Warning for buyers looking to capitalise on falling house prices

Plunging house prices sound like a great thing for first homebuyers, but there are hidden realities that could sting Aussies later on.

Falling house prices might sound like great news for those looking to enter the property market, but behind the plunging prices are hidden realities that could sting first homebuyers.

Australian house prices have seen widespread falls over the past few months, particularly in major cities like Melbourne and Sydney.

This trend is expected to continue throughout the year and, while it might sound like a great opportunity for first homebuyers, there are still some things Aussies needs to consider before jumping into the property market.

PropTrack director of economic research Cameron Kusher told news.com.au that the flip side of the current housing market was rising interest rates making mortgage repayments more expensive.

“Falling prices make the purchase price lower for buyers but at the same time, higher interest rates both reduce borrowing capacities and make servicing mortgage debt more expensive,” he said.

“For first homebuyers, the decision to purchase will be a trade-off between lower prices but increasing mortgage costs compared to likely further rises in the cost of renting.”

Falling house prices are a big draw for many first homebuyers. Picture: NCA NewsWire/David Swift

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He added: “Of course, the federal and state governments have many incentives available to first homebuyers which may entice them to enter into home ownership as well.”

The Reserve Bank of Australia (RBA) hiked interest rates for the third month in a row following a meeting on Tuesday.

After its July meeting the RBA announced another 50 basis point increase, in line with market expectations, bringing the official cash rate target to 1.35 per cent.The third back-to-back rise follows another shock 50 basis points in June – the largest increase since February 2002 – and 25 basis points in May.

It is still early days into the property market shift, but those in the industry are now also noticing that the number of new properties being put up for sale is trending slightly lower.

However, Mr Kusher said this type of decline is not out of the ordinary, as winter tends to be a quieter selling period.

He said sellers don’t appear to be rushing to sell in response to the falling market.

“If anything, rushing to sell is what we saw post lockdowns through to April of this year,” he said.

“What we have seen over the past few months is significantly fewer sales and as a result, the total number of properties available for sale is lifting.”

One of the more obvious impacts of falling house prices has been declining auction clearance rates.

For the past two years, Australia has seen very strong clearance rates across the country, with lower rates a typical sign of a slowing property market.

Sellers are finding there are fewer bidders for properties and, as a result, many are having to reconsider their price expectations.

“Some may also decide that private sales are a better option to sell than auction, while others may be more inclined to take offers they receive before auction,” Mr Kusher said.

House price falls to ‘accelerate’

It seems that the current price falls may only be the beginning, with Mr Kusher saying the plunge will likely accelerate in response to rising interest rates.

“We expect that interest rates will continue to rise over the coming months and that is likely to result in further falls in property prices,” he said.

“The market has been slowing since the middle of last year following exceptional price growth through the pandemic. More recently, prices have been falling over recent months in Sydney, Melbourne and Canberra, with Brisbane joining the declines in June.

“We would expect further falls with the rate of decline likely accelerating as interest rates increase further.”

Rising interest rates are putting extra pressure on those with mortgages. Picture: NCA NewsWire/Joel Carrett

However, he did note that prices were still up 34 per cent since the start of the pandemic, with further falls likely still leaving house prices above pre-pandemic levels.

PropTrack’s Home Price Index released at the start of this month showed national home prices fell by 0.25 per cent nationally in June, with continued falls in Sydney, down 0.4 per cent, and Melbourne, down 0.61 per cent.

Prices in Brisbane also fell for the first time in more than two years – since April 2020 – with a slight decline of 0.09 per cent, but the Queensland capital is still the country’s strongest market over the year.

“While prices are down only 0.55 per cent from their peak in March 2022, an outsized rate hike in early June and expectations of much higher rates later in the year continues to slow all markets, with widespread falls seen in June,” the report says.

“The two-speed housing market remains evident. The biggest slowdowns have been in the most expensive markets of Sydney, Melbourne and the ACT. Affordable, lifestyle regions of Brisbane, Adelaide, regional Queensland and Tasmania have continued to grow, but the slowdown is spreading to these markets, with Brisbane posting its first small fall since the pandemic began.”