Thanks for all the replies. And thank you for confirming why I joined (being able to get some good market chat laced with the odd slice of humour lol ).
Yep I think it's a case of live the life of a renter for a while longer anyway, plus I believe the stamp duty concession will be 30% as of January 1st as opposed to the current 20% so that may make a small difference, and yes in answer to one posters comments, maybe it is best to wait until a 3 bedder is affordable, and then make the plunge then. Time will tell....
What do you do for a living? If it's transporatable, get the fuck out of the big smoke and enjoy some regional living along with the affordable housing.
So I was doing some sums the other day. I worked out that to get on the market in Melbourne at $400k I’d need to find around $75k on the basis of a 10% mortgage, 5% mortgage insurance, stamp duty etc etc.
But being in my early 30’s with a wife with no dependants my logical (and to be honest only affordable purchase in the areas I would buy in) is going to be a 2bed. Yet one would think if life goes to plan that within a couple of years or so that 2 bed would need to become a 3 bed, and an upgrade of sorts would need to be made, but having made the original outlay of $75k in the first place, even taking in to account the biggest optimist’s projections, the property wouldn’t have increased in value much at all (that’s if it hasn’t gone the opposite direction!), so there’s no way you could recoup the costs.
I guess what I’m getting at in a rather convoluted way, is that the only sure way to increase the value of a property is to have it for the long term (debatable I know but leave that debate for another day), so if as a first home buyer you know you’re only going to own your first property for a short period of time before needing to trade up, what’s the point of jumping on the ladder at all with these prohibitive costs?
I have thought about the idea of stretching at that first purchase to a 3 bed, thus potentially being able to stay put for a longer period of time and stretch out the time before a trade up is needed, but the current climate probably isn’t the time for stretching or making such gambles.
Input on this would be much appreciated.
Your sums are off; allowing only for federal FHOG, you'd need funds-to-complete in the low-to-mid $50K range for a $400K purchase with 10% down as a FHB in Victoria. The funds-to-complete figure would reduce by $13K if you contract for a newly constructed home before 30 June 2012 (or $19.5K, if in "regional Victoria").
But your general premise is correct: real estate transaction costs are exorbitant in Australia (and become even more so once you are no longer a FHB), and this makes short-term trading of properties very expensive. If your real estate requirements aren't likely to be stable for several years at a time, then renting may well make more sense than buying.
(YMMV, and all that... Note that the actual value of "several years" depends on what you assume for many factors, e.g. RE price levels, holding costs (mortgage interest and property maintenance), comparable rental prices, etc.)
real estate transaction costs are exorbitant in Australia (and become even more so once you are no longer a FHB), and this makes short-term trading of properties very expensive. If your real estate requirements aren't likely to be stable for several years at a time, then renting may well make more sense than buying.
Some years ago an economist Andrew Leigh (who is now an ALP member of federal parliament)wrote an OP on the premise that the high cost of stamp duty actually kept house prices lower.
It was a well thought out article, and the essentials are here.
The full research paper is here. amongst many papers that he wrote and published on his website.
Personally I think that high stamp duty is a huge negative for our society, and that funding for hospitals and roads that are provided by state governments for all to benefit from should be at the communities cost and not be an added tax burden placed on those buying homes.
MY question to others who have purchased overseas, are the transaction costs here greater or less than elsewhere, and how does it affect your own plans to buy or not buy. Have we as a nation priced ourselves out of the international market via high transaction costs, or are we competitive?
Any expressed market opinion is my own and is not to be taken as financial advice
So I was doing some sums the other day. I worked out that to get on the market in Melbourne at $400k I’d need to find around $75k on the basis of a 10% mortgage, 5% mortgage insurance, stamp duty etc etc.
But being in my early 30’s with a wife with no dependants my logical (and to be honest only affordable purchase in the areas I would buy in) is going to be a 2bed. Yet one would think if life goes to plan that within a couple of years or so that 2 bed would need to become a 3 bed, and an upgrade of sorts would need to be made, but having made the original outlay of $75k in the first place, even taking in to account the biggest optimist’s projections, the property wouldn’t have increased in value much at all (that’s if it hasn’t gone the opposite direction!), so there’s no way you could recoup the costs.
I guess what I’m getting at in a rather convoluted way, is that the only sure way to increase the value of a property is to have it for the long term (debatable I know but leave that debate for another day), so if as a first home buyer you know you’re only going to own your first property for a short period of time before needing to trade up, what’s the point of jumping on the ladder at all with these prohibitive costs?
