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Academics say first-home buyers shouldn’t buy now

First-home buyers should be cautious about purchasing in the current market, according to academics.

Professor Peter Swan from the School of Banking and Finance at UNSW Business School said now might not be the time for first-home buyers to step onto the property ladder, courtesy of a rising market and the combination of high inflation and higher interest rates.

Professor Swan said while first-time buyers encounter numerous challenges in acquiring their initial homes, it was crucial to be well-informed about the optimal timing for making this significant purchase.

“Purchasing property without knowing the market could lead to first-home buyers having challenges in making their mortgage repayments,” Professor Swan said.

He said current economic conditions had the potential to lead to a recession and rising unemployment.

“Vulnerable first-home buyers may be squeezed and unable to meet their repayments with their property being repossessed,” he said.

“This happened during the Global Financial Crisis.

“More stable markets with the absence of inflation and less prospect of a recession better suits low-income first-home buyers.”

He said first-home buyers should focus on buying when prices start to fall.

“A good time to buy is when house prices are relatively depressed, and you are capable of raising the deposit and meeting interest payments on your loan,” he said.

Professor Swan said that given the current market dynamics, he doesn’t expect to see weakness in prices in the short-term.

“The bankruptcy of thousands of home builders, the inability to hire tradesmen and negligible new land release means that supply shortages will persist,” he said.

“These supply constraints ,combined with high immigrant numbers, make it unlikely that there will be substantial price falls in the near future.”

Senior Lecturer in the School of Economics at UNSW Business School, Dr Nalini Prasad, said first-home buyers also need to look at their financial situation prior to buying.

“Typically, individuals used to find work, get married and buy a house to raise kids in,” Dr Prasad said.

“But house prices have increased, requiring more years of savings – and often two incomes – to purchase a house. 

“This has increased the age at which individuals buy their first house to 36.”

He said buyers needed to have enough savings to get a deposit for their house, but this was hard to do when prices are rising faster than incomes. 

“A good time to buy is after people have built up savings, when interest rates are low and when house price growth is cooling.”

Dr Prasad said the amount of debt buyers take out and their ability to repay that debt was important. 

“In a market when prices are rising rapidly, it’s easy to pay more for property than you intended and take on a lot more debt,” he said.

“Being employed is important for paying back debt, as periods of high unemployment make it harder for first-home buyers to enter the market.”

He said rising rents also made buying a home a lot more attractive for first-home buyers.

“At the moment, rents are increasing which makes buying a property more attractive,” he said.

“In some cases, rentals could become more expensive than mortgage repayments. 

“House price growth is also moderating in Australia which is helping to offset part of the effect of interest rate increases on the amount that people can borrow.”

For first-home buyers who are unsure what to do or can’t afford a home, Dr Prasad said there were two options.

“Rent rather than buy or to look at smaller houses or houses further away from the city,” he said.

“The suburbs that are most popular with first home buyers tend to be further away from the city or locations with a large supply of apartments.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.