With home prices continuing to increase, the potential of a property to grow in value is becoming a popular drawcard for first home buyers. In fact, the number of first home buyers that put capital growth as a second preference, behind affordability, as a buying priority has grown significantly over the last 12-months.
According to research, first home buyers are being driven to buy a home because it is affordable, and has the potential to grow in value. These two key drivers are more attractive than being close to work, shops and living closer to family or friends.
The survey data collected from first home buyers found that over 26% of respondents said they had looked at another location, other than their first preference so that they could afford to buy a home. Many of the survey respondents saw buying a home as an investment rather than just buying a roof over their head.
With housing affordability becoming a real issue for many first home buyers, it now seems that getting into the market is more of a consideration. This realisation comes just days after economist predict that housing prices will continue to rise over the next 12-months albeit at a slower rate.
Property experts are even suggesting that housing price rises may leave potential homeowners struggling to come up with enough money to break into the market over the next few years. This turn of events could see homeowners struggling to afford a home.
In 1992, the average first home buyer home loan was around $67,000 according to the ABS. By 2015, the average price jumped to $355,000. However, over the same duration wages have not kept pace. In 1992, the average wage was $621 a week, now this is $1,556 a week, which is not comparative to housing costs.
Home affordability is a debate that continues. Many people are asking whether or not the revision of negative gearing legislation would help to make homes more affordable for first home buyers. Suggestions typically centre around making changes that would allow first home buyers to compete with cashed-up baby boomers to buy property.
Economist suggest that while changes to negative gearing may help some first home buyers, others who are renting may find that they struggle to afford to keep a roof over their head. Changes to negative gearing may result in rental prices rising significantly. For instance, a rental property leased for $280 a week, may only be that price because the rental fee is slightly less than the landlord’s mortgage. Therefore, negatively gearing the property for greater tax benefit. However, if this incentive doesn’t exist, then the landlord may increase the rent to its market value, which is $320 a week so that they make a greater return. This rise in price reduces the ability of the person renting the property – a potential first home buyer – to save for a home deposit by an extra $40 a week.
In order to increase the number of opportunities that first home buyers have to break into the property market, economist suggest that they should be looking at buying a unit rather than a house. Units can be far more affordable, and they often make for excellent investments, if bought in a favourable location.
It’s also important for first home buyers not to get emotional about buying their first home and feel that it’s their forever home. Buying a home as an investment means looking critically at a number of factors – location, desirability, resale value and potential capital growth – not just letting your heart rule over your decision.
Housing experts are suggesting that first home buyer trends are shifting towards the buying of smaller, more compact dwellings that give first home buyers a quality of lifestyle, rather than a hefty mortgage. These first home buyers are leaving their emotional wants behind and are thinking more of how to build wealth so that they can buy their forever home at a later date.
Are you thinking of buying your first home? Then contact eChoice and find the right home loan for YOU today.