Australians love moving up the property ladder. We’re house-proud people with strong aspirations to live in the best homes we can afford – not only in terms of property style but also location.
The number of homes for sale today is very low and that’s a key reason why many properties are selling so far above expectations of late. This will change in time as more homeowners gain the confidence to sell. Be patient and don’t panic.
John McGrath
In decades gone by, moving closer to the CBD was a key goal for capital city upgraders because it reduced their work commute, which ultimately meant more time with their families. But inner ring homes are more expensive, so upgrading invariably went hand-in-hand with a larger mortgage.
Following the pandemic, this is no longer the case for a large proportion of upgraders in the market today. This is because many of them can now work from home, so they’re leaving the inner city where many of them lived in apartments and moving 20-30km away where they can afford a house.
For many, this reversal of historical trends means upgraders can upsize their homes without necessarily having to upsize their mortgage. It also means that many young couples can aim to buy a ‘forever’ home – one that is big enough for their expanding family to grow into over several decades.
Compare this to upgrading in the inner city, where a property with just one extra bedroom can cost at least $100,000 – $200,000 more. Today’s upgraders swapping the inner city for the outskirts can in some cases afford several more bedrooms in one upgrade because they’re buying in cheaper areas.
The quarter acre block is back in style, with young couples excited to be able to give their kids the big backyard that up until a year ago they probably thought they’d never be able to afford as long as they were anchored to inner city living by their work.
On the East Coast today, a strong desire to upgrade while interest rates are so low is powering superior price growth in the top 25% bracket of home values in each of the four capital cities.
Of course, the market as a whole is very strong so property prices have moved up in each of the three brackets of home values that CoreLogic measures, however growth is strongest at the top.
Let’s use Sydney as an example. Over the three months to February, price growth in the top 25% of home values was 4.5% compared to 3.1% for the middle 50% bracket and 2.4% for the lowest 25% bracket. The trend was identical in Melbourne, Brisbane and Canberra with similar numbers.
If you’re looking to upgrade in the outer suburbs of your city, I recommend buying near a train line or another major public transport corridor to the city, even if you don’t need these services yourself because you’re working from home. Being close to public transport will always enhance your capital gains because it’s a feature that most of your future purchasers will want for work or school.
You should always consider re-sale value, especially when buying a forever family home. This is not a stepping stone property. It’s likely to become the asset that will fund your retirement, so you need to make good decisions now. In order to achieve the best capital gains, follow my simple tips.
- Target homes above the suburb’s median price, as they are the better properties in the better locations and will therefore enjoy better price growth
- Try to buy within walking distance of shops, cafes, schools and transport
- Look for superior features to other homes, such as a north-to-rear aspect, a larger than average parcel of land for the area and great alfresco and entertaining spaces
Upgraders selling in the pricier inner city and buying in affordable outer areas should have healthy budgets to work with, so there’s no need to compromise on quality. Don’t let FOMO guide your decisions, especially if you’re trying to buy your forever home this year.
The number of homes for sale today is very low and that’s a key reason why many properties are selling so far above expectations of late. This will change in time as more homeowners gain the confidence to sell. Be patient and don’t panic.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
The article originally appeared on mcgrath.com.au – for more information including articles, checklists, guides and more visit McGrath’s Insights Centre.
