First Home Buyer in 2011

[aar0n]

I hope I've posted this in the right section.

We recently married, so our parents are pushing us to get a house.

The initial idea was to get a house and land package at a new estate (e.g. Point Cook, Williams Landing, etc) before the First Home Owners Boost expires this year.

I’ve done a bit of reading on this forum, and have noted the following for 2011:

1. The FHOB ($13,000 for new homes) expires 30 June 2011.
2. 20% stamp duty cuts from July 2011.
3. Interest rates predicted to be raised in second half of year?
4. Some predict house prices will be steady/slight decline, some predict a crash/bubble burst – haven’t read any posts predicting significant capital gains.

Some background on our current situation:

1. Currently renting apartment in Docklands, VIC
2. Looking to buy a 2/3 bedroom house in VIC priced at around $450,000 (haven’t decided on suburb)
3. We have saved a deposit of $35,000 so far
4. Repayments ($3100 @ 7.8%, $3750 @ 10%) are within our capacity.

The other thing that I’ve learnt while browsing the forum is that buying established may be a better option, but that is another discussion. What I’d really appreciate some opinion on is the following:

1. It would obviously be great to get into a house as soon as possible and I’m fairly sure we can secure a loan now if we were to apply, but in light of the observations noted above: Is the safer option to continue to rent & save this year?
2. Is there any real rush to sign a house & land contract before 30 June to secure the FHOB? Is $13,000 worth it? I suspect many new home builders may be more likely to negotiate after the FHOB expires anyway?

Any guidance would be much appreciated, please be gentle – we’re new to this

Aaron.

 

[Intrinsic_Value]

most of the discussions here are from an investment perspective, not as an owner occupier.

My opinion to a potential owner occupier: if you like the property, and you can really afford the repayments, then go for it.
You are talking about your future place of abode, not an investment.

In ten years time i am reasonably sure your place will have appreciated in value and most importantly you will have received both pleasure and piece of mind knowing that you own your own home.

 

[hobo-jo]

We recently married, so our parents are pushing us to get a house.

**ALARM BELLS**

Don't buy for your parents sake

The initial idea was to get a house and land package at a new estate (e.g. Point Cook, Williams Landing, etc) before the First Home Owners Boost expires this year.

Check out this increasing stock on market for Point Cook:

http://sqmresearch.com.au/graph_stock_on_market.php?postcode=3030&t=1

Everyone wants out of Point Cook and you want in?

Some of these 'mortgage belt' FHB suburbs are going to be the worst hit in the property downturn.

Some examples recently on MacroBusiness in similar Perth suburbs showed houses are selling for lower than 2009 and even 2006 prices:
http://macrobusiness.com.au/2011/03/trouble-spreading/

More Perth examples here:
http://nfbpsh.blogspot.com/2011/03/how-to-lose-money-buying-property-in.html

Granted this is not Melbourne, but I suspect Melbourne will be one of the worst hit cities for price falls over the next 12-24 months.

[*]Looking to buy a 2/3 bedroom house in VIC priced at around $450,000 (haven’t decided on suburb)
[*]We have saved a deposit of $35,000 so far
[*]Repayments ($3100 @ 7.8%, $3750 @ 10%) are within our capacity.
[/LIST]

Don't buy just because it is within your capacity to do so.

A quick browse over your Point Cook example and it would seem you can rent a $450k property for around $380-$420... interest on $425k at 7.8% is $640 and that's without taking extra costs of ownership into account:
Council Rates
Water Rates
Building Insurance
LMI (given your likely high LVR)
Borrowing Costs
Maintenance

In most Australian situations presently it is around half the cost to rent compared to buying the equivalent, as I outlined on my blog here:
http://www.bullionbaron.com/2010/11/rent-vs-buy-australian-comparison.html

If you are prepared to spend hundreds per week just for the comfort of "owning" or to get your parents off your back then no worries, for some it is worth the extra, for me I would rather have the extra cash to invest elsewhere and spend on overseas holidays...

Good luck with the decision either way

 

[devo76]

Hobo-jo is correct provided you actually use the money you save renting for other investments.

If you are like 99% of the population and you would spend the majority of the cash.
Well you could do a lot worse than jumping on a forced saving investment like property.
Cheers

 

[BV]

Aaron

I think there is merit in buying as long as you don't overspend. As with any investment class the earlier you start investing the better it is.

I wouldn't listen to permabears ( hobo-jo etc) The market conditions aren't there for significant falls so prices should stay at current levels.

Why go for a house and not a unit?

 

[Aaron Sice]

i would say rent where you want to live and invest where you should invest.

that way, it's cheaper to live somewhere trendy and yet you're exposed to the market with a fundementally sound property you otherwise might not be able to afford (without the rent money coming in).

don't buy because your parents want you to.

