Rising home values across Australia is often considered to be a sign of economic recovery. Data from the Westpac Melbourne Institute of Consumer Sentiment shows confidence rises when property values do. That said, economists disagree on whether house price growth is really positive for Australia. It seems there are some distinct advantages and disadvantages associated with the trend.
The benefits of house price growth
An increase in house price growth fuels the economy by boosting consumer confidence. People who may have been wary about spending money on unessential items during economic downturn feel more comfortable making these purchases. An increase in buying fuels the economy.
Growth in the housing market also strengthens industries that are associated with real estate. For instance, contractors may see a sharp increase in revenue when people are buying real estate and hiring these workers to complete renovations. Job growth results from the increased demand for associated services.
Long-term growth in house prices also allows Australians to invest in property and get them prepared for retirement. Real estate is a valuable asset to retain when growth is positive.
The disadvantages of house price growth
One of the biggest problems with house price growth is that first-time buyers are often unable to afford to purchase a home as prices climb. People who decide to make the leap despite climbing prices may have to cut out features that they feel are essential to their comfort. Big cities are often priced well out of the financial reach of first-time home buyers when house price growth is strong.
An increase in housing prices means that buyers take on more debt if they do decide to purchase a home. Disposable income decreases because of the increase in mortgage payments. The economy stands to suffer when people have less to spend on expenses other than housing.
Housing values also run the risk of plummeting at any time. People who buy when house price growth is high may lose a substantial amount of money on their investment should this occur.
How House Price Growth Impacts Buyers
What does this all mean for you as you search for a home to buy? If you are buying a home in 2014, you may have to adjust your expectations based on increased prices. However, investing in real estate in the New Year is a lucrative investment tool that can be beneficial in the long term. Consulting with a mortgage broker to get the best rates can help you keep prices under control.