Despite falling home prices and the prospect of a higher cash rate, now might still be the right time to buy, according to an expert.
CoreLogic Head of Research Eliza Owen said while buyers may aspire to purchase at the bottom of the price cycle and sell at the top, ultimately, it’s notoriously difficult to time the market perfectly.
“Most buyers and sellers will generally work towards a more practical timetable based on their personal situation, so even when prices fall, it’s not a straightforward decision to get into the market,” Ms Owen said.
Across the country, only Adelaide and Perth have yet to see property values fall, with national markets down 2 per cent at the end of July, according to CoreLogic.
Ms Owen said lower prices helped buyers from an affordability perspective, as well as reducing transaction costs and making finance easier to obtain.
She said properties were also taking longer to see, which was also a plus for buyers.
“As properties take longer to sell, buyers have more time to organise their finance, complete due diligence on properties, and check out what other properties are on the market,” she said.
“Similarly, as homes take longer to sell, vendors typically become more flexible on their pricing expectations.
“We can see this in growing vendor discounts, which have moved from 2.9 per cent in November last year to 3.8 per cent over the three months ending in July.”
Ms Owen said one of the major downsides of trying to buy a home now, as opposed to four months ago, was that mortgage rates are higher, and are likely to continue rising.
“Average new variable rates are typically lower than what existing mortgage holders are paying, with rates still lower than they were in 2019,” she said.
“Lenders are still trying to be as competitive as they can to win new customers in a softening market.”
Rising rents are another reason people might be tempted to buy in the current market.
“It’s an undeniably tough time for renters at the moment,” Ms Owen said.
“While not everyone has money saved for a deposit, those that do may be tempted into home ownership to avoid rising rents.
“As rents rise and property values fall, this may trigger more home buying decisions from people who are renting.”
Despite the reasons to buy now, current market conditions do present some risk.
“While falling property prices may seem like a good thing, it can also create a potentially risky time to buy,” Ms Owen said.
“This is because the amount of money borrowed for a home is fixed, even as property values move daily.
“Buying in a declining market means the home could potentially be worth less than the purchase price, although this is only a risk if the owner needs to sell their home within a short period of time, incurring a loss.”
Another factor to consider is the cash rate is rising at its fastest pace since the early 1990s, and banks have been passing these increased costs to borrowers.
“Average new variable rates for owner-occupiers increased 64 basis points between April and June, from 2.41 per cent to 3.05 per cent,” she said.
“Considering the cash rate has increased by another 100 basis points since that time, it’s likely average mortgage rates are now a full percentage point higher than the published June averages.
“This may not seem like a big increase, but it adds up when the size of a loan is hundreds of thousands of dollars.”
Ms Owen said listings levels may plateau with many sellers choosing to ride out any price falls.
“As the housing market has started to come off a peak value in April, new listings have started to converge closer to the previous five-year average, suggesting a little less exuberance from sellers,” she said.
