Property prices are breathtakingly high – at least in many parts of Sydney and Melbourne – and first home buyers are competing with more investors than ever. On the flipside, interest rates are at record lows.
So with all that in mind: is now a good time to take the plunge and buy your first home?
“The short answer is – it depends,” says Martin North, principal at research firm Digital Finance Analytics.
“It’s the analogy, if the train is leaving the station and you’re still on the platform, do you race really hard to get on the back of the train, or do you wait for the next one?”
He says many first-time buyers can’t find a property that they want in their desired location. And stiff competition from local and foreign property investors is making it harder. High mortgage repayments and employment jitters also pose a challenge.
Mr North says that in the past, people extended themselves to buy their first home, betting on the fact that their incomes would keep rising. But “the fact of the matter is that incomes are not growing”.
Consider an investment property
In part, Mr North says it depends what you’re looking for. If you take a long-term view, want a place to live in and are confident that you can meet the repayments, it might make sense to buy now.
However, if he was buying for the first time, North says he would probably take the option of paying less, and getting a tax break.
“If I didn’t need to get into an owner-occupier house at the moment, I would probably go the investment route at this stage of the cycle.”
Cameron Kusher, senior research analyst at CoreLogic, says it’s “probably not” a great time for first home buyers to enter the market.
“I think the data kind of reflects that. We’ve seen that first homebuyer volumes are at the lowest they’ve ever been,” he says.
“For the first homebuyer it’s probably quite difficult and disheartening to try and compete with all these investors.”
The obvious solution is buying a cheaper place, but even that can come with extra expenses such as fuel. Mr Kusher believes many first home buyers who can’t afford to buy where they want to live are instead buying investment properties.
“People may look for other ways to make a return. It’s a challenge at the moment because most asset classes (such as the ASX and bank term deposits) are not offering much in the way of returns,” he says.
Daniel D’Mello, a mortgage broker with Melbourne-based Key Finance, says the first home buyers he deals with don’t seem overly worried by prices. But they have to adjust their expectations when they see properties selling for 10 to 20 per cent more than the asking price.
Brandon Cowan, already a successful entrepreneur at 21, has also set himself apart from many of his peers by buying his first apartment in Sydney’s Vaucluse.
Mr Cowan, who funded most of the deposit himself (borrowing a small chunk from his parents), gives the following reason for deciding it was a good time to buy: “pretty much my mum suggested it, and I’m really impatient”.
While he says he has a “massive mortgage”, he says buying now makes sense as he believes properties with a water view such as his will keep increasing in value.
The emotional appeal of homeownership
Meanwhile, 23-year-old financial planner Ross Marais and his partner are looking to buy their first home on the Gold Coast.
He says the decision to buy now, rather than keep renting, is “more of an emotional thing”.
“I want to be able to live in a place and renovate it.”
Financial planner Michael Miller, of MLC Advice Canberra, says there are some reasons that it makes sense to keep renting rather than buying: including if your income is highly uncertain, you’re not sure if you’ll stay long or you’d rather save a bigger deposit to reduce or avoid having to pay Lender’s Mortgage Insurance.
While you wait
However, choosing to invest your deposit in the meantime is not usually a sure-fire strategy.
“If you’re buying a property in 12 months’ time or two years’ time, that’s way too short a time to invest in the sharemarket,” he says.
He says you might be best to park your money in a high-interest savings account – “yes, the interest rate’s terrible, but you know it will be there”.