How Much House Can I Afford?
Expert tips for prospective buyers looking to purchase a home in 2024.
3 min
For aspiring homeowners, be it a first-time buyer, downsizer, or investor, picturing your idea of homeownership bliss is the easy part. But before deliberating on furniture choices or scouting for that perfect neighbourhood coffee, understanding your purchasing power stands out as the most important step in ensuring your success in homeownership.
And with the Australian property market gaining momentum in 2024, there’s never been a better time to come to grips with your financial options.
In 2023, amid the changing financial landscape that saw rising interest rates and the cost of living skyrocket, among other factors, the total amount borrowed for property purchases across Australia was estimated at $300.9 billion, a 12.7 percent decrease from the previous year, according to PEXA’s latest Mortgage Insights Report.
Each mainland state also experienced a decline in new lending, according to the report, with Victoria and New South Wales seeing the biggest drops to $84.1 billion and $109.5 billion, respectively.
While this trend reflects the repercussions of such financial hardships on the everyday Australian, John Morello, director and auctioneer at Jellis Craig, said we’re seeing renewed confidence in the property market during the first quarter of 2024, particularly in Melbourne.
“Auction clearance rates have started the year strongly and consumer sentiment is rising. This lift is driven by cooling inflation and an improved outlook on interest rates. At Jellis Craig, as with the rest of the market, we are experiencing an increase in volume of property compared to the same period in March last year (up 28% in 2024),” Mr Morello said.
“Melbourne’s property market, in particular, is showing its ongoing evolution and resilience.”
PEXA’s report revealed that, while borrowing saw a decrease in 2023 in Australia, Australians still invested $613.0 billion in property purchases in 2023. In 2024, purchasing confidence is only going up, as prospective first home buyers, seasoned downsizers, and savvy investors look to capitalise on a flood of new property hitting the market, coupled with the lowering of interest rates across the board.
“With more certainty in the economic outlook, along with an increase in volume of property available, we are seeing these factors translate to early signs of a boost in confidence in both buyers and sellers,” said Mr Morello.
“Further encouraging data shows that whilst there is more property available to purchase, more people are inspecting property, again indicating that demand has increased broadly across our marketplace.”
If you’re in the market for a new property, the biggest question you must ask yourself is how much house can I afford?
A great starting place is to speak with your mortgage broker or financial professional, who can guide you on your lending options. This is critical, as you need to know what your future repayment options might look like, and ultimately, what you will typically be able to afford.
A useful tool for judging whether you can afford a specific property is to factor in the 28/36 rule — a rough guide that suggests you should not spend more than 28 percent of your gross monthly income on housing, and no more than 36 percent on all debts. Another useful tool is the idea of a debt-to-income ratio (DTI); a formula whereby an individual can divide all of their monthly debt payments by gross monthly income to arrive at a number that one can measure as a way of managing monthly mortgage payments.
Mr Morello emphasised the need to understand affordability and what’s feasible for each individual when looking to make a purchase, no matter the budget, on a property in 2024.
“It’s pivotal to work out what you can afford. Get your finances in order. Consider all associated costs with buying, and research what concessions and grants are available,” said Mr Morello.
“It’s easy for individuals to begin the process today. Start actively searching potential properties on a weekly basis, and research areas you are interested in. Check weekly sales results, attend inspections and auctions, to get a feel for the process. Just remember, it’s important to be really comfortable in understanding your living expenses, and what the ongoing expenses will be once you have bought a property.
“For example, mortgage repayments, council rates, water, power, owners corp fees, insurances, maintenance costs; if you are buying as an investment, the Land Tax payable on that property which is an ongoing tax. There’s many factors to consider.”
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To see what’s possible for your specific circumstances, visit our Finance Portal for specific tools, guides and tips—as well as our own mortgage calculator—to assist you on your property journey.
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It was a total accident, and their worst nightmare
4 min
Have you ever accidentally damaged a client’s home?
Debby Belt, senior associate, Hammond Residential Real Estate, Chestnut Hill, Mass.
I was representing the seller of a four-bedroom Cape Cod-style home in Newton, Mass., just west of Boston. It was May 2016 and the house was listed for $929,000. It had a beautiful kitchen, with wood cabinets, granite countertops and stainless-steel appliances.
