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Is this the worst time in a decade to buy a home?

Kate Burke for Sydney Morning Herald article

Australians believe it is the worst time to buy a home since the global financial crisis, a new survey shows, after property prices surged to record levels and interest rate rises loom.

Not since 2008 have Australians had such a pessimistic response when asked whether it was a good time to buy a dwelling in the monthly Westpac-Melbourne Institute Index of Consumer Sentiment survey.

Confidence in further price rises has also started to erode, but most people still expect further growth, the latest index released on Wednesday shows. On the ground, mortgage brokers are reporting strong interest from investors keen to get into the market ahead of further gains, but more caution from other buyers.

Westpac senior economist Matthew Hassan said while buyer demand remains strong, the latest fall in the “time to buy a dwelling” index is a “clear warning” that the next move will be a significant slowdown. The bank previously tipped property prices to peak this year and fall by 14 per cent by the end of 2024.

Mr Hassan said purchasers were struggling to meet the market due to affordability constraints, rapid price growth and rising mortgage rates. He noted the index was very sensitive to housing affordability.

The “time to buy a dwelling” index fell by 7.7 per cent over the month to 78.3, with the largest fall in NSW. The national index is down 40.6 per cent from its peak in November 2020, and at its lowest level since February 2008 when it reached 67. It is also well below the 90-95 level seen in the previous market downturn in 2017-2018. When a reading is below 100, the majority of respondents think it is not a good time to buy.

Meanwhile, expectations for further property price growth fell 10.8 per cent over the month. Most consumers still expected price rises – despite more than two thirds anticipating an increase in interest rates over the next year – but there was more weakness in the major states.

Mr Hassan felt price expectations among the public were still quite positive, despite the sharp pullback over the month. It was a factor missing during the financial crisis, when price expectations collapsed amid a more negative market outlook and much higher interest rates.

“Every cycle has its own characteristics … the GFC had very specific characteristics, we’re not heading into that, what we have is a very strong market heading into a policy tightening phase,” he said. “This time around is more about interest rate rises coming on top of a stretched market [for affordability].”

The survey comes after the Commonwealth Bank’s latest household spending intentions index showed home buying plans in February were down 4.4 per cent over the year. The index did see a stronger than usual lift for the month, as people returned from holidays, with home loan applications and housing related Google searches up.

CBA chief economist Stephen Halmarick said the larger than usual February uptick may be buoyed by home buyers wanting to act before the Reserve Bank begins lifting interest rates, which he believes could happen as early as June.

“[However] the annual decline tells us the momentum on the home buying market is cooling, particularly in Sydney and Melbourne, and that’s why we’ve changed our dwelling forecast [for price growth to be] flat this year, and down 8 per cent next year,” Mr Halmarick said.

While owner occupiers made up the largest share of the market, investor lending had been increasing at a more rapid rate, Mr Halmarick said, with investors keen to buy amid ongoing price growth. New investor housing loan commitments reached another record high of $11 billion in January, the latest figures from the Australian Bureau of Statistics show.

“Inventors are less susceptible to affordability issues, much more interested in prospective capital gain and on that front expectations are still pretty positive,” Mr Hassan added, noting such lending was coming off a lower starting point, with the latest cycle fuelled by owner occupiers.

Equilibria Finance managing director and mortgage broker Anthony Landahl said he has observed a big uplift in activity from investors, who were seeing opportunities in markets that they felt had yet to reach their peak.

“From their point of view [interest] rates are still low, there is still good strong capital growth, even if the rate of growth is slowing, and rental yields are either coming back or remaining strong,” Mr Landahl said, adding that the reopening of international borders and volatility in the stock market were also pushing investors into the property market.

There was still solid interest from owner occupiers, he added, but affordability constraints were kicking in, particularly for first-home buyers, many of whom have had to recalibrate what they can afford and where they can buy. While a lot of his clients were still borrowing to capacity, they were more conscious of not overpaying.

Mortgage broker Christopher Ladley, of Mortgage Choice Elsternwick, said he is fielding plenty of questions about interest rate rises but is still busy with loan applications. With less heat now in the market, many of his clients consider it a good time to buy.

“Some of my longer-term clients are calling because some people feel like the market has slowed down a little and are therefore thinking it’s a good time to swim against the stream and pick up opportunities,” he added.

Mortgage broker Rebecca Jarrett-Dalton, founder of Two Red Shoes, said buyers have more opportunity now to negotiate on prices, but that she is seeing hesitation from some purchasers, with more people questioning whether they would be better holding off to see if prices pull back as forecast.

She has seen interest from buyers with good equity in their homes who were looking to purchase investment properties for their retirement, as well as upgraders, and first-home buyers, keen to move out of home or stop renting.


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