Real estate remains the crown jewel in every homeowner’s life

The gold and glitz of the recent coronation is nothing compared with the wealth in your own backyard. Here’s why.

When one thinks of wealth, jewels and other riches, one’s mind may wander across oceans to King Charles (it still feels weird to say that) and his rather unusual family.

However, one’s true wealth lies much closer to home. In fact, it is one’s home, and now is the time I shall stop saying “one”.

Britain’s crown jewels sit safely in the Tower of London, sometimes taking excursions for coronations, but the crown jewel for Australians remains residential real estate – despite a tough past year and uncertain short-term outlook.

The list of threats to property worries many people right now.

The looming mortgage cliff – when borrowers shift from low-interest fixed-rate loans to high-interest variable rates – still threatens to send borrowers into deep financial water.

A real gem: housing is Australians’ greatest source of wealth. Picture: iStock

Canstar calculations show it costs a borrower with a typical $500,000 variable-rate loan $1133 more each month in repayments than it did a year ago, and someone with a $750,000 mortgage is paying $1701 extra.

Just when we thought interest rate rises had stopped, the Reserve Bank gave borrowers a nasty surprise in May with another increase and warnings of more potential rises to come.

Home values have fallen in most capital cities in the past year – down 9.7 per cent nationally but varying widely between states – and while they appear to have stabilised, further rate rises and the mortgage cliff could cause more price weakness.

While there are worries, there are also plenty of reasons why homes still sparkle, and should be an aim of those who don’t own one.

Supply and demand drive the values of most assets, and real estate demand is set to climb as hundreds of thousands of new migrants now call Australia home each year. At the same time, we see low supply everywhere – not enough homes are being built to accommodate existing Australians, let alone the newbies.

Interest rates are at or near their peak. Whether we have one or two more rises, the broad trend in the next few years will be rates and repayments going down – which makes housing more affordable again and should drive up demand.

People are always looking to escape the rent trap, especially now that rent costs have surged recently.

The coronation was fancy, but so is housing wealth. Picture: Hugo Burnand via Getty Images

And while inflation pushes rents and prices up, loan balances stay put or fall, meaning borrowers own an increasingly greater slice of their property. Repayments can quickly fall below the cost of what it would be to rent the same property.

Owning a home has huge tax benefits, and as expected the recent federal budget did not mess with residential real estate’s tax-free status when sold for a capital gain.

Don’t expect any government to try to tax capital gains on family homes any time soon – it’s political suicide.

Australia’s residential real estate wealth dwarfs other assets. At $9.4 trillion, it’s almost three times larger than our superannuation ($3.4 trillion) and more than triple the size of our share market ($2.8 trillion). And it will remain the best place to build wealth – one is certain of that.