Should home buyers worry about negative media regarding the property market?

A quick scan of the headlines can give you a very negative outlook on the property market. With the focus being on an inevitable market correction and drop-off in home values. So, it’s understandable that, as a home buyer, you might be delving into a bit more research or opting for professional advice before making your next move. But how much of this negative news should you listen to and what worries can you cast aside? Today, we want to approach this head-on. Giving you a clearer idea of what to take on board and what aspects of the media’s property perception may not be relevant for you. 

 

Understanding context

When taking a magnified view of the current situation the outlook can look somewhat negative, combining rising interest rates, increases in the cost of living and forecasted property drops of up to 17%, however, a wider perspective is key to really contextualising these market changes. 

In realestate.com.au’s recent article, Cameron Kusher, Executive Manager of economic research at PropTrack, said. “To put it into perspective, property prices would have to decline by 26% to get back to March 2020 levels,” Mr Kusher said. “Although we are expecting property prices to fall over the coming period, and there may be some large falls, we don’t anticipate prices falling back to pre-COVID levels.”

Shifts and changes are perfectly normal in the property market but to some degree, we have become more aware of these changes with the recent media focus on record-breaking property hikes. This focus on the property market all began with COVID. With predictions touting a 20% drop off, these headline-grabbing stats have dominated the media for months until they were replaced by the news of astronomical rises. More than ever, the average Australian has been made aware of fluctuations in the property market. The Result increased awareness of the market and a real focus on minute rises and falls. What this situation fails to take into account is how these peaks and troughs are very normal and have been working in this way for years.

In addition, it’s important to consider the economic impacts of market changes. Fundamentally, 90% of Australians' wealth is in property. As a result, the government will not allow the market to fail or the predicted ‘catastrophic’ changes in these shifts are highly unlikely to happen.

Our outlook

Interest rates 

With inflation touted to hit up to 7%, RBA governor Philip Lowe has indicated that he will “do what is necessary” to bring it back within the 2% to 3% range. And this means increases in interest rates. 

This has had an impact on consumer confidence, with hikes being linked to economic crashes and worrying outlooks on the property market. 

However, Nicola McDougal spoke to realestate.com on this, “Increases to interest rates are nothing to be feared by the majority of mortgage holders. Rising costs of living are more of an issue for most households, with inflation now well above the Reserve’s 2% to 3% target band. However, the RBA has indicated that it expects high inflation to be a temporary situation, rather than a permanent one. Further, most major banks appear to be pricing in a maximum interest rate of around 5% to 6% within two years, which is still relatively low compared to historical averages.”

Supply and demand 

In addition to this, we’re still going to see increased demands for both purchase and rental properties. With international and state migration having large impacts on how demand, there will still be continued growth of the market as a whole. What this does mean is that investment properties and home purchases will still retain and grow in value. Afterall, Australia is a highly sought-after property market with a huge amount of potential and that demand is only set to grow in the long term. 

Our advice for homebuyers 

A cooler market could work in your favour as a homebuyer. Why? If you’re a first-time buyer or debut investor, there is less competition and less urgency to complete. This gives you more time to consider your choices and take advantage of price reductions that we may see as a result of increasing interest rates. So, if you have savings behind you and have used the downtime of COVID wisely, you could be well placed to benefit from a market cooling. 

In addition, a recent shift in governmental power has seen the introduction of some helpful policies for hopeful homebuyers. Let’s have a look at the two key changes and how they might apply to you: 

Help to buy: a ‘shared equity scheme where the government effectively buys the property with you. This allows buyers to purchase property with as little as a 2% deposit depending on their circumstances. It also reduces mortgage payments, making it easier for lower-income households to manage. 

Expansion of the Home Guarantee Program: the Government have extended the program to include an extra 10,000 spots for regional first-time buyers. This program allows buyers to purchase a home with as little as a 5% deposit and eliminates the need for lenders' insurance as the government acts as the ‘guarantor’. It effectively lowers the bar to entry significantly for buyers who could save thousands. 

 

So, to summarise, if you’re looking to buy, don’t let the headlines put you off. Consider your current situation and look into options for how you could seek to gain from these changes in the market. 

If you’re unsure of what that might look like for you or how to put your best foot forward, speak to our Property Strategy or Mortgage Advice team. As experts in building genuine wealth through strategic property investment planning and mortgage advice we can advise you on how to navigate your next steps into the property market with ease.