For many in our major cities, buying a first home has long seemed like an impossible dream. As the average house price soared into seven figures, in Sydney and Melbourne the stress of even trying to save a deposit has placed financial strain on many. However, there has been plenty of recent press suggesting that this might be changing as the price downturn in Sydney and Melbourne has started to bite.
It’s well documented that housing prices are falling, in some areas quite dramatically. So, what does this mean for first home buyers: Is it the opportunity that many have been waiting for or will it become a false dawn for affordability?
What’s driving the change?
There are plenty of real estate experts that have opinions on why the price change has occurred and, like many financial matters, there are multiple driving factors.
Tighter lending restrictions, less foreign buyers, economic factors such as slow wage growth, supply and demand, plus a general reservation coming into an election year where we are likely to see a change in government, have all contributed to a cooling market.
To some, especially first home buyers that have been locked out of the market, it would seem like a great opportunity.
Is it good for first home buyers?
On one hand, falling prices are always going to be a positive for someone trying to get on the property ladder; it’s been a tough slog for many. With the property market tipped to continue its downturn, at least for the foreseeable future, it does present an opportunity for those that are ready to enter the market. If you can find property at a price point that works, then it is an ideal time.
The key point here is that you still need to be ready for it, financially. I wouldn’t advocate rushing into the market headfirst with no preparation. There are still a number of financial factors to consider.
Tips to making it work for you
For all first home buyers, there are a number of steps you can take to ensure you’re ready to enter the market.
Know where your money is going
This is a key tip for so many areas of your financial life. You need to have a good understanding of where you’re spending your money. That forms the basis of being able to understand what you can afford. Building a budget now will help you reach your property goals sooner.
Understand your different financing options
Next, ensure that you have your finance options organised early. In an era of tighter lending restrictions, what is already a reasonably lengthy and somewhat onerous process can take even longer.
Financial institutions are increasingly stringent on the lending criteria so it can be harder than you think. It’s important to investigate this early in the piece so you know what you can spend.
Work out what you can afford, not what the bank will give you
Much like the budgeting section, it’s good to have a clear understanding of what you can actually afford; nobody wants to be still paying off a mortgage when they are sixty-five.
We all have dreams, but there needs to be a healthy dose of reality added to the conversation. For example, while you may be looking at a 30-year loan option, it’s worth budgeting to repay this faster. You could save yourself hundreds of thousands of dollars in interest fees if you pay it back in around half that time.
Just because there’s a downturn, it doesn’t mean you need to rush out and buy tomorrow. It’s important to research your options and find the right property that suits you and your financial goals. For example, buying a property near schools, shops, and public transport are still winning options and, if you do this well, you won’t encounter too many issues, regardless of short-term price movements.
Overall, it’s certainly a brighter outlook for those looking to take the first step onto the property ladder.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.