Is Now a Good Time to Build a House (Melbourne Suburbs)

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  87percent on 30/06/2020 - 08:32

  WAY too many variables to make a judgement… but yes, build a home (/s)

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  AngusD on 30/06/2020 - 08:38

  +1

  Depends how secure you are in your job, or if you think you'll have trouble finding a new one if you lose it.

  If you think you're reasonably secure (or have enough reserves that you can deal with a period of unemployment) then I'd say it's a good time to buy or build a house. Interest rates are about the lowest they've ever been or ever will be, and grants like this are just a bit of a bonus.

  The main risk you face (apart from unemployment) is if this recession ends up taking a significant bite out of house prices in your area. If you buy the place and are significantly leveraged, then a serious fall in house prices could leave you with negative equity, which would scuttle your plans to sell the house and pay back the loan and buy your CBD apartment. You end up stuck with the property until either the prices recover or you can come up with enough cash to make up the shortfall in the sale price yourself. With that in mind, you may be better off waiting 6 months or so to see what happens to house prices, although I don't know if there's an expiration date on that government grant.

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    Drakesy on 30/06/2020 - 11:20

    +1

    This^

    Australia is still of the mindset that property prices will forever go up, as with anything it will eventually reset. I feel we'll see this happen over the next couple of years, with us currently in a recession and more job losses highly likely once jobkeeper finishes.

    As with anything property is a gamble and value is never guaranteed. I think, as a country Australia has to understand this and, similar to the stock market a reset is required when the value of the property is no longer representative of the true value.

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      AngusD on 30/06/2020 - 11:44

      +1

      I think the ridiculously low interest rates are distorting the value of real estate and, even more so, shares. When you're struggling to get barely 1% return on cash in the bank, it drives people to seek some kind of decent return elsewhere. By driving people towards the share market, it pushes the prices of shares up even though they companies aren't actually earning any more money than previously. But if the price going up just means the dividend return is more like 5% instead of 10%, who cares, because it's still a hell of a lot more than 1%. People might not like the risk, but if you're talking about elderly people relying on these returns, there's no way for them to get a decent income to live off otherwise. You also get a lot of speculation going on - if I can borrow money at 2% and then invest it in shares or real estate and get 5% (or even just 3%) return against those prices, it's basically free money. Again, it's the low interest rates that are distorting the value of assets like shares and real estate.

      I really think rates have got too low and they're doing more harm than good at their current setting. Cheap credit is supposed to drive business to invest, but that's not happening anyway, so they might was well bump the rates back up a bit, put some more money in the pockets of retirees who are likely to actually spend it, and hopefully in the process let some of the air out of the inflated asset prices.

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        Drakesy on 30/06/2020 - 11:48

        Yeah, the reserve bank has a lot to answer for. Reducing interest rates when the Sydney and Melbourne property markets were going nuts was just adding fuel to the fire. But hey Domain and Realestate.com loved it. Really have backed themselves into a corner this time.

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      username1 on 30/06/2020 - 12:09

      What is the “true value”?

      Land is limited and populations increase, so people are more willing to pay higher prices for better areas closer to the city or coast lines. Unless that desirability changes, the “market crash” won’t enable you to buy a beach side mansion close to the city.

      There are plenty of affordable options in new estates or less desirable areas.

      If the property market does crash like you hope, don’t expect to be able to buy a bargain, because if it is that bad, wages will also decrease, and rich people in desirable suburbs will be able to afford to keep their house and not have to sell anyway.

      People will pay what they need to secure the best property/location they can afford. If the entire market crashes, everyone drops so there is essentially no change to your buying power.

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        Drakesy on 30/06/2020 - 12:37

        True value is one that is not fueled purely by speculation by investors (like what we are experiencing today).

        Yes there are plenty of affordable options in new estates, however once again these are fueled by investors, these are properties built on former farms in the middle of nowhere being sold at a FOMO "perceived" value, as soon as the speculative demand dries up these are the first to go, because at the end of the day it's developed farmland.

        Similar instances were found in Japan and America, where the government was supplying stimulus measures to prop up the industry before it fell apart.

