With the property market likely to fall in 2016, first-time home buyers finally have time on their side. First-time home buyers finally have time on their side.

For years, they’ve been running hard to stay still, outgunned by cashed-up investors as property prices surged.

But now the market, especially in Sydney and Melbourne, is entering a new cycle. Prices are likely to fall in 2016, while banks are generally offering better deals to owner-occupiers than investors.

The catch for anyone who decides to wait to save a larger deposit is that rents could rise because less investor activity usually means less rental supply.

Still, the fact that some investment banks are saying the market is near to peaking, with lower prices likely, is the best news for first-timers since the heyday of first home owners’ grants.

Local forecasts are not nearly as bearish as American economist Harry Dent jnr who said early last year that Sydney house prices were in a bubble and would fall by at least 27 per cent.

Investment bank Macquarie said this week that prices nationally will peak in March next year and then fall by more than 7 per cent before starting to recover from mid-2017.

And in Sydney and Melbourne, some analysts say the falls could be even higher, particularly for some inner-city apartments in Melbourne bought off the plan.

It’s not a problem for people who have already bought property, with Sydney dwelling prices up almost 17 per cent and Melbourne prices up more than 14 per cent over the past year, according to CoreLogic RP Data.

Less competition

Mortgage providers are tightening their lending standards for those applying for investment loans in response to regulators’ concerns about the extraordinary growth in investor lending.

It means first-timers may not find themselves as outgunned by investors at auctions.

First-timers should factor in the possibility of higher interest rates. Westpac said last week it would be lifting mortgage interest rates for owner-occupiers as well as investors, and the other big banks could follow.

However, there are plenty of lenders, particularly smaller ones, who have decreased their mortgage interest rates for owner-occupiers. It pays to shop around.

Of all the hurdles faced by first-timers, the biggest has been coming up with the deposit as prices hurtled sky-high in Sydney and Melbourne.

A report by Bankwest says first-time buyers across Australia saving a 20 per cent deposit would need $99,700 to enter the market, $5900 more than in 2014.

A fall in prices will be a hit with first-timers, says Kevin Lee, the principal of Smart Property Adviser and a Smartline broker.

Lee thinks conditions for first-timers are about to become the best they have been for years.

He says power is shifting to buyers. Not only are more properties for sale as upgraders hope to cash in on record prices, but auction clearance rates are easing.

Shane Oliver, the chief economist at AMP Capital Investors, says first-timers have time on their side.

“The heated atmosphere of the last few years has made it very hard for first-home buyers,” he says.

Now they can take their time and save a larger deposit, without fear that the market will get away from them, Oliver says.

Apartment market

Robert Mellor, the managing director of property forecaster BIS Shrapnel follows property markets more closely than just about anyone else.

He says prices of entry-level, inner-city apartments in Sydney and Melbourne could peak in the second half of next year then fall by about 5 per cent.

Higher interest rates are unlikely to be a factor in the price declines. BIS Shrapnel expects only a slight lift in rates, and not until 2017.

The major reasons for the falls will be different in each city, Mellor says.

In Sydney, it is likely to be reduced investor activity as investors become pessimistic about the prospects of easy capital gains.

Mellor says the price declines for Sydney inner-city apartments could be delayed until 2017 or 2018, as there is still a shortage of units.

However, the “massive” oversupply of Melbourne inner-city apartments could see bigger price declines there than in Sydney.

Greville Pabst, co-founder of WBP Property Group, a property valuation and advisory firm, advises first-timers that buying an inner-city apartment “second-hand” is likely to be a better bet than buying off the plan, especially in Melbourne.

Many off-the-plan inner-city apartments are being bought by overseas investors.

“I am seeing in my valuation business that valuations are coming in at lower than the original contract price,” Pabst says.

“Local buyers are not going to buy them at the prices that offshore buyers are paying.

“I think it is better to buy second-hand, older-style apartments in low-density blocks that are close to transport and shops.”

It can be dangerous to set too much store by predictions about the exact peak or trough of the market. A home is a long-term play and plus or minus 7.5 per cent won’t matter 10 years from now.

But the tide seems to be turning and this means first-home buyers can banish “fear of missing out” and take their time to find the home that is right for them.


  • Shop around for the best mortgage deal.
  • Keep your savings in cash to shield against sharemarket fluctuations.
  • Save the difference between your rent and expected mortgage repayments.
  • Consider older-style apartments rather than buying off the plan.
  • Look for first-home buyer grants that might apply.

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Posted by John Collett – The Age on 18th October, 2015