Best conditions in years: Why now is the time for hopeful first-home buyers to strike

Despite some gloomy headlines, now could be the best time in years for hopeful first-home buyers to strike thanks to several combining favourable factors, experts say.

Home prices have slipped in many parts of the country over the past several months, down 3.9% nationally from a peak in March last year, making conditions easier for bargain conscious first-timers to navigate.

At the same time, soaring rental prices sparked by high demand and very limited supply are inspiring many young Australians to consider their buying options.

And the consensus among pundits is that interest rates, which have jumped sharply since last May, could be nearing their peak.

“If you are in a well-paid, secure job and you already have a reasonable amount of savings then you can definitely benefit from the lower prices, providing you can weather the risk of a few more interest rate rises,” Martin North of Digital Finance Analytics said.

Mr North added that a lower-than-normal amount of investor activity in the current market has also reduced competition, which could be beneficial for the first-home buyer cohort.

“Investors have definitely stepped back so there’s less competition between them and first-time buyers in the sort of areas and price brackets where investors traditionally have won out, so it’s a little less intense than it was,” he said.

A combination of generous grants, cooling prices and reduced competition make it a good time for first-home buyers to act. Picture: Getty

Softer home prices on offer

Home price across the country boomed by double digits during Covid, but have since cooled and softened in most parts of the country, PropTrack senior economist Eleanor Creagh said.

“Market activity moderated last year from the extremely fast pace of growth seen in 2021,” Ms Creagh said.

“Property prices at a national level peaked in March 2022 and then as the year progressed, interest rate expectations and then the fast pace of rate rises that eventuated saw a slowing and then fall in home prices.”

Some experts now believe the price correction could end sooner rather than later, and the latest PropTrack Home Price Index recorded a modest increase in home prices in February.

Maree Kilroy is a senior economist at BIS Oxford Economics and said the pace of home price falls has clearly slowed in recent times.

“Our forecast is for the September quarter to represent the bottom for national property prices, with turnover beginning to improve soon after,” Ms Kilroy predicted.

“But some cities will recover earlier than others.”

Would-be buyers waiting for home prices to fall further before acting could be running out of time to make the most of soft conditions.

Plenty of incentives on offer

First-home buyers have the ear of politicians, particularly when it comes time to start winning votes.

In New South Wales, a hotly contested state election to be held on 25 March has both parties lobbying hard for the younger vote, with changes to the much-loathed stamp duty tax front and centre of early policy promises.

The incumbent Liberal government has already pushed through its stamp duty reform, which allows first-timers purchasing homes under $1.5 million to choose between paying the huge upfront sum or an annual, ongoing $400 tax plus 0.3% of the land’s value.

Premier Dominic Perrottet claims the reform, which came into effect in January, will cut two years off the time it takes for first-home buyers to save for a deposit.

And Mr Perrottet committed to expanding the program further, meaning anyone who opts in to land tax under the scheme can continue it for life, whenever they buy a new home down the track.

NSW Labor has countered with a policy that will eliminate stamp duty altogether for first-home buyers buying property priced up to $800,000, with concessions for properties above that figure to $1.5 million.

Details of the concessions proposed are yet to be released but the opposition claims the policy would see 95% of first-home buyers paying either no tax or a reduced levy.

Other states have existing schemes in play to support those purchasing a principal place of residence for the first time.

And at a federal level, a range of measures are on offer, from the Help to Buy shared equity program to the Regional First Home Buyer Support Scheme.

Rent prices set to soar further

The cost of renting a home across the country has surged in recent times, thanks to demand far outstripping supply.

Over the course of 2022, national rents rose by 6.7% to a median of $480 per week. In the major cities, things were worse – Sydney saw a 7.7% increase, Melbourne prices leapt 9.8%, and Brisbane rents surged 11.4%.

“Some of the rental pressures that have been evident over recent years in regional markets appear to be easing, while the market is tightening in the major capital cities,” Cameron Kusher, executive manager of research at PropTrack, said.

“But with people now returning to capital cities and overseas migration lifting, it looks as if it will become more challenging to rent a property in the capitals during 2023.”

Rates about to peak?

At its February meeting, the Reserve Bank of Australia hiked interest rates by 25 basis points to 3.35% – its highest level since September 2012.

When it meets again next week, the board is likely to lift rates again, Mr Kusher said, adding further pressure to household budgets and further reducing borrowing capacities.

However, there are growing signs that the RBA could pause sooner rather than later, he said, with glimmers of hope that inflation has peaked.

“We’re already seeing a slowdown in growth in producer prices,” he said.

“Retail trade has shown early signs that it may have started to stall, while home prices continue to fall and demand for housing finance is continuing to slump.

“Either way it appears we are nearing the end of the rate-hiking cycle.”

Not long after that, interest rates could begin falling again with Westpac forecasting a peak at 4.1% in May and then reductions as early as next year.

“Westpac concurs and expects that the next move in rates beyond mid–2023 will be the beginning of an easing cycle in the March quarter 2024,” Westpac chief economist Bill Evans said in a report this week.

Mr Evans predicts seven rate cuts over the course of 2024 and 2025, with the cash rate eventually tumbling to 2.35% in September 2025.

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