Buyers need to weigh up the risk of falling property prices

Home buyers need to weigh up the risk of falling property prices as the Reserve Bank of Australia continues to raise interest rates according to an expert.

The latest predictions from the big four banks suggests there is likely more downside ahead for property prices, putting home buyers in a difficult position.

NAB forecasts total property price falls of around 20 per cent across the capital cities from the peak in April 2022 to the trough, while declines across the whole of 2022 and 2023 are predicted to drop about 17.9 per cent. 

This follows ANZ’s forecast in August of up to a 20 per cent price decline from the peak of housing in April this year to the end of 2023.

Along with Westpac’s prediction for a fall of 16 per cent from the peak to the trough and CommBank’s expectation for a 15 per cent fall over the same period. 

Canstar’s finance expert Steve Mickenbecker said the decision to buy while house prices are predicted to fall will be adding to the pressures for first home buyers.

He urged buyers to weigh up the risks before choosing the right time to buy.  

“A move to buy too soon will see first home buyers’ equity plummet alarmingly and leave them with a large debt,” Mr Mickenbecker said.

“Conversely, being conservative may see them miss out if price projections have been too alarmist.

“Price uncertainty is undoubtedly adding greater pressure to the decision for first home buyers who can alleviate some of the fears by setting their own price target for buying.”

Mr Mickenbecker said buyers could face negative equity. 

“The latest to join the crystal ball club is NAB, which predicts total falls of around 20 per cent from the peak in April this year to the bottom, meaning big falls are yet to come,” he said.  

“Jumping in at today’s valuations will see buyers facing equity uncomfortably close to negative in all capitals by the end of 2023.

“Low equity and even negative equity, though unpalatable when your savings have been washed away, isn’t the end of the world provided borrowers can still meet their repayments.”

According to Mr Mickenbecker property price drops will eventually slow.

“Housing price falls too will pass and borrowers who can afford repayments can wait it out, even if it may take years before they are ahead of their buying price,” he said.

“But borrowers who aren’t able to meet their repayments and who have low equity, can’t expect generous patience from their lender.”

Mr Mickenbecker said buyers would start to fear missing out and might want to hedge their bets by setting a price line in the sand. 

“Rather than aiming for the bottom of the market they might consider entering when prices fall to within 5 per cent of predictions or within 5 per cent of the market turning up. 

“Either entry point reduces the risk.”

Mr Mickenbecker said the only certainty about house prices is that there is no sure thing.

“Most house price predictions were wrong when Covid started and could be wrong again,” he said. 

“What is important is that first home buyers go into the buying decision eyes wide open to the risks.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.