We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...
Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.
[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]
Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)
^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.