First home buyers’ dilemma – buy now, or wait for later?

The question facing many of those looking to get a foot on the property ladder is whether to dive in now in the belief house prices will not fall much more, or wait in the hope prices will fall further in the months to come.

Pulling the trigger on buying a new home is easier these days as saving for a deposit is less of a stumbling block. From July 1 this year, 35,000 places were released under the government’s First Home Guarantee (FHBG) where qualifying first home buyers only require a deposit of 5 per cent.

First timers have rarely had it better to enter the market, but are they better off waiting in expectation of even lower pricesCredit:Louie Douvis

As part of the expansion of the scheme the Sydney price cap was lifted to $900,000 and, for Melbourne, $800,000 – an increase of $100,000 on the previous financial year.

The Reserve Bank of Australia (RBA) first lifted the cash rate at its May meeting and has lifted the cash rate at every meeting since – taking the cash rate to 2.6 per cent from 0.1 per cent as it seeks to curb inflation.

Most analysts are expecting to cash rate to reach at least 3 per cent by the end of this year, with another rate rise likely on Tuesday.

But the peak in the cash rate cycle may not come until next year. A worst-case scenario, where the cash rate peaks at 3.6 per cent, would see a borrower with a $500,000 loan over 30 years paying an extra $321 a month in repayments on what they are paying now.

Most analysts are expecting continued falls in property prices from here. Economists at the big four banks are expecting a drop nationally by up to 20 per cent between the start of this year and the end of 2023.

CoreLogic figures show prices have fallen by almost 5 per cent so far, which implies substantial falls still to come if the banks’ forecasts are right.

There is a further factor that may put downward pressure on prices. Many borrowers who took out very low fixed-rate mortgages will be paying much higher variable mortgage rates when their fixed terms end.

RBA figures show that the “roll off” to variable rates taken out in 2020 and 2021 started in the middle of this year, and will continue through to the end of 2024, when the cash rate could well be lower than it is today.

However, the greatest concentration of fixed-rate mortgages will end in the second half of 2023, the RBA figures show.

The full extent of how far housing values will fall remains highly uncertain and largely dependent on the trajectory of interest rates, says Tim Lawless, research director at CoreLogic Australia.

For first time buyers, there is not much point in trying to pick the bottom of the market – close enough is near enough.

Forecasts are notoriously hit-and-miss. Analysts mostly failed to anticipate by the rapid rise in prices from about March 2021 until the end of that year, after an initial slide in prices in the early phase of the pandemic, due to record-low interest rates and government stimulus spending.

Steve Mickenbecker, the group executive of financial services at Canstar, says the “only certainty about house prices is that there is no sure thing”.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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