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Down Under vs. The US: A Look at Housing Market Trends

His article compares housing markets in Australia, New Zealand, and the United States. We'll examine prices, affordability, interest rates, and what experts predict.

Blog / General / 2024 April 24, 2024

The global real estate market is booming right now. Prices are skyrocketing from Sydney to San Francisco. So, knowing which housing market to invest in is more crucial than ever.

That's why this article compares housing markets in Australia, New Zealand, and the United States. We'll examine prices, affordability, interest rates, and what experts predict.

Whether buying your first home or investing, this guide will give you the facts you need to choose wisely.

Understanding the US Residential Market

Market Overview

The US housing market is slowing down after a fast few years. Home prices are rising but at a slower rate.

In March 2024, the average home price hit $420,357, up by 4.8% from last year. This is much slower growth than before.

Inventory levels are another key factor influencing the property sector.

Limited housing supply led to higher prices and intense competition among buyers. But now, there are more homes available. In March of 2024, there were 1.5 million homes for sale nationwide, a 3.8% increase from last year.

Though still low, this increase has made the buying process less intense. Buyers have more options and some power to negotiate.

Mortgage Rates

The Federal Reserve doesn't decide mortgage rates. But if it increases the federal funds rate, banks find it more expensive to borrow money. This means banks may charge higher interest rates to customers, including mortgage lenders.

So, if the Fed increases rates, homebuyers usually face higher mortgage rates. It helps slow down the economy by making borrowing costlier, which can cool down booming housing markets.

Guessing future mortgage rates is hard. Experts watch what the Fed says and monitor inflation to make predictions.

In April 2024, the Fed kept its main rate the same since raising it to 6.4% in 2022 and 2023. This might mean steady mortgage rates, but inflation and how investors feel also count.

Some experts think mortgage rates could slowly go down in 2024, helping folks buy homes [Source: Forbes].

But it all hinges on the Fed keeping inflation in check, which isn't guaranteed.

Foreclosure Tendencies

After the Federal Reserve raised rates, the real estate market seemed more stable. But more foreclosures can happen.

People with adjustable-rate mortgages have trouble when interest rates rise. If home prices fall, some mortgages become more than the homes' worth. This is called an underwater mortgage.

However, strict rules can prevent a big housing crash.

Also, the government is helping homeowners. The Home Affordable Modification Program changes loan terms to lower payments, and Federal Housing Administration (FHA) refinancing offers better rates for some mortgages.

These efforts are essential to stop foreclosures from increasing due to higher interest rates.

Down Under Real Estate Market Analysis

Market Overview

House prices are rising in big cities in Australia and New Zealand after falling in 2022.

Sydney's prices went up by 15.8% in March 2024, marking 14 months of growth. Prices are now 6.79% higher than last year. Melbourne's recovery is slower, but Brisbane and Canberra are seeing steady growth.

Low inventory across Australia is causing high demand for houses.

New Zealand is facing a similar situation, with Auckland seeing a big demand surpassing available houses, leading to a 10.9% price increase from the previous year.

However, Wellington's market is more balanced, stabilizing demand and supply.

Affordability Issues

Australia's dwelling market struggles with affordability. Median house prices are much higher than average incomes.

Demographia International's survey shows Australian cities rank among the most expensive globally. In 2023, Sydney's median house price was 12 times the average income, meaning saving for a 20% deposit takes over a decade for an average earner.

Interest rates are also rising after a period of lows. Higher rates mean higher mortgage repayments monthly. This strains the budgets of potential buyers. 2024 is expected to continue this trend.

Homeownership may become even more distant for many Aussies.

Government Policies

Australia's housing market faces challenges, especially in big cities.

The government offers grants like the First Home Grant (FHG). It helps bridge the gap between their savings and the 20% deposit banks require. This reduces the initial home-buying expenses.

But there are rules. The grant changes depending on where you are and if you're buying a new or old home. Also, you might need to live in the home for a set period.

In New Zealand, the government takes action to cool down the hot property market. Loans are now tougher to get.

