Could first home buyers be shut out as property prices surge?

first home buyers moving in

Australia is on the brink of a property boom, with house prices nationally expected to rise by 16% within two years, according to the Commonwealth Bank. 

CommBank’s head of economics, Gareth Aird recently predicted that house prices will increase by 9% in 2021 and 7% in 2022, thanks to a combination of low home loan rates and a recovery in employment. 

Sydney and Melbourne are forecasted to see median home values grow by at least 12% over the next two years. But Aird’s predictions show it’s properties outside of the two major capital cities that will experience the biggest price surges. 

For instance, median home values are expected to jump by 18% in Darwin (+$99,000), 17.7% in Perth (+$99,000), 16.6% in Brisbane (+$102,000), 15.5% in Canberra (+$132,000), 15% in Hobart (+$87,000), and 14.5% in Adelaide (+$86,000). 

“The Australian housing market is on the cusp of a boom. The boom is being driven by record low mortgage rates coupled with a V-shaped recovery in the labour market,” Aird said. 

This follows recent Corelogic data which reveals Australian property prices have now surpassed pre-COVID levels as our nation’s appetite for house buying continues to grow stronger. 

In fact, auction clearance rates in Sydney reached highs of 86-88% over the last couple of weekends, according to Domain - the strongest it’s been since 1997. 

Mozo’s property expert, Steve Jovcevski adds that prices are already skyrocketing. He saw one property in Sydney sold for a staggering $500,000 more over the weekend than it did back in October, despite having no renovations or upgrades done to it. 

What a property boom would mean for first home buyers 

So, what does this all mean for first home buyers looking to get into the market? Not great news, according to Archistar’s property expert Dr Andrew Wilson who says a few barriers now will stand in the way of first home buyers: the end of government incentives like the HomeBuilder scheme, as well as higher prices.

“[Higher prices are] poison for first home buyers because they can’t save at the same rate for their deposit as rising prices. For owner occupiers, that doesn’t really matter because they have a property to trade in, but first home buyers just have to work off a higher deposit,” Wilson said. 

Jovcevski added that up until now, interest rate cuts have played a big role in improving housing affordability for first home buyers. But with rates now almost at rock bottom and no further reductions in sight, “affordability for first home buyers will deteriorate.” 

The challenges for first home buyers don’t stop there. Jovcevski said the property market will grow even more competitive as investors re-enter the scene to take advantage of capital growth. 

Tips for first home buyers 

Jovevski says that for first home buyers who can’t afford to buy their dream property right now, it’s worth considering alternative routes to get into the market before prices soar. That way, you can reap the benefits of equity gains over the next few years and use the extra equity to help cover the increased costs of buying your next home. 

This means looking at other options including: 

  • Apartments: While detached dwellings have seen a surge in interest among Australians, the apartments market has remained quiet by comparison. Weak rental markets have contributed to a glut in inner-city Sydney and Melbourne, but this presents an opportunity for first home buyers. Less demand means lower prices, so Jovevski suggests looking at apartments as a potential first home and treating it as a stepping stone to eventually affording your dream house.  
  • “Rentvesting”: This tactic gained popularity back in 2017 and involves purchasing property in an affordable area while continuing to rent where you want to live. With all capital cities expected to experience price growth over the next two years, Jovcevski says it’s a good time to look beyond Sydney and Melbourne. “If you live in Sydney, look for cheaper areas like Adelaide that are booming at the moment,” he says. 

For more insights, read our property boom survival guide

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