Property prices are currently falling in many parts of Australia, so, if you believe the negative commentary, that must mean now is a bad time to buy.
Well, that’s one view. Another – arguably more logical – view is that the best time to buy anything – whether it’s a fridge, a holiday or a home – is when the price is lower.
So, by that measure, now is a good time to get on the property ladder, assuming you have the financial capacity to repay a mortgage.
Property prices fell in the early months of the pandemic, as the economy ground to a halt. But then a remarkable property boom began. In Sydney, for example, the median price jumped 27.7% in little more than a year to a new record-high, according to CoreLogic.
Since then, Sydney’s median property price has fallen 9.0%.
As the table below shows, the same story has played out in every capital city. Prices boomed for about 18 months, hit a new record-high, and have since been slowly declining. The one exception is Darwin, where prices are still growing, but the market remains below the peak that was reached in 2014.
Conditions are turning in favour of buyers
There are two other reasons why now could be a good time to get on the property ladder.
First, realestate.com.au data for August shows a significant increase in for-sale properties:
When supply goes up, demand goes down. So when the number of properties listed for sale increases, the number of buyers per listing decreases. That means buyers:
Second, the federal government’s Regional First Home Buyer Guarantee was launched on October 1, three months ahead of schedule. Under this scheme, 10,000 first home buyers per financial year can buy a regional property with just a 5% deposit, without having to pay lender’s mortgage insurance.
Conditions apply – including income caps, purchase price caps and location restrictions. But if you’re an eligible first home buyer and you want to buy an owner-occupied home in a regional market, this could help you get on the property ladder much sooner.
Why higher rates today might mean lower rates tomorrow
What about rising interest rates, though? Doesn’t that make it harder to get on the property ladder?
Sadly, yes, it does, as when rates go up, the average person’s borrowing power goes down.
(Incidentally, that’s why it’s so important to work with an expert mortgage broker, like Shore Financial. Your borrowing power differs from lender to lender; a good broker can recommend a lender that is likely to give you the loan you need to buy your dream property. Also, your broker can recommend other steps you can take to maximise your borrowing capacity.)
However, counter-intuitively, the higher interest rates we’re paying today could actually lead to lower home loan repayments in two years, according to the Reserve Bank’s head of domestic markets, Jonathan Kearns.
As he explained in a recent speech, rising interest rates lead to higher repayments and therefore increase the cost of owning a home in the short-term. However, rising rates also reduce buyer demand; which causes prices to fall; which reduces the amount of money buyers need to borrow.
“Estimates suggest the net effect is that mortgage payments for new buyers would be higher for about two years as a result of higher interest rates. But after that, the declines in housing prices and mortgage size begin to dominate,” he said.
“This exercise obviously abstracts from the many other factors influencing interest rates and housing prices, but it suggests that because higher interest rates reduce housing prices and so mortgage sizes, mortgage payments for new borrowers could ultimately be lower than if interest rates had not increased.”
Don’t be afraid to ask for help
Despite falling prices and rising rates, this might be a good time to get on the property ladder.
That said, it all depends on your personal circumstances. No one should ever buy a property unless they’re confident they can meet their mortgage repayments throughout the life of the loan.
Don’t be afraid to ask for help if you’re confused or uncertain. Shore Financial has assisted many first home buyers over the years. We can explain your options to you in plain English and crunch the numbers for you, to make sure you can afford to enter the market.
Shore Financial can help you get on the property ladder. To discuss your options, call us on 1300 416 700, email us on info@shorefinancial.come.au or fill in this online form.
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