The house went under contract, and it was scheduled for a home inspection. I wanted the house to look pristine for the inspector and buyers, but the kitchen counters were cluttered, so I frantically threw things into drawers, and I put some glassware, baking tins and plates into the oven. When the inspector walked into the kitchen, he turned on the oven to test it without looking inside first. I was in another room at the time, but I smelled something burning, and then heard explosions as the glass shattered.
When I ran into the kitchen, I saw smoke and a small fire in the oven. There was broken glass all over the place, and the kitchen was smoky. Since it was a gas oven, it could have been much worse. The oven was damaged, and the seller wasn’t happy, so I gave her a $500 discount on the commission to offset any damage or credits she would have to give to the buyers. The buyers weren’t too upset, fortunately, because they were probably planning to update the appliances. The home ended up selling for $920,000 with the oven not functioning perfectly. Now, when I meet the inspector, we both still laugh about it.
Jeffrey Kahn, broker, Broker Associates Realty, The Villages, Fla.
In 1995, early in my real-estate career, I was representing the seller of a condominium in a luxury high-rise building on the ocean in Lauderdale-by-the-Sea, just north of Fort Lauderdale. My seller had the mistaken impression that the dining room chandelier was excluded from the sale, so she had it taken down just before closing and replaced it with a less-expensive fixture.
When we did the walk-through the day before closing, the buyer noticed that the original chandelier, which was about 3 feet wide and custom-made from oyster shells and glass on a wrought-iron frame, was missing and, since the contract said that the unit was being sold furnished with everything included in the sale we needed to rectify the situation. The buyer was refusing to close because she loved the chandelier, and my commission—about $30,000, which I was going to split with the other agent—was in jeopardy. The original chandelier was packed in a box on the dining room table, and to make the deal happen, I told the seller I would replace her chandelier with a comparable one if we would rehang the original.
It wasn’t a difficult chandelier, and I’ve done a lot of electrical work in my own homes, so I took down the one hanging from the ceiling. As I started to remove the oyster-glass chandelier from the box, a hairless Sphynx cat jumped on the glass dining room table and rubbed against me. I had never seen a cat in the apartment during the entire listing process, so it scared the heck out of me. I dropped the chandelier, which broke, and I ended up having to pay $8,000 for two new chandeliers and electrician fees. Thankfully, the unit sold for $978,000 and my commission was sufficient to cover the costs. I was just happy the glass dining-room table didn’t break because then my whole commission would have been gone.
Joshua Garner, real-estate agent, The Agency, New York City
In October 2022, I was representing the owner of a Classic Seven co-op on the Upper East Side that was listed for $3.1 million. It had three bedrooms and 2,575 square feet of classic prewar details, with 13 windows and high ceilings. It also had the most particular seller ever. She trusted no one but myself to open up and show the apartment, and it took no less than 30 minutes to prepare and close up each time. There was a written checklist I had to follow, in a specific order, that included the proper angle at which to pull the string for the blinds, how to pick up and strategically fold, stack and put away the series of white sheets she had laid out as runners to protect the bedroom carpets and wearing shoe covers and gloves. She would watch everything from Switzerland via her security cameras and would call me to correct the smallest details.
Prospective buyers were told not to touch anything and to stay on designated walking areas, which were placed a distance from the Ming vases. If they wanted to see the interior of a cupboard or closet, I would refer to myself as Vanna White and would respond to what they instructed. I always warned them ahead of time that she was probably watching and that anything they said or did would be recorded. Buyers would enter with their guard up, which made it difficult. One day, after a showing, I couldn’t get one of the blinds to lower properly. I panicked, but I notified her immediately, and she had a maintenance worker inspect it. The cord had come off the internal spool, and even though it was a quick fix, the seller was livid and ready to withdraw the exclusive.
The only thing that saved the listing was offering to pay $300 to fully replace the mechanism to restore it to new condition. Although there were incidents that upset her during other showings, thankfully, nothing else was ever broken. This co-op, which ended up closing for $2.95 million in October 2023, was the most high-stakes deal I ever worked on.
—Edited from interviews by Robyn A. Friedman
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