Expert’s advice for first home buyers as prices drop and interest rates rise

IT’S a very confusing time for first home buyers with many mixed messages about the property market. But this is what’s really important.

First home buyers should try not to be emotional when purchasing their first property. Picture: Joel Carrett/AAP

HOUSE prices are finally dropping in Sydney and Melbourne but scary predictions about the market may have left some first home buyers wondering whether it’s a good time to buy.

Property expert Michael Yardney said it was a very confusing time for first home buyers because of the mixed messages around the possibility of a housing crash and interest rate rises.

Recent reports that houses could plummet in value by up to 40 per cent in the next 12 months and plans for a potential crackdown on negative gearing if Labor wins at the next election have made some buyers nervous.

After huge gains in places like Sydney, where prices went up 56 per cent in five years, the latest Australian Bureau of Statistics’ Residential Property Price Index recorded an annual fall in capital city prices for the first time in six years. The price drop of 0.6 per cent was largely due to falls in Sydney and Melbourne, with less demand for homes and a tightening of lending to investors being blamed.

While falling prices are good for first home buyers, some may be worried whether it’s a good time to buy if they keep going down.

“Last year they suffered from FOMO (Fear of Missing Out) and every week they were reading about property prices going up and they thought they had missed the boat,” Mr Yardney told news.com.au.

“Today it’s the opposite. They are thinking if they buy now, their property could be worth less down the track.”

But Mr Yardney said first home buyers shouldn’t focus too much on the potential for further price drops due to things like negative gearing changes, as this didn’t really impact them.

“My message is that it’s the right time to buy property for a family and a home when it suits your personal circumstances and when you’ve got finance,” he said.

“You shouldn’t allow short-term market fluctuations or nervousness to affect your long-term personal goals because residential real estate in capital cities has proven to be resilient.”

Mr Yardney said properties had doubled in value every 10 years for the past 30 years, when good records started being kept.

This is despite changes in government, policies, global financial crises or other shocks.

Tumbling house prices in Sydney and Melbourne are the main drivers behind the first annual drop in national property prices in six years, a new report shows. Picture: Joel Carrett/AAP

“As long as you bought a good property at a fair price — and waited — it went up,” he said.

Even though some banks have chosen to increase interest rates, Mr Yardney pointed out the change was very small (just 0.14 per cent for some banks), and experts like Macquarie Bank don’t expect the Reserve Bank of Australia to lift official rates until early 2020.

“There is no doubt interest rates will go up, so it’s something to factor into your budget but interest rates shouldn’t scare you,” Mr Yardney said.

Something home buyers should be realistic about though, is price growth.

“Property prices have experienced double digit growth in Melbourne and Sydney but that was a boom and it was unsustainable,” he said. “You’ve got to have realistic expectations, that you are buying a house to provide shelter for your family, to have control over your environment … and so you can decide whether you want things like a pet.”

He said the security of owning their own bricks and mortar was something that had created wealth for Australians, with about 70 per cent of Australians owning or currently paying off their own home.

DON’T WAIT FOR THE RIGHT TIME, OR THE PERFECT PROPERTY

While some first home buyers hoped to purchase their dream home, Mr Yardney warned against searching for a perfect property and said buyers should also drop the idea that they could pick the right time to buy.

“Don’t wait for the perfect time, you are not going to find the perfect time, because experts don’t even get it right,” he said.

“Make compromises, your first home will not be your final home.

“Don’t expect to start with the perfect home that it took your parents 30 to 40 years to achieve. Start small to get your foot on the property ladder.”

He said some buyers were choosing to rentvest, which allowed people to buy a property they could afford, while continuing to rent a place in an area they preferred to live in.

“This helps to get the power of property to work for them and it also gives them flexibility, especially if they are not sure where they want to put down roots or if they want to travel,” he said.

“It allows them to take advantage of the opportunity that the current market offers.”

WHAT IF YOU’RE PLANNING TO UPGRADE IN THE FUTURE?

With the threat of a downturn hanging over the market, Mr Yardney said it was important to chose a property wisely, especially for those who want to start small and then upgrade.

“Remember you are not buying the entire market, you are buying into an individual market at the right price,” he said.

This meant finding the right property in the right area, with a medium to long-term outlook.

“You’ve got the opportunity to buy into the market today at a lot less competition than there was a year ago,” he said. “You’ve got the opportunity to nab a good buy.”

He said by the time people start feeling good about buying, they had missed the best bargains.

“The only reason you start reading these stories (about being a good time to buy) is because people took a punt three to six months before and this pushed the market up. By the time you read it in the papers you’ve missed the bottom.”

WHEN WILL WE HIT ROCK BOTTOM?

Mr Yardney believes Sydney prices will continue falling until late 2019 and will probably decrease another 5 per cent. In Melbourne, which peaked in November 2017, the market probably follow the same pattern.

But he said the market was still rising gently in Brisbane, Canberra and Hobart and was still likely to continue doing that.

According to the ABS, prices rose in the June quarter in Hobart by 3 per cent, in Brisbane (0.7 per cent), Adelaide (0.3 per cent) and Canberra (0.3 per cent).

“You’ve got to understand your local market and not get tied into the emotion of either fear or greed,” Mr Yardney said. “It’s hard not to be emotional, it’s a big decision, so sometimes it’s worth getting independent advice.”

Buy at the right time for your circumstances and finances. Picture: Joel Carrett/AAP

WHAT YOU NEED TO WATCH OUT FOR

Mr Yardney warned first home buyers to be careful of their budget as they were taking on a large commitment and it often involved expenses they may not be use to paying if they were renters or still living at home.

He said buyers should put aside money for purchase costs like stamp duty, which was usually around 5 per cent for most people but could be lower if they were eligible for a first homeowner grant scheme.

Other costs include those for conveyancing, home insurance, council rates and ongoing maintenance.

“There are always little extra costs that many first home buyers forget about. Don’t spend your last cent, keep something up your sleeve as there’s always something unexpected that can cause financial embarrassment,” he said.

DON’T LOOK BACK

Once you have bought your own place, don’t keep looking at properties.

“It’s normal to have buyers remorse,” he said. “Anytime you purchase an expensive item, like a handbag or suit, you begin thinking you could have paid less or got something else instead.

“Be assured, a well located property in Australia, despite the ups and downs, have always increased in value.”

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