Recent headlines have flagged a fall in Australian capital city house prices. But does it mean anything to you?
CoreLogic’s November Hedonic Home Value Index showed that in November there was a -0.1 percent fall in capital city dwelling values. This was, however, offset by a 0.2 percent rise in regional values.
During the quarter ending in November, house values went backward in Sydney (-1.3 percent) and Darwin (-2.7 percent). Sydney is crucial in national housing data: it holds one-third of the country’s housing value. But if you look at the big picture, there is no need to panic.
Firstly, capital cities are coming off very strong growth trends – the types of price rises we’ve seen so far are hard to sustain long-term. It’s no surprise the market needs to take a breather.
But if property values do fall, what effect does it really have on you?
A few tips:
Don’t panic: property value is influenced by market sentiment, interest rates, and economic data. You can do nothing about these factors, but you can control your investment timeline: view property in 10-year windows, and try to buy well. Take the panic out of it.
Two-way traffic: Australian house prices don’t always rise: they fell in the early 1950s, the early 1990s, in 2008 and 2010. Realise that the market will always have ups and downs – it’s the nature of it.
Realised losses: value indices are theoretical until you sell and realise a loss or gain. As long as you meet repayments, the bank doesn’t call in a loan just because the value drops. You can still live there and wait until prices rise.
Renovations and investments: this is where a slump can become real. If you want to access equity to fund a renovation or buy an investment property, a lower house value could crimp your borrowing power.
Short term: given the time and costs of buying and selling a property, a short-term “flipping” strategy could be uneconomic if values trend down. Fix this by thinking long term.
Giant pool: don’t be fooled by terms such as “Sydney property” or “Australian housing”. They’re vast markets and an “average” or even a “median” may not mean much to you. Lenders are very specific, using a valuer’s assessment right down to the street and house.
Budget: only when you’re forced to sell do low property values become an issue. So, take control of your household budget, ensuring you can meet repayments and retain your house through a price slump. This is crucial when interest rates start to rise.
Protection: along with household finances, ensure you have adequate insurances to cover repayments in case you can’t work. Don’t be forced to sell when the market is down – that’s when you lose money.
Advice: if you’re worried about values, stay close to experts such as mortgage brokers and real estate agents. Don’t be panicked – be informed.
The family home is most people’s largest asset, and it’s normal to be concerned about its value. But always base your decisions on real information and expert advice.
Originally Published: www.brisbanetimes.com.au