The one thing you should do before going house hunting this year

You wouldn’t go shopping without your wallet, and by the same token, you shouldn’t go house hunting without knowing what you can afford to buy.

That’s the message from expert property buyers to house hunters trying to buy a home while the market transitions from a downturn to a recovery – conditions we’ve seen emerging across Australia’s capital cities.

Domain’s latest House Price Report has revealed that house prices rose across the combined capitals last quarter for the first time in a year.

House prices increased the most in Sydney, up 1.3 per cent. Perth house prices rose 1.2 per cent to reach a new record high, while Adelaide also set a new price record with a 0.4 per cent gain. Prices remained stable in Melbourne and Brisbane, indicating these cities may be at or close to the bottom of the price cycle. 

Auction clearance rates – a leading indicator for price movements – have been rising steadily over recent months too, with the low volume of new listings coming onto the market putting a floor under prices as buyers compete for the limited number of homes available. 

A clearance rate above 60 per cent usually indicates a balanced market, while a rate above 70 per cent is correlated with price growth. Sydney’s weekly clearance rate has exceeded 70 per cent three times since January, while Melbourne clearance rates have mostly stayed in the mid to high 60s this year, but reached 77 per cent in the last week of April.

Demand from buyers has also increased across all capitals this year, after falling throughout 2022 as house hunters held back in uncertain economic conditions. The level of demand is about where it was in early 2020, Domain data shows.

After rising again in May, the cash rate target is now about where the Reserve Bank of Australia (RBA) forecasts it needs to be to bring inflation back to target within a few years. 

While it’s still possible the RBA could raise rates again this year, it’s clear that we’re getting to the end of the tightening cycle, giving buyers a little bit more certainty around how much their repayments could change in the near future.

Add into the mix the pressures of population growth and it appears buyers looking to purchase a home this year could be entering a rising market.

What you need to do before going house hunting

In a changing market, a simple mistake buyers can make is spending time inspecting properties they can’t afford, let alone house hunting without actually knowing their borrowing power.

Knowing your borrowing capacity is crucial, especially for first-home buyers, as the amount you will be able to spend on a property will depend on how much a bank will be willing to lend you.

Your borrowing power will also help you determine where you can afford to buy, so you can narrow your search to areas and properties that fit your budget.

When prices rise, buyers’ ideal properties become harder to purchase and more compromises need to be made. This problem can be compounded if buyers who aren’t certain about their borrowing capacity waste time searching in areas that their budget won’t cover.

On the other hand, if you have a clear idea of your buying power, either through home loan pre-approval or initial conversations with a mortgage broker or lender, you will be able to confidently search for properties in your price range, saving time and getting you into the property you want sooner.

Source - Domain.com.au