By Jim Malo
Home buyers who delay purchasing in the hopes of getting more money to spend thanks to interest rate cuts could face higher prices and more competition.
Many potential buyers are wondering if they should buy now, or wait until interest rates fall, when they could likely get cheaper mortgage repayments but would face higher property prices. First home hopefuls may also face paying high rents in the interim.
Potential home buyers are wondering if they should buy before interest rates fall, or wait.Credit: Peter Rae
Depending on buyers’ personal circumstances, waiting could mean being able to get more money to spend at auction when compared to projected property price rises, but analysis from comparison platform Canstar showed not everyone would be ahead. They may also need to save more money to afford the deposit on a larger loan.
Buyers in Melbourne could end up in a better position if they wait, Canstar analysis showed. A couple with one partner earning the average income and one earning half that could afford to buy the median dwelling in Melbourne right now, with $4,000 left over. At the end of 2025, assuming five 0.25 per cent Reserve Bank rate cuts, they would have even more money left over.
If house prices rise 5 per cent by the end of next year, they would be about $60,000 ahead. If they went up 9 per cent, as some forecasts predict, the gap would narrow to about $29,000.
In Sydney, buyers could not afford the median house now or after rate cuts, regardless of whether house prices rose 5 per cent, 7 per cent or 9 per cent. They would be roughly $300,000 short in any scenario.
In Brisbane, a couple earning 1.5 times the average income would struggle to afford the median dwelling now, but would be in luck if prices rose only 5 per cent or 7 per cent. In Perth, the same couple could afford the typical home now or after interest rate rises.
Canstar group executive Steve Mickenbecker said the data reflected the difficulty first home buyers faced when trying to break into the market.
“First home buyers uniquely face the full extent of the risk of rising prices, with investors and upgraders able to make decisions in the knowledge that their existing property will also likely benefit from price gains,” he said.
“Price increases mean that the first home buyers who put off the purchase until interest rates fall will also have to save more of a deposit to put towards the purchase and find themselves paying off bigger loans, albeit affordable after the rate cut.”
Mickenbecker said waiting could be beneficial if house price gains were modest, but if prices jump that could put first home buyers further behind.
“Unfortunately for someone buying solo, the repayments on a loan for a median priced dwelling are not affordable at today’s interest rates and interest rate cuts are unlikely to provide enough help.”
CoreLogic head of Australian research Eliza Owen said it could be beneficial to wait for a boost to borrowing power, in some circumstances, but trying to wait for the opportune moment was an inexact science.
“The thing that always comes to mind when trying to time the market, there is a trade-off, and there will always be trade-offs,” she said.
Mortgage repayments would fall if interest rates come down but house prices would likely rise.Credit: Dion Georgopoulos
Owen said interest rate cuts would likely boost buyer activity, increasing the competition faced for each property.
“This puts demand pressure on the market and can push prices higher,” she said.
Owen said waiting would be more likely to benefit first home buyers who didn’t need to pay rent, and the drawbacks of waiting could outweigh the benefits if would-be buyers were paying unaffordable rents.
AMP chief economist Dr Shane Oliver thought it was rarely worth trying to find an opportune moment to buy, and instead said buyers should purchase when they can afford it.
“The risk is that it may not be worth waiting. If you believe we’re going to go into a deep recession … therefore when rates go down prices will go down anyway then yes definitely wait,” he said.
“But if you’re assuming no recession and a continued tight property market the odds are rates will come down and house prices will have to lift at a faster rate than they currently are. The savings you’ll make by waiting will be swamped and wiped out by the rising value of the house.”
Westpac senior economist Matthew Hassan said paying attention to periods of low buyer demand would be more effective than waiting for a boost in borrowing power, which would be near-universal.
“If you’re trying to pick the right moment, what you want is a buyer’s market. You want to pick properties that haven’t been able to sell and when not as many buyers may be around,” he said.
“I would take that approach rather than trying to outsmart everyone else on the interest rates piece.”