There has been a great deal of speculation in the media about the impact of coronavirus on the Australian property market. This was heightened recently, when the Commonwealth Bank announced it was forecasting a 32% decline in the housing market, driven by rising unemployment predicted to result in a significant increase in mortgage defaults and forced sales.
For prospective purchasers, in particular first home buyers, this may come as welcome news, but whether 2020 is the right time to buy property really depends on a number of factors.
Understand why you are buying
The first step in any property move is to understand why you are buying and what you want out of the property – whether it be your forever home, a first step on the ladder, or an investment.
If you are looking for a property as an owner-occupier right now, there is some value to be had in certain suburbs but if you are looking for an investment it’s best to proceed with caution. Increasing rental vacancies and the inability to use higher-yield short-term rental options, like Air BnB, are making property investments less attractive.
While this isn’t great news for investors, for first home buyers, it can reduce competition and therefore keep prices lower, if you’re looking in the right suburbs.
Premium markets won’t bear the brunt
If you are interested in buying in premium markets, for example Sydney’s Eastern Suburbs or Melbourne’s inner suburbs, the falling market probably won’t give you much of an advantage. These markets are likely to be the least affected and their desirability will keep the market relatively strong.
You might see a small decline in prices, but when you are looking at areas like Paddington in Sydney, where the median house price was still sitting at $2,428,000 in April, it’s not likely you’ll see a 30% decline.
As always, the inner city and surrounds in our major cities will remain popular with home buyers, however, if you are willing to extend the boundaries of your search, it may be the right time to buy.
A good time to widen your search
The change in our way of life during COVID-19 has led to many people revisiting their goals and priorities, so it can be a good time to think about what you really want out of your property and your lifestyle. For example, if you are a first-home buyer with or thinking about starting a family, is a smaller place in the inner city going to give you the lifestyle you want?
If you can widen your search area, there are suburbs with great connections to the city, where you can find a little extra value. In NSW, many of these are further out in Sydney’s west, but if you are looking for a unit, there are suburbs on the fringes, like Summer Hill and Dulwich Hill where the unit median is tipped to drop below $700k. Or if beachside living is more your thing, there are predictions that some Northern Beaches suburbs might fall into this category if the decline reaches 15%. In Victoria, declines are tipped to impact some sought-after suburbs, like Maidstone and Reservoir.
Remain cautious about debt
While lenders are likely to favour first-home buyers over investors, as they are more likely to stay in the property and continue paying their mortgage long-term, it’s wise to remain cautious. We don’t ever know what the future holds, but with rising unemployment rates and economic instability, it’s not worth risking over-extending to buy in.
Align your life and financial goals
If you are looking to buy your first home, it’s crucial that you make sure your reasons for purchasing align with your broader life priorities.
A property is the right move for many people, particularly in a falling market, but buying in the right area that will serve you long-term or having a plan for moving up the ladder is critical. This can be difficult to do without expert advice at any time, but even more so when we are in a period of uncertainty on so many fronts.
At Apt, we work with many clients who are looking to buy property and we specialise in helping first home buyers through their property journey to set a strategy that supports their long-term financial and life goals. The right adviser can help you explore your options and create a plan that will ensure you stay on track as we navigate continued uncertainty. If you’re looking to buy your first home, you can download our free whitepaper, Getting a Foot on the Property Ladder here.
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 and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.