“I’m going to wait for prices to fall”

There’s an interesting dynamic in the market right now.

The Federal Government’s changes to taxation policy have had the intended effect, reducing investor purchasing activity and therefore easing competition for properties.

The taxation changes, interest rate rises and global uncertainty have also seen prices decline.

And yet, first homebuyers are not flocking to the market.

The feedback I’m hearing from REIWA members is first homebuyers are holding back, waiting for prices to fall further and housing to become more affordable. They’re being heavily influenced by media reporting, particularly about east coast markets, and are expecting significant price drops.

I’m not one to encourage people to buy when they’re not ready, but my question to those on the fence is: how long are you prepared to wait?

During Perth’s extended property downturn, it took five years for REIWA’s annual median house sale price to drop 12.8 per cent – from $545,000 in 2015 to $475,000 in 2020.

It declined more rapidly after the previous boom – down 7.5 per cent from a peak of $465,000 in early 2008 to a low of $430,000 in mid-2009.

According to Cotality’s latest Home Value Index, Perth’s median dwelling value dropped 0.8 per cent (or about $7500) over the month to $999,987.

Further declines are very likely, but how big a drop will be good enough? In the hypothetical event that prices fall 15 per cent, using Cotality’s figures, they will only return to levels seen a year ago. And how long would that take to happen?

It’s also important to note housing affordability is more than a function of house prices. Interest rates play a significant role, as does wage growth.

While prices may have fallen slightly, any increase in affordability we have seen has been eroded by three interest rate rises this year.

According to Canstar, the rate rises have reduced the estimated maximum borrowing capacity of an Australian couple – where each person earns an average wage – by $70,700. Another 0.25 per cent interest rate increase will see that drop to $92,500.

The reality is everyone’s situation is different and you should not be guided by sensational headlines predicting equally sensational price falls. No-one knows exactly what is going to happen.

The fact is these are currently the most favourable market conditions buyers have seen in years.

If you are thinking of buying your first home and you plan to live in that property for a number of years, then when you find a property you like and can afford – factoring in a few extra interest rate rises – go ahead and buy it. Don’t sit on the fence waiting for prices to drop, as you may miss a great opportunity.