        And i'm not saying it will allow us to buy a bargain, just it'll mean we won't have to take 30 year mortgages to buy a house in the middle of nowhere, which to me sounds like a reasonable request.

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          username1 on 30/06/2020 - 13:00

          @Drakesy: You raise a valid point and I don’t deny there are investors in new and existing properties which would certainly drive prices up (how much?).

          I just think that a property crash isn’t a good thing and won’t be as great as you might imagine.

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            Strahany on 30/06/2020 - 13:33

            +2

            @username1: The crash is happening as we speak; it’s just being protected, on paper, by Job Keeper/Seeker and pauses placed on rent and mortgage repayments. If the government abruptly ceases / drops the payments, then this will only fuel the issue of repaying rent and mortgage repayments which have been on pause.

            The only way to stop this, would be for the government to actively intervene and prop up the prices. Needless to say, this is a terrible idea. It’s just trying to plug holes in a sinking ship whilst ushering new people on. They might be able to delay the inevitable, but it’s only going to take more people down with it, if they do.

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              AngusD on 30/06/2020 - 13:48

              @Strahany: The government is also in a bit of a bind because they're stuck between paying lip service to the housing affordability crisis in order to try to appease people who want to buy a home, and actually propping up house prices with measures like you describe in order to try to appease people who already own houses and want to protect their value. For years, it's been the latter group that has been winning out, but I think this current situation is going to turn the tide the other way, at least a bit.

              At the end of the day, though, if house prices in Sydney or Melbourne drop 20%, that's only wiping out the gains of the past what… 3 years, maybe? Which means the only people actually losing money are those who bought during the last 3 years, which would be a small percentage of all owners overall. In any kind of market correction, the people who bought at the top are going to be the ones who lose out, but it's always going to happen sooner or later so there's no use the government using artificial means to, as you say, delay the inevitable.

              And even if prices drop, you only actually lose money if you sell. Homeowners aren't going to sell their home unless they're really up against it (ie lost jobs etc). Otherwise they'll just sit tight for a few years.
              Investors who own a multiple properties and are struggling to find tenants (or attract the same rent they were able to before) are the ones who will really feel the pinch and may need to sell up in a weak market. But that's the nature of investing - there's always risk involved, and it doesn't always pay off.

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  Bargain80 on 30/06/2020 - 15:00

  how secure do you think your job is?
  It's not just your current role but also you company?

  Redundancy happens all the time even if you think you have a secure position.
  But the difference is if you loose a job now you have to compete with a lot more people to get a new job.

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  Trying2SaveABuck on 30/06/2020 - 20:08

  Is it a good time - hell no the world is falling apart from trade wars, a COVID19, over leveraged Household debt, increasing 'socialist' nutters in Aus etc - thus there is a LOAD of economic uncertainty

  The question you need to ask yourself is during this turmoil is it a bad time? - i cant answer this but historically fortune favors the 'brave' and if you spend your life waiting for a 'good time' you will be waiting a life time…

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  capslock on 30/06/2020 - 22:53

  I assume you already have the land. The cost of building isn't going to go down because of covid so you might as well take advantage of the grant.

  It doesn't matter IF the property market goes down. IF your house and land happens to drop in value then the apartment you want to swap to will also likely to have dropped in value so you will not really be any worse off.

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    InfraRed on 01/07/2020 - 08:40

    I am buying the land as well. Sorry, should have mentioned that in the post.

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  InfraRed on 01/07/2020 - 08:35

  Thanks for the feedback, it's really helped me think more deeply about my situation in general as well.

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  blueyez on 02/07/2020 - 10:19

  I'm also a wannabe first home buyer but covid has put that thought on hold completely for me.

  I've watched my brother (currently has 2 mortgages) lose hours with a potential redundancy and the toll of trying to get tenants to pay rent etc and it is not worth that type of stress. Although my plan was to buy my own place and live with a tenant, not not the exact same scenario.

  Nothing is guaranteed in these times, I'm just thankful to have a job continue as 'normal' - but many are in a much worse off situation. Hard to judge if you can manage mortgage repayments with covid sticking around.