 

[hobo-jo]

Whether you buy or not Aaron, as you hunt around for the facts on property you are going to run into a lot of misinformation, especially given market conditions, agents are getting particularly desperate, so if you go house hunting make sure you double check any "facts" that the agent tells you about the house or area. It seems agents are already trying to fudge auction clearance rates, we don't know what other truths they might be bending:
http://www.couriermail.com.au/money...failed-campaigns/story-e6freqoo-1226016477643

The misinformation carries onto Somersoft as the bulls look to protect their investments.

Some will call me a permabear, but the facts are:
- I owned property 2006-2010
- I sold the property
- I could liquidate other assets and buy outright but choose not to
- I intend on buying again when value returns to the market

Does that sound like a "perma bear"? I think not.

Further to this some will say that the market conditions are not there for significant falls, yet:

- Prices are already falling (significantly in some areas)
- Volume has fallen around 25% from 12 months ago
- Listings are up around 40% from 12 months ago
- Clearance rates are down around 25% from 12 months ago
- Lending is significantly down
- New home sales are way down


In the very best case it's unlikely that we see any significant moves higher in prices (in most areas), so in my opinion it's pretty safe to just sit on your cash and watch as 2011 unfolds and reconsider your position and the market at the end of the year.

 

[aar0n]

Thank you all for your informative and detailed replies, this forum is fantastic

The general message I’m getting is:

1. Recognise that we are buying a PPOR and not an IP. Give finding the right property and ensuring that we can make repayments comfortably a higher priority than market conditions as this is a long term investment.
2. Don’t rush in - there is no harm in waiting out 2011 to see what happens.
3. Avoid buying into the house and land & FHOB hype. Research!

I also like the suggestion of renting instead of buying and investing our money elsewhere. Something I hadn’t really considered before. Is this what some people here are doing?

A family is a few years away yet and I have to say living near the CBD really suits our lifestyle at the moment, I just wanted to get into the property market sooner rather than later.

As for buying a house over a unit, I must admit this is something I haven’t researched myself. It’s just somehow got into my head that property with land is more likely to experience capital gains than say a unit or an apartment.

Is this old thinking? I guess I’d better do some reading up on this too.

 

[Aaron Sice]

Avoid the hype - good tip.

hobo-jo is very reasoned and calculated with his views and you could do a lot worse than listen and take serious heed.

but at the end of the day if you want to live somewhere you either gotta rent or own. i would liek to think that buying a PPOR should be exempt from investment mindset, but at your age, a little forethought wil go a long way in ensuring you maximise your potential upside and minimise any potential downside that could set you up for the rest of your life.

 

[Ms Jade]

The general message I’m getting is:

1. Recognise that we are buying a PPOR and not an IP. Give finding the right property and ensuring that we can make repayments comfortably a higher priority than market conditions as this is a long term investment.
2. Don’t rush in - there is no harm in waiting out 2011 to see what happens.
3. Avoid buying into the house and land & FHOB hype. Research!

I'd say you're absolutely on the right track.

I also like the suggestion of renting instead of buying and investing our money elsewhere. Something I hadn’t really considered before. Is this what some people here are doing?

Yep. One way that people build up a portfolio (and we did so) is to rent and buy IPs. The longer you can do this the better. Say you can rent a unit for a pretty low price and you're happy to stay for 3-5 years. In the meantime you could buy a house & rent it out. We 'accidentally' found our dream house when we couldn't really afford it. So we bought it as an IP & collected rent for a year or so before we were in a position to renovate it & then move in.

As for buying a house over a unit, I must admit this is something I haven’t researched myself. It’s just somehow got into my head that property with land is more likely to experience capital gains than say a unit or an apartment.

I definitely don't consider it 'old thinking' as we've always bought houses on big blocks to maximise the % of land value wherever possible. That said, there are a myriad ways to make money in property, and many people have done nicely with units. It really depends on the particular property & location.

 

[tobe]

I dont think you can count on builders negotiating discounts after the vic FHOB is reduced. FHB are a much smaller percentage of the market these days, and the building industry is in enough trouble lately according to the economists.
A H&L package can be a good option for FHB PPOR, especially those with a small deposit, who are happy to sit in the home for at least 5 to 7 years. They can also be good for investors wanting a positive after tax return.

 

[natedog]

compulsory 6 star ratings for new builds

hi all,

i dont know the exact date, but am pretty sure its may this year....that all new builds sold must comply to a minimum 6 star energy rating....in Victoria

This date is for the initial deposit to a builder.

So any deposit before May...you can still build to minimum 5 stars...after May its 6 stars.

