House prices: Rising interest rates and slowing real estate could benefit buyers

Rising interest rates and uncertainty are causing the property market around Australia to cool. Sydney and Melbourne markets led the decline at -2.7% and -0.9% respectively, according to data from CoreLogic.

Based on Australian Bureau of Statistics (ABS) Average House Prices of $1.2 million in Sydney and $966,500 in Melbourne, this reflects rebates of $32,999 and $8,699 respectively on the average property today.

With inflation at a 21-year high of 6.1% and interest rates at 1.85% and set to continue to rise, it seems likely that there will be more pressure on house prices. short term.

But maybe that could be a good thing. Looking at the huge property managed over the past two years, many people have either been out of the market or felt the property has become overdone.

With prices falling, is it a good time to get started?

State of the real estate market

In 2020-21, we saw the value of all properties in Australia increase by 23.7%, the strongest growth seen since 2003. Last year, the average house price rose $107,000 in Sydney and $41,000 in Melbourne in just three months.

In 2022, we have seen declines due to rising interest rates and uncertainty about how the Australian economy will weather the current inflation crisis. The Reserve Bank of Australia (RBA) initially predicted a 15% decline in the housing market by the end of 2023, with further declines expected in 2024.

It should be noted that not all domains have been (or likely will be) impacted equally by this slowdown. We find that property prices hold up more in areas where demand is strong and supply is limited, and prices lower in areas that do not have the same fundamentals. This trend is expected to continue throughout this period of real estate market disruption.

The main driver of falling house prices is rising interest rates, which have risen 1.75% in the past four months, adding thousands to the cost of repayments on an average Australian mortgage. . With rates set to continue rising through 2022 as the RBA grapples with the current global inflation crisis, additional pressure will be placed on borrowers and the housing market as a result.

Advantages of buying a property now

With the housing market slowing and fewer buyers in the market, people buying property today are doing so at significantly lower prices than we have seen recently.

There is a lot of fear and uncertainty. In my experience of helping people invest in bull and bear markets, I have found that this uncertainty creates opportunity.

At the height of the Covid crisis, there was also much talk about the potential for a significant decline in the real estate market, and many people were too scared to buy property. Many people sat on the sidelines waiting for the uncertainty to pass, convinced that there would be a huge crash that would allow them to get even more bargains.

But before we knew it, the “crisis” was over and the uncertainty was gone. The real estate market did not fall as far as expected and many people missed the boat.

In my opinion, the current conditions are perfect for real estate buyers to get a good deal.

Disadvantages of buying a property now

That being said, buying a property today involves risk. The main thing that any real estate buyer has to deal with in the short term is the likelihood of another rise in interest rates.

Rising interest rates for homebuyers today means you’ll likely be paying more for your mortgage six months from now than you are today. As mentioned above, rates are expected to rise about 2% from their current levels in the near term, which means you need to be prepared and ready to fund higher mortgage repayments.

It is also possible that property values ​​will decline further in the short term. Buying and then selling a property is an expensive exercise, so you never want to be forced to sell a property. But when values ​​decline, it’s even more important to protect yourself.

When is the best time to buy a property

With hindsight, it’s easy to identify the “good” times to buy a property, but no one has a crystal ball. We never really know where the real estate market is going until it actually happens.

And further, while there have been times when we can see that it would have been better than others to buy a property, values ​​have steadily increased over the long term. This means that over a period of 10 years, your asset would have increased in value.

This suggests that the best time to buy was still 10 years ago. The second best time is today.

My opinion is that if property is on your financial roadmap, now is the perfect time to buy. You will be able to take advantage of the uncertainty, buy an asset that was a good investment six months ago at a higher price and move forward on your journey to money.

Finding a good quality property is crucial, and having a rock solid plan is absolutely necessary to protect your risk. But do both of these things well and you will be set for success, and you will position yourself to emerge from this period of disruption in a stronger position than you entered.

The envelope

Buying a property is scary at the best of times, but when fear and uncertainty are high, it’s even harder. But real estate has been one of the most effective ways to invest in building wealth for the last hundred years or so in Australia, and I don’t see that changing anytime soon.

Take the time to really define your approach, then realize it – your future self will thank you for it.

Ben Nash is an expert finance commentator, podcaster, financial advisor and founder of Rotate Wealthand author of Amazon’s bestsellerGet Unstuck: Your guide to creating a life not limited by money‘.

Ben has just launched a series of free online financial education events to help you get ahead financially. You can check all the details and reserve your place here.

Disclaimer: The information in this article is general in nature and does not take into account your personal goals, financial situation or needs. Therefore, you should determine whether the information is appropriate for your situation before acting on it and, if necessary, seek the advice of a financial professional.


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