A booming market is brilliant news for most homeowners, but for those looking for an upgrade, runaway prices pose a challenge.

Even though upsizers might be able to get a great price for their own home in a seller’s market, they’re still paying top dollar for the property they buy next.

When all properties are increasing in value, the gap between their existing home and their dream home continues to grow, making the leap to the next level more difficult.

But flat or negative price growth can create an opportunity to upgrade if the value of your next property has decreased further than the value of your current home.

In some markets, the discount for upsizers is substantial.

Benefits of a buyer’s market
Homeowners who have recently benefited from unprecedented price growth may not need to save as long to take that next step on the property ladder.

In Melbourne, the difference between median apartment prices and median house prices in the inner-east was $931,000 at this time last year. That figure has shrunk to $810,000, providing upsizers with a discount of $121,000. In the inner-city, the gap reduced by $91,700, and in the outer-east, by $58,000.

When demand softens, upsizers don’t have to compete with as many other buyers. If prices aren’t rising faster than buyers can save, the fear of missing out no longer clouds a buyer’s judgment.

Lenders are now taking a magnifying glass to buyers’ expenses and financial health when assessing loans.

Reduced competition, lower clearance rates and more properties listed for sale rather than auction means savvy buyers can negotiate harder to get a property for the right price, as vendors accustomed to boom-time prices are forced to meet the market.

Steps for upsizers
Upsizers should also consider the changed lending environment when planning their next move.

Lenders are now taking a magnifying glass to buyers’ expenses and financial health instead of relying on the household expenditure measure (HEM) when assessing loans. Morgan Stanley research suggests a crackdown on debt-to-income ratios could mean the average new loan size will fall by 8 per cent.

For a home owner with a sizeable chunk of equity, a healthy income and expenses under control, the effect will be smaller, but those upgrading when finances are stretched may find the situation more challenging.

Source - Domain Group