I have thought about the idea of stretching at that first purchase to a 3 bed, thus potentially being able to stay put for a longer period of time and stretch out the time before a trade up is needed, but the current climate probably isn’t the time for stretching or making such gambles.
Input on this would be much appreciated.
I'm guessing you are a pom and that you haven't bothered to get citizenship or residency? In which case you get no grants. Which don't really help with the loan repayments anyhow. Just use the standard rules for buying a house don't even think about 'trading up' unless you have a career or job that has the potential to bring in big $$ year on year I'd say 6 figures that goes up at least 10-20% every year. and its not linked to inflation such as 6% over 3 years is not an upgraders wage in this climate. 3x your household income as the value. No more than 33% income for repayments. And save a full 20%. I've had a friend fly over from the UK as well and insisted that 95% loan with 2.93% LMI on a 700k house with with a combined income of 90k was good. He's now sold the place for less than its worth and after 5 years has nothing. We all told him not to buy and gave him our planning excel docs for renting vs buying and end value but his dad and grandad and wife and step dad insisted buying a house is a sure way to security and wealth. Bzzz wrong.
Just watch out. It's not safe waters for the first home buyer...
+1. Even if you don't expect a property crash (and I don't, unless we have an external shock, which could still happen) it is undeniable that we are in a house price retrace that has not yet shown clear signs of bottoming.
If you take the view that the current downturn is mild, like the US downturn at the start of the 1990s, then you still come up with the conclusion that the bottom will be in 2013 and recovery to today's prices in 2014, to the peak (2010) prices is 2016. If you take the view that it is just turning up now, you bring those dates forward by a year, is all.
Upshot: Don't buy anything now that you aren't absolutely sure you'll hold for 10 years as a PI. For a FHB the equation is a little different, since you'll be changing over at current prices when you do, but transaction costs are a killer - and entry point is still important, so saving hard now for a buy when the market has obviously turned is a still a good policy. Trying to pick bottoms before they happen is a mug's game. If I could do that consistently I'd be a billionaire. That said, current sentiment and market behaviour is indicating an impending bottom. (High anxiety, low volume). On the other hand, if you see a surge in volume accompanied by a tick down in prices, then watch out below. Note the tick down in April and the recent high-ish auction clearance rates for a cautionary tale. High auction clearance rates are always good for real estate agents but not necessarily for others. My real estate agent in Brisbane is telling me she had a good week for sales, but I see no sign of increase in desperation by buyers looking at the property I have on the market.
BUT the last week has seen a couple of investors look at my place, and before the interest rate cut it was 100% FHBs, which is encouraging because it is more of an investor's place than a home for a couple. But they are still hoping to pick up bargains with a gross rental yield in excess of 5.7%. Good luck to them, but not on my place. 5.2-5.4% is more typical for the area.
NOTWITHSTANDING ALL THIS ADVICE -----------------------------------------------
If you are serious about buying property, it is still well worthwhile going out looking and even making the odd offer at a level you are sure you can afford.
I got into my first home almost by mistake in this way. One day I was incenced by the rent someone was asking for a place, and I noticed that the next door unit was for sale. It was in 1998 when sentiment was somewhat similar to today - sales were slow. I rang the real estate agent and asked to look at the place. I liked it, but he said they wanted $128k for it. I had no idea what my buying power was, so I went to the bank and had a talk. The upshot was that they would lend me about $100k with the $12k deposit I had saved. At that loan amount, my monthly mortgage payment worked out at less than the monthly rent for the place next door. I decided that, since I was gonna buy a place at some stage anyhow, I should practice the process so I knew how it worked for later. So I offered $112.5k in the sure knowledge that it would be rejected and I'd get my deposit ($5000) back. The real estate agent kicked and squealed but was required by law to pass on my offer. He said others were interested at more than $120k. I said perhaps they had more buying power than I did and would no doubt get the property. 2 days later the agent rang me to say that my offer had been "successful". Turns out it was a deceased estate divided among 4 children and they just wanted to be shot of it.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
I've had a friend fly over from the UK as well and insisted that 95% loan with 2.93% LMI on a 700k house with with a combined income of 90k was good. He's now sold the place for less than its worth and after 5 years has nothing.
Wow, there's simply got to be a lot of those people. We have sub prime. Massively.
stinkbug omosessuale Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments. Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck! See here Property will be 50-70% off by 2016.
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