Is now the perfect time to upsize?

Moving up the property ladder or upsizing during a recession isn’t necessarily something that’s front of everyone’s mind.

Instead, most people choose to move up the property ladder when economic times are good and prices are moving upwards.

But a flat market is actually often the best time to upgrade and there are strong reasons to consider moving on right now, in the midst of the coronavirus pandemic. Here are some of them.

1. Low interest rates

Interest rates are at record lows which means it has never been cheaper to service a mortgage. What’s more, the RBA has indicated it intends to keep the official cash rate at this level for some time to come.

Right now, the Big Four banks are offering fixed-term home loans with an interest rate of close to 2% – something almost unthinkable just a year ago when most experts tipped interest rates would begin to rise.

Given that stepping up the property ladder often requires borrowing more money, this is excellent news for anyone who has stable employment and needs to finance their move.

2. Flat markets favour buying

At the moment, property prices across Sydney are relatively flat. CoreLogic recorded that the median Sydney property price rose 0.4% in April 2020 before falling -0.4% in May and then another -0.8% in June.

As a general rule, a flat market favours those trading up the property ladder. That’s because when prices rise, the gap between property prices grows. When they fall, the gap diminishes.

If that sounds complicated, consider this. If your home is worth $1 million and the one you want to upgrade into is $2 million, a uniform price rise of 10% would mean the properties are now worth $1.1 million and $2.2 million respectively. The gap between the two properties would grow from $1 million to $1.1 million. That’s potentially another $100,000 you need to find to buy the home.

If, on the other hand, there was a uniform price fall of 10%, the property prices would be $1.8 million and $900,000, meaning you’d need $900,000.

On top of this, the amount of transfer duty would change significantly. A purchase of $2 million incurs transfer duty of $95,005 while a purchase of $2.2 million incurs transfer duty of $106,005.

Meanwhile, a purchase of $1.8 million attracts transfer duty of $84,005. That’s $22,000 less than if prices went 10% the other way.

3. The bottom is outperforming the top

The example above shows what would happen if there was a uniform price rise or fall. But the reality is, property prices rarely act in harmony. There are different market segments even here on the Upper North Shore. For example, the factors driving the first home buyers market tend to be different from those driving the prestige market.

Right now, it’s the entry-level market that’s outperforming more expensive properties. CoreLogic reported that over the three months to June 2020, property prices in Sydney’s upper quartile fell -1.7%. However, in the bottom quartile, they actually rose 0.2%.

In other words, the price gaps involved in stepping up the ladder are narrowing – great news if you’re considering upgrading.

4. Quality stock available

One factor that holds buyers back from stepping up the ladder can be a lack of suitable buying options. After all, you can’t move on if you can’t find anywhere to move into.

While record low stock levels were a real factor in March and April when the COVID-19 virus first appeared, they’re not any longer. In fact, CoreLogic’s data shows the number of new properties coming onto the market across Australia has risen by more than 40% since early May.

You’re more likely to find somewhere that suits your needs right now than you were a few months back. And, with less heat in the market than before COVID-19, you’re also likely to have more power when it comes to negotiating for it.

5. Prices will rise again

Finally, while prices may currently be flat, our view is that they’re unlikely to remain this way for too long. If we can contain the virus, confidence should begin to rise again and, as it does, the economy will come back to life. When that happens, property prices will rise also.

While no one can predict the future with full accuracy, our view is that the indicators show that this should start to happen in the second half of 2020. So, if you can secure your move up the ladder before the next price surge, you’ll already be ahead.

Want more?

If you’re looking to buy or sell on Sydney’s Upper North Shore contact our team today.

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