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How are house prices determined?
Consider the area and availability of properties that match your needs

When it comes to determining the price of any item in any economy, supply and demand are major forces at work – the housing market is no different. So, if the demand for a house is high but the supply is low, then the price will generally rise accordingly. However, if the supply of a certain type of property, eg a seaside retreat, is high but the demand is low, then the prices of properties in such areas will generally fall.

So, if you are looking to buy a house in an area that has less supply and potentially more demand, you need to be prepared to deal with higher property prices than those offered in other areas that have more properties available.

Pay attention to interest rates – are they high, low or moderate?

People are more likely to go house shopping when the interest rates are low. Why? Because they feel more confident with the way the economy is going and more importantly, with their own financial situation, ie their ability to service the loan.

Accordingly, low interest rates can also impact the level of demand in the property market. More people looking to buy houses means higher demand, which in turn drives up property prices.

Conversely, high interest rates are more likely to push the housing market prices down, as people are more likely to maintain the status quo. Less people in the market to buy a house means lower demand, thereby pushing those house prices down to increase the chances of a sale.

  
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Look at the current unemployment rate

The employment rate can also affect people's willingness to spend and moreover, commit to a mortgage. When employment rates are high and people feel secure in their jobs, they are more likely to purchase property, which in turn drives up the demand for property and the prices.

On the other hand, if unemployment rates are high and people feel 'insecure' about their future employment prospects, they may be less willing to commit to a mortgage.

Evaluate the cost of materials

If you’re looking to buy a newly built home or an ‘off the plan’ home, then the price of construction materials may also impact the purchase price of a property. Highly priced materials in turn generally lead to higher property prices in order to cover the cost of construction. If construction materials increase significantly in price, then builders and property developers are less likely to build new houses, thereby reducing supply and impacting market prices.

Further, if builders continue house constructions in times of increased building material costs, property prices may again increase as the cost flows onto the end buyer.

The cost of labour can also have an impact on property prices. If the cost to hire bricklayers, carpenters, electricians etc. rises, then these prices are also passed onto the final building cost and impact the property purchase price.

Work out what sort of property is ‘ideal’ for you

You want to buy a new house…but what are you looking for in your dream home? Brick, two storey, three bedrooms? Everything has a price tag and you need to assess your wants and needs before you begin looking at houses.

If you are looking at purchasing an established home, rather than a newly built or ‘off the plan’ home, then you may not be impacted directly by such things as the cost of materials and the cost of labour.

Is consumer confidence showing a positive market or not?

Keep informed and listen to what the finance experts are saying, read the papers, and keep your ears open for any signs of consumer confidence levels.
When consumer confidence is low, people are less likely to spend money. This includes builders and property developers as they are concerned with the state of the economy too and may be less likely to borrow money to invest in building homes. This can then flow on to impact the supply of property, which given what we know about supply and demand, can increase the prices of existing properties.

Now might be the right time for you to get into the market, if you want to talk about your proposed property purchase and work out a home loan that can help you buy the property of your dreams, speak with a RAMS Consultant today.