre, while for a house, it was €1,795. Rijeka experienced a 26% increase in flat prices, reaching an average of €2,661 per square metre. Split witnessed a 20% surge, with flats commanding an average of €4,061 per square metre. Meanwhile, Osijek saw a 17% rise, with an average asking price of €1,733 per square metre.
Osijek Leads House Price Surge
Osijek, located in the eastern part of the country, recorded the most substantial increase in house prices, jumping by 15% to an average of €963 per square metre.
The findings point towards a dynamic real estate market in Croatia, with certain regions, particularly Dubrovnik-Neretva and Istria, standing out as hotspots for property investments.
A degree to sell a house? British universities are becoming a joke
I’ve been accused of being anti-aspirational when I question the value of degrees, as though I am determined to make universities a privileged-only zone and stop talented low-income kids from becoming lawyers, doctors, teachers, scientists.
I’m not.
Everyone should get to go to university if they want to. And of course, we need those professions. I also don’t want to be too mercenary.
If there is a subject that you love, and learning about it makes your heart sing, then you should go forth and graduate – but embark upon that degree with your eyes open to the long-lasting financial agreement you are entering into.
I had no clue. I was a particularly naive 18-year-old who went to university simply because it was the next step. It never occurred to me that I was making a commitment to hand over a significant portion of my salary for years to come.
I didn’t know what I wanted to do and, looking back, I wish I had taken some time to think and try my hand at a few jobs rather than just going with the (educated) herd.
It took me ten years to find the thing I wanted to do – journalism – and I even did a masters in it. But I can honestly say that everything I needed to know I learnt on my first job, at a press agency, where I worked hard and was paid appallingly, received no bylines, but benefited from the best training in the business.
I don’t think this is journalism-specific. I suspect that most careers are learnt on the job and not in the lecture hall.
We all make mistakes, but I’ve still got £21,000 to pay off for mine.
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