Cautiously happy dance, house prices have dropped

House prices have fallen nationally, but some cities are sitting at new peaks.

The prices of a house is falling, along with our hopes of ever buying one.

Property prices are dropping slowly as the interest rate shoots upward, indicating a tough road ahead for first home buyers.

In June we saw widespread falls as prices dropped by -0.25% nationally, by -0.40% in Sydney, by -0.61% in Melbourne and by -0.09% in Brisbane, according to analysis from PropTrack.

Prices in Adelaide (0.42%), Hobart (0.26%) and Perth (0.12%) were up, with all cities sitting at a new price peak. Prices in Darwin (0.08%) were also up, while ACT (-0.23%) experienced a fall.

This may seem like a good thing. If property prices drop, a deposit will be cheaper and I’ll be more likely to buy. Right?

Not quite. 

Property prices are dropping because the interest rate is rising. A reminder: the interest rate is rising to flatten the cost of living.

Because the interest rate is rising much, much quicker than property prices are dropping, it makes it a much more difficult market to buy in. 

“What first home buyers should be concerned about is interest rates are increasing much faster than expected,” PropTrack economist Paul Ryan told The Oz. 

“The interest rate rising is helping to ease the price burden, but is increasing mortgages for people once they enter the market.

“Prices dropping won’t be enough to offset the borrowing costs.”

Currently, the interest rate is 0.85%, but Ryan expects it to be at 1.85% by the end of August. By the end of the year, he expects it to be 2.25% while financial markets expect it to be at 3%.

So, when should you buy a house?

Ryan said it was hard to predict, but his advice was to do the maths before looking to buy. 

“Run a ruler over your finances, and make sure your circumstances allow you to keep up with a rising interest rate,” he said. 

“But at the moment, affordability is deteriorating.”