Earlier, banks could lend 80% of a property's value, needing a 20% down payment. Now, they can only lend 65% to investors. This makes it more challenging for investors to buy with small down payments. It might slow down demand and stop prices from rising too fast.

Down Under vs. US Housing Market: A Comparative Analysis

Affordability Comparison

It's important for people looking to buy a home to know if they can afford it. Comparing how much houses cost to what people earn can help.

Here's a comparison of major cities in Down Under and the United States:

City

Median House Price

Average Annual Income

Median House Price to Income Ratio

Sydney, Australia

$1,600,000

$80,000

20

Melbourne, Australia

$1,157,000

$75,000

15.43

Brisbane, Australia

$1,500,000

$78,891

19.01

Perth, Australia

$660,790

$60,355

10.95

Auckland, New Zealand

$1,026,000

$74,000

13.86

Wellington, New Zealand

$820,000

$75,000

10.93

Christchurch, New Zealand

$762,456

$71,000

10.74

Los Angeles, California

$983,000

$87,000

11.30

San Francisco, California

$1,400,000

$104,400

13.41

New York City, New York

$785,000

$89,511

8.77

Port Orange, Florida

$399,900

$37,551

10.65

The table shows that US cities, especially New York and Port Orange are more affordable than most cities in Down Under. Also, compared to major Australian communities, like Marrickville in Sydney, homes from Woodhaven in Port Orange are 49% cheaper. 

But living costs and taxes vary a lot. To truly see affordability, consider all expenses and compare costs for each location.

Interest Rate & Policy Impact

Interest rates are going up in America and Australia, affecting the residential real estate sector.

In the US, where rates have been low, a hike can lower house prices. Many buyers got adjustable-rate mortgages, so higher rates mean higher payments. The United States government mostly helps with loan guarantees, but these won’t work as well with higher rates.

On the other hand, in Australia, there are more ways to respond to higher rates.

The Reserve Bank of Australia can change rules like the loan-to-value ratio to make it harder to get big mortgages, which could lower demand. Also, the Australian Prudential Regulation Authority can make banks have strict lending rules, limiting how much money goes into housing.

New Zealand uses similar rules, such as loan-to-income ratio restrictions, to limit the amount borrowers can qualify for based on their income.

Both countries could see housing market problems, but Australia has more ways to manage them because of its regulations. However, it depends on how high rates go and how healthy the economies are.

Market Predictions

Predicting housing market futures is tricky.

Growth has been vital in Australia and New Zealand, but it might slow down due to higher interest rates and strict lending regulations.

Some say immigration and city growth will keep demand up. Migration has always driven housing demand here. Government policies on immigration will keep affecting demand.

Experts are also worried about housing being too expensive. Authorities are trying to help first-time buyers, but it's unclear if it'll work long-term.

In the US, housing prices have been going up a lot. But they might go down soon because of rising interest rates or a slower economy. Interest rates matter a lot for what individuals can afford. Fewer folks might buy houses if they keep increasing, and the market could soften.

However, the United States housing market seems good in the long run. The population is expected to continue growing, and housing will remain a fundamental need.

Property Types

Aussies and Kiwis usually like detached houses with big yards. But in big cities like Sydney, Melbourne, and Auckland, more people live in apartments because land is expensive and cities are getting denser.

Some suburbs have massive houses called McMansions, which occupy a lot of space.

In Down Under, some people also like living by the coast in beach houses. Others prefer big plots of land called lifestyle blocks for farming or just to enjoy the countryside.

Conversely, in the United States, people still like single-family homes, especially in the suburbs.

Condos are also popular in cities because they're cheaper and you share some areas with others. Townhouses are in between, offering some benefits of a single-family home with attached living spaces.

Americans often have groups called Homeowners’ Associations (HOAs). They make rules and look after shared spaces, but you have to pay the fees.

Conclusion

As you can see, The housing market, both domestically and abroad, can be complex and ever-changing.

By understanding the current trends, government policies, and potential investment opportunities in Down Under and the US, you'll be well-positioned to navigate this dynamic landscape and achieve your homeownership or investment goals.

 



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