Welcome to our May newsletter. 2 articles this month concentrate on figures released by the REIV, one pertaining to housing affordability over the past few years and the other to the buoyance of the market in the first quarter of 2013 - good news for both buyers and sellers! We look at the role parents can play in assisting their adult children to purchase property and with the colder weather now upon us we take a quick look at the advantages of insulation.
HOUSING AFFORDABILITY IMPROVES
The Real Estate Institute of Victoria (REIV) released some interesting data this week relating to Victoria's housing affordability. According to these latest figures housing affordability has improved by 20% since the prices peaked in late 2010. This is one of the reasons why more buyers are currently active in the residential market.
The REIV research also shows that an average Victorian household would have had to dedicate 26.1% of its income to meet loan repayments when prices last peaked in the December quarter of 2010. This calculation is based on the average income of all households with an average mortgage according to the Australian Bureau of Statistics. By the December quarter of last year the average household would have had to dedicate 21.4% of its income to meet average repayments.
According to the national Census the average household income of mortgagees in Victoria was estimated at $1,950 per week in 2011. This is 60% higher than the average total household income of $1,216 per week and clearly demonstrates that those paying back a mortgage have a higher income than those who are renting. First home buyers face a different scenario as they both lack the equity that second and third home buyers bring to the purchase and often have lower incomes.
The REIV offers three reasons as to why we are experiencing improved affordability at this time - interest rates are very low; incomes have risen and overall prices have fallen. Over the past five years the only time affordability was better was in the June quarter of 2009 when the market was substantially affected by the global financial crisis.
PARENTAL ASSISTANCE TO PURCHASE
Whilst housing affordability has improved slightly it's still tough for many first home buyers to save a substantial enough deposit to purchase that initial property.
One way to get a foot in the door is for parents to assist their adult children by providing funds to help with a deposit. A financial gift may be given directly to them or contributed to a First Home Saver Account, a tax effective way to save for a home.
Another option is for parents to offer guarantor support for their children by providing either the parents' home or term deposits as security.
A third assistance option would be to consider buying the property jointly with their children. This would mean that the parents would have their names on the title deeds. For both guarantor support and joint ownership of property, the parents are fully liable for their child's loan obligations. This arrangement works well for some families but is undesirable for others.
A better way to provide financial support and to protect parents' interests is through a written loan agreement. Parents who lend or gift money to their children can insist on both parties signing a binding financial agreement to ensure that the money is repaid if the relationship breaks down. Parents should always obtain specialist legal and taxation advice when setting up a loan for their children so that everyone is clear on what the agreement entails.
Insulation acts as an impediment to heat loss and heat gain, particularly in roofs and ceilings, walls and floors. It helps to keep your home cosy in winter and cool in summer. Half of the energy we use to heat or cool our homes can simply leak out if insulation is absent. Older un-renovated Australian homes typically lack adequate insulation.
Today there are minimum building standards for insulation. When building or renovating talk to your builder, insulation expert or local council about requirements. Going above the minimum standards will result in greater comfort and energy savings so it's well worth the extra initial investment.
There are two main types of insulation:
- Bulk insulation (usually batts, rolls or boards) acts as a barrier to heat flow, keeping unwanted heat in or out of your home. It can be made from materials like glass wool, polyester, wool or recycled paper.
- Reflective insulation helps keep your home cool in summer by deflecting radiant heat. It's usually shiny aluminium foil laminated onto paper or plastic and is available as sheets and batts.
Some insulation products are available that combine features of both bulk and reflective insulation. What type of insulation is best for your place will depend on where you live and whether you need to keep heat in, or out, or both. Your home's design, the material it's made from and its orientation to north are also factors.
It's imperative that insulation is installed correctly to meet our Australian standards. Who can forget the devastating house fires that were triggered by poorly installed insulation back in 2009? Thus it is far safer to have insulation installed by a reputable licensed installer. Some types of insulation require the use of specialised equipment, masks and protective clothing.
MARKET WRAP - A BUOYANT FIRST QUARTER
The 2013 real estate market has launched with the same upward trend that we experienced towards the end of last year. As reported by the REIV, the industry is recording both an increase in clearance rates and listings. Most experts believe this is a situation that reflects the improved confidence of Victorian consumers.
From the perspective of listings, buyers are being offered greater choice with a 20% increase in the number of auctions as compared to the last 10-year average. On 22 and 23 March the market experienced the 9th largest weekend ever with 1,140 auctions.
Clearance rates have also improved. February saw the highest monthly clearance rate since May 2010 with 70% of homes offered at auction selling.
The key to this trend being maintained is continued confidence. Whilst consumer confidence - partly driven by low interest rates and lower prices - remains healthier than a year ago the auction market should remain strong. Global economics and overseas events have had little negative impact so far.
From an overall perspective the local market is moving from the very busy summer and early autumn market to the winter one. The winter auction market is typified by lower volumes but not necessarily one with a lower clearance rate. Median house prices for the first quarter of 2013 are due to be released in the nest week or two and will further highlight the market's position.
(Figures sourced from the REIV)