So dont expect any real drops in the price of construction as homes need to be specd up to comply from this date, except for those builders alreday moving to 6 star now.

cheers,
Nathan

 

[goodguys]

now is good time to buy

Whether you buy or not Aaron, as you hunt around for the facts on property you are going to run into a lot of misinformation, especially given market conditions, agents are getting particularly desperate, so if you go house hunting make sure you double check any "facts" that the agent tells you about the house or area. It seems agents are already trying to fudge auction clearance rates, we don't know what other truths they might be bending:
http://www.couriermail.com.au/money...failed-campaigns/story-e6freqoo-1226016477643

The misinformation carries onto Somersoft as the bulls look to protect their investments.

Some will call me a permabear, but the facts are:
- I owned property 2006-2010
- I sold the property
- I could liquidate other assets and buy outright but choose not to
- I intend on buying again when value returns to the market

Does that sound like a "perma bear"? I think not.

Further to this some will say that the market conditions are not there for significant falls, yet:

- Prices are already falling (significantly in some areas)
- Volume has fallen around 25% from 12 months ago
- Listings are up around 40% from 12 months ago
- Clearance rates are down around 25% from 12 months ago
- Lending is significantly down
- New home sales are way down


In the very best case it's unlikely that we see any significant moves higher in prices (in most areas), so in my opinion it's pretty safe to just sit on your cash and watch as 2011 unfolds and reconsider your position and the market at the end of the year.

Yes prices might go down in the short term but if you invest for the long term then you will always come out a winner. I just invested in point cook where i built house for $350 000 ,now in 25 years time will it be worth $350 000 ,I dont think so ,you have to always look long term and not short term. Point cook is the fastest growth area in australia so naturally there will be a lot of stock on the market now buy in the long term that will all dry up.

 

[goodguys]

invest for long term

I hope I've posted this in the right section.

We recently married, so our parents are pushing us to get a house.

The initial idea was to get a house and land package at a new estate (e.g. Point Cook, Williams Landing, etc) before the First Home Owners Boost expires this year.

I’ve done a bit of reading on this forum, and have noted the following for 2011:

1. The FHOB ($13,000 for new homes) expires 30 June 2011.
2. 20% stamp duty cuts from July 2011.
3. Interest rates predicted to be raised in second half of year?
4. Some predict house prices will be steady/slight decline, some predict a crash/bubble burst – haven’t read any posts predicting significant capital gains.

Some background on our current situation:

1. Currently renting apartment in Docklands, VIC
2. Looking to buy a 2/3 bedroom house in VIC priced at around $450,000 (haven’t decided on suburb)
3. We have saved a deposit of $35,000 so far
4. Repayments ($3100 @ 7.8%, $3750 @ 10%) are within our capacity.

The other thing that I’ve learnt while browsing the forum is that buying established may be a better option, but that is another discussion. What I’d really appreciate some opinion on is the following:

1. It would obviously be great to get into a house as soon as possible and I’m fairly sure we can secure a loan now if we were to apply, but in light of the observations noted above: Is the safer option to continue to rent & save this year?
2. Is there any real rush to sign a house & land contract before 30 June to secure the FHOB? Is $13,000 worth it? I suspect many new home builders may be more likely to negotiate after the FHOB expires anyway?

Any guidance would be much appreciated, please be gentle – we’re new to this

Aaron.

there is a lot of stock on the market in point cook now because it is the fastest growth area in australia ,so now is a good time to invest ,before it all drys up, you have to think what the property will be worth in 25 year years

 

[goodguys]

now is good time to buy

Whether you buy or not Aaron, as you hunt around for the facts on property you are going to run into a lot of misinformation, especially given market conditions, agents are getting particularly desperate, so if you go house hunting make sure you double check any "facts" that the agent tells you about the house or area. It seems agents are already trying to fudge auction clearance rates, we don't know what other truths they might be bending:
http://www.couriermail.com.au/money...failed-campaigns/story-e6freqoo-1226016477643

The misinformation carries onto Somersoft as the bulls look to protect their investments.

Some will call me a permabear, but the facts are:
- I owned property 2006-2010
- I sold the property
- I could liquidate other assets and buy outright but choose not to
- I intend on buying again when value returns to the market

Does that sound like a "perma bear"? I think not.

Further to this some will say that the market conditions are not there for significant falls, yet:

- Prices are already falling (significantly in some areas)
- Volume has fallen around 25% from 12 months ago
- Listings are up around 40% from 12 months ago
- Clearance rates are down around 25% from 12 months ago
- Lending is significantly down
- New home sales are way down


In the very best case it's unlikely that we see any significant moves higher in prices (in most areas), so in my opinion it's pretty safe to just sit on your cash and watch as 2011 unfolds and reconsider your position and the market at the end of the year.

