Now might be first home buyers’ best chance to break into the market

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It’s not been called the great Australian dream for nothing. But in recent years, buying your first home has become increasingly harder.

The biggest challenge?

Saving a deposit – with the most recent ANZ CoreLogic Housing Affordability Report finding it takes, on average, more than 11 years for a first home buyer to save a 20% deposit for a median-priced Australian home of $752,000.

But that data is from the June quarter … and Australia’s property market downturn has gathered speed since then, with Domain’s September house price report finding median house prices in the combined capitals fell 4% quarter-on-quarter.

What’s more, four of the capital cities – Sydney (-5.2%), Melbourne (-4.3%), Brisbane (-4.3%)  and Canberra (-5.8%) – all saw their biggest quarterly fall on record, which should go a long way in improving affordability.

But surely this all means you’d be better off waiting for prices to fall even more before buying your first home?

Probably not – and there are two big reasons why.

Firstly, trying to pick the bottom of the market is almost impossible. And while property prices might still moderate from here, many experts agree it’s unlikely there will be a crash. In fact, national prices would need to fall by an additional 21.3% to wipe out the gains they’ve seen over the pandemic price boom, according to Domain’s calculations.

Secondly, the longer you wait, the less money you will likely be able to borrow for a home loan.

Let’s discuss why.

Rising interest rates are shrinking borrowing capacity

Australian property prices might be falling, but it’s a double-edged sword for many first-home buyers because the current downturn is being driven by interest rate rises.

Every time the Reserve Bank of Australia (RBA) increase the cash rate – and lenders pass on the hike to their home loan customers – it increases the size of borrowers’ mortgage repayments.

Furthermore, rate rises reduce borrowing capacity, which is the maximum amount of money you can borrow for a house loan. As a general rule, each time the RBA raises the cash rate by 50 basis points, the average homeowner’s borrowing capacity drops by about 5%.

So if you wait too long, you might not be able to afford the home of your dreams, with RateCity estimating the average home buyer’s budget has shrunk by more than $214,000 since the RBA’s rate hikes began in May. 

Greater choice for first-time buyers

During the recent property boom, buyer demand exceeded supply, which was one of the factors driving up prices.

Now, supply is exceeding demand, with PropTrack reporting that the total number of properties listed for sale nationally increased 2.4% in October, to be up 6.1% compared to the same time last year.

It gets better if you’re a buyer.

The less competition there is for properties, the more potential for price discounts. In the three months to October, the median vendor discount at the national level was 4.3%, according to CoreLogic.

Looking to break into the property market? NMC Finance is an experienced home loan mortgage broker who can help you get on the ladder. Contact Nathan Coad on 0498 766 639 or to find out more.

* This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.

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