To rent or buy – that is the question. Picture: iStock With investors being pushed out of the market, rents rising and property prices falling across most of the capitals, now could finally be an ideal time for renters with savings to buy their first home. But while property experts are calling a buyer’s market, rising interest rates and the threat of negative equity looms large for many would-be buyers – especially when factoring in the added extra costs of homeownership.
So, how do you know which path to take? Have falling property prices brought your dream of home ownership into better view? ECONOMIC OUTLOOK According to Ray White chief economist Nerida Conisbee, at the time of writing, Sydney and Melbourne were both experiencing year-on-year declines in property values while many other markets were experiencing month on month declines.
“The market is definitely weaker,” she said. MORE: Aus’ home prices fall 6 times, more to come ‘Too expensive’: Gen Z, Millennials shun local property dream With many investors traditionally purchasing at a similar price point to first homebuyers, a slowdown in activity meant the affordable end of the market could see much weaker price growth than the top end, she said. While this presented a good opportunity for first homebuyers, it also meant the risk of negative equity – especially in markets where investor activity had traditionally been higher, she said.
Ray White Chief Economist Nerida Conisbee. “Investors are most active in that sub $750,000 (price range). So that’s where, we expect, will be the most impacted markets,” she said.
At the time of writing, market forecasts ranged from a 3 to 10 per cent drop in property prices nationally. While Ray White didn’t expect values to drop 10 per cent across the board, certain markets could experience such declines, she said. Rents have gone up in Sydney and Melbourne.
Picture: Max Mason-Hubers Renting, on the other hand, remains an unattractive proposition in many parts of Sydney and Melbourne. The availability of rental properties in the harbour city has dropped to its lowest level since 2017 while rents have also been rising south of the border following an exodus of investors. In contrast, Brisbane and Perth have been “relatively well supplied for rental properties.” “Our view is that rents will outpace pricing,” she said.
“We think pricing will be pretty soft for the remainder of the year, but rents will start to pick up and we’re already starting to see them pick up.” Buyer’s agent Mario Borg. Picture: supplied OPPORTUNITY KNOCKS Melbourne buyers agent Mario Borg said the current market offered a good opportunity for first homebuyers to make sound decisions without the stress of a fast moving market. “Buyers also have greater negotiating power than they did a few years ago,” he said.
“In many locations there’s less urgency, more properties to choose from and vendors who are far more willing to negotiate than we’ve seen in recent years.” However, affordability has emerged as a downside for many first homebuyers. Rising interest rates have dampened affordability. Picture: iStock.
“Interest rates are still significantly higher than they were a few years ago, reducing borrowing capacity and increasing mortgage repayments,” he said. “Renters are also dealing with increasing rents and limited housing supply, making it difficult to save a deposit while paying record rental costs.” He said it’s better not to try and pick the absolute bottom of the market. Instead, he recommended buying a property that suited your budget and needs.
“Consider whether the property will still suit your needs in five to ten years, whether it’s in an area with good long-term fundamentals and whether you’ll still be comfortable making repayments if your circumstances change,” he said. Will the property still suit your needs in five years’ time? Picture: iStock AVOIDING TROUBLE Mortgage broker and co-author of The quick-start guide to your first property Rachelle Kroon said the current market was an ideal time for renters to buy a property if they had their deposit lined up and they could afford it.
It was important to consider the risk of negative equity – especially when buying with a small deposit – however, if you could afford the repayments and hold onto the property over the long term, you would still likely see growth if buying the right type of property in a good location. Co-author of The Quick-start guide to your first property, Rachelle Kroon. Picture: supplied She warned first homebuyers to think carefully before using the 5 per cent deposit scheme since it doesn’t offer the flexibility to rent out the property and move in with family if you can’t afford your repayments anymore.
She said waiting until interest rates come down before buying comes with the risk that house prices will start to go up again, making it more difficult to negotiate a good deal. “My advice would be if you’re ready to buy and it fits your strategy, don’t let this stop you,” she said. “This should be your time to lean in and take advantage of the quiet.” Consider the numbers before you get emotionally attached to the property.
CAN I AFFORD TO BUY? It’s not just the cost of borrowing you need to factor in when deciding whether to buy your first home. Mario Borg said it was important not to base your budget on what the bank said you could borrow.
Instead, you should prepare a realistic household budget that includes repayments at interest rates one to two percentage points higher than today’s rate, as well as the following additional costs: UPFRONT EXPENSES: Stamp duty (where applicable) Conveyancing and legal fees Building and pest inspections Lenders Mortgage Insurance (if applicable) Loan establishment and settlement costs Moving expenses Immediate repairs or improvements (it’s important to have an emergency buffer) ONGOING EXPENSES: Council rates Water rates Home and contents insurance Owners corporation fees (for apartments and townhouses) Maintenance and repairs Utilities Gardening and general upkeep Is now the right time to make your dreams a reality? MORE: Where to find property bargains under $400k ‘Nail in the coffin’: Rate rise threatens Aussie home builds Landlord says renter can’t have baby over request
Source: realestate.com.au