Yes prices might go down in the short term but if you invest for the long term then you will always come out a winner. I just invested in point cook where i built house for $350 000 ,now in 25 years time will it be worth $350 000 ,I dont think so ,you have to always look long term and not short term. Point cook is the fastest growth area in australia so naturally there will be a lot of stock on the market now buy in the long term that will all dry up.

 

[wisty]

Thank you all for your informative and detailed replies, this forum is fantastic

The general message I’m getting is:

1. Recognise that we are buying a PPOR and not an IP. Give finding the right property and ensuring that we can make repayments comfortably a higher priority than market conditions as this is a long term investment.
2. Don’t rush in - there is no harm in waiting out 2011 to see what happens.
3. Avoid buying into the house and land & FHOB hype. Research!

I also like the suggestion of renting instead of buying and investing our money elsewhere. Something I hadn’t really considered before. Is this what some people here are doing?

A family is a few years away yet and I have to say living near the CBD really suits our lifestyle at the moment, I just wanted to get into the property market sooner rather than later.

As for buying a house over a unit, I must admit this is something I haven’t researched myself. It’s just somehow got into my head that property with land is more likely to experience capital gains than say a unit or an apartment.

Is this old thinking? I guess I’d better do some reading up on this too.

My take on trends - Melbourne yields 4%, not 5% like Sydney, so it should fall. Or rents should rise. But I'm a bit bearish at the moment. I think property will fall the next few years, but not everyone agrees.

However, if you do want to buy ...

You are not thinking of buying shares in Melbourne Housing Pty. Ltd. You are thinking of buying a single house. Look for a nice house that you can easily afford.

Keep your eye out for a good place. House prices aren't going to magically increase much in the next year or so - there's no real rush, but you will find a better bargain if you keep your eyes open, throw out a few low-ball offers (who knows, they might accept), and make sure you don't buy a lemon (painting is OK, wallpaper is a pain, drains can be a nightmare - a good inspection can be worth paying for).

 

[hobo-jo]

Yes prices might go down in the short term but if you invest for the long term then you will always come out a winner. I just invested in point cook where i built house for $350 000 ,now in 25 years time will it be worth $350 000 ,I dont think so ,you have to always look long term and not short term. Point cook is the fastest growth area in australia so naturally there will be a lot of stock on the market now buy in the long term that will all dry up.

I think one of the biggest mistakes first home buyers make is buying somewhere just because they can afford it. Many seem to forget the costs associated with buying and selling several times as they upgrade.

For example a typical upgrade pattern might be:
2 Bed Apartment -> Small 3 Bed home -> Large 4 Bed home

This might occur over 10 years. Rather than upgrading in size it might be about location as well, changing to better suburbs as it can be afforded.

Now that situation might have been fine 10 years ago where there is still room for strong price growth, but should the FHB buying now who may upgrade 2-3 times over the next 10 years still just buy what they can afford to get into the market?

I assume that Aaron's renting in Docklands is a lifestyle choice. The decision to move 30km/h out of the city to Point Cook sounded like one being made to appease parents and he was simply looking for somewhere that could be afforded.

I think the smartest move today for those who are yet to buy (from a financial perspective, given the costs of ownership) would be to rent and save/invest the difference.

That said if someone was looking to buy and live in Point Cook for the next 25 years then it probably wouldn't matter that much they were to buy now.

 

[Graemsay]

I'd just like to add a few comments to this thread.

I'm in agreement with Hobo-Jo about it making sense to rent if prices don't look like they're going anywhere, particularly if it's cheaper than buying. And that over a twenty year period the balance shifts in favour of buying regardless of how the market moves in the interim.

Trying to time the housing market is risky. There are people who sold up in the UK between 2002 and 2005 with the expectation of picking up a bargain when prices inevitably corrected. Some of them have spent more buying back in at a higher price.

But if you get the timing right you could get the deal of a lifetime.

Disclosure: I'm trying to time the market.

Personally, I'd prefer to get as big a deposit together as possible. 10% of the purchase price is probably a minimum, and 20% would be better.

This would also act as an excuse for delaying a purchase if you want to put things off for a while.

The big expense in buying a property is interest on the loan, and paying it off sooner is a lot cheaper. The following list gives the monthly payments for a mortgage of $400K at 8%, and the corresponding amount repaid.

• 10 years - $4968 per month (total $596K)
• 15 years - $3894 per month (total $701K)
• 20 years - $3395 per month (total $815K)
• 25 years - $3123 per month (total $937K)
• 30 years - $2691 per month (total $969K)