Buying property: if not now, when?

WITH the full effect of the credit crunch yet to be played out, some homebuyers are at a crossroads concerning whether to secure their foothold in property.

Savvy first homebuyers are already taking advantage of a healthier interest rate climate and recent boosts to Government grants to join the millions of Australians searching for the ‘Great Australian Dream’ of property ownership.

With the Reserve Bank of Australia reducing the cash rate by 200 basis points over Spring (and, at the time of writing, widely expected to reduce the rate by another 75 to 100 basis points in December), mortgage brokers are generally seeing renewed vigour from potential mortgage holders.

The First Home Owners Boost (FHOB) announced in mid-October provided a renewed incentive for first homebuyers who are sitting on the property fence.

Mortgage Choice has certainly experienced an uplift in interest, with a 577 per cent increase in first homebuyer enquiry forms through our website during the first week after the announcement.

The FHOB means that, regardless of whether a first homebuyer’s purchase is an established or newly constructed home, they are set to benefit in the thousands of dollars.

As we all know by now, those who purchase an established property as their first home will now receive a grant of $14,000 — a figure that doubled from $7,000 on October 14 — while those purchasing a newly constructed home will receive an extra $7,000, effectively taking their First Home Owners Grant to a whopping $21,000.

The catch is that all contracts entered into between now and June 30, 2009, will be eligible for this new additional assistance.

Potential first homebuyers have been given another incentive by the Government in the form of First Home Saver Accounts, which have a lower tax rate than normal savings accounts and to which the Government contributes up to a certain amount.

Those who are hesitating to buy their first property are weighing a variety of factors.

There are some suggestions the First Home Owners Boost may temporarily cause some property prices to be inflated. If you believe what the papers suggest, there are talks of property prices falling significantly — up to 60 per cent according to one doomsayer.

However, the Reserve Bank deputy governor, Ric Battelino, stated recently that it is unlikely property prices would go into freefall as he believed the Australian property bubble had already burst around three years ago.

I tend to think that factors such as historically low rental vacancy rates, high migration levels and limited land release will go a long way to ensuring we won’t see a large decrease in property prices anytime soon.

The most recent Market Facts report showed that the Australian weighted average median house price increased from $458,977 in the March quarter to reach $459,216 in June quarter, a nominal increase of 0.05 per cent over the quarter, however an increase of 6.0 per cent over the year.

The Australian weighted average other dwelling (units, apartments and townhouses) price decreased by 0.2 per cent over the quarter, but increased 4.0 per cent over the year to $357,358.

As briefly mentioned, the shortage of rental properties is also providing further impetus for Australians who don’t yet own a property to take the plunge.

Vacancy rates remain at record lows in most capital cities. For example, the vacancy rate in Darwin decreased to a staggering 0.3 per cent in the June quarter, with no sign the situation will improve anytime soon. This is a city that already has the highest rents in the country.

There were also considerable increases in the overall median rent in Sydney, Perth and Brisbane. However, there were decreases in the median house rent recorded in Hobart and Canberra.

Amid economic uncertainty, is it a good time to buy?

In times like these, Australians are finding ways to tighten their belts: reducing their credit card spending; paying cash rather than credit; reviewing their overall expenditure; and basically taking a long hard look at themselves in the mirror and deciding what expenditure is most important.

Mortgage Choice has consistently advised property buyers, both potential and existing, to take a measured approach to their property spending habits; buying only what they can afford to repay, and so on.

In a recent check of the mood among homebuyers, the 2008 Financial Temperature Check Survey (answered by 1,002 respondents) found that despite the international credit crunch and high interest rates, almost three-quarters of Australians regard their current financial situation in a positive light. Mortgage holders were even more likely to do so than those without.

Seventy-four per cent of the respondents to this independently commissioned survey — of which 38 per cent were mortgage holders — described their outlook on personal finances as solid (16 per cent) or reasonable/moderate (57 per cent).

Only 20 per cent of all respondents said it was weak and 6 per cent answered ‘terrible’.

When describing further their financial plans for the next 12 months, 45 per cent of respondents said they would be a little restrained while 35 per cent said it was ‘life as usual’.

Only 18 per cent said their financial plans would be heavily restrained over the next year and 3 per cent said they would be completely unrestricted.

When asked if their financial situation is looking up or not, 36 per cent of all respondents said it was improving, 38 per cent said it was stable and 26 per cent expected it to get worse.

Of the mortgage holders, 40 per cent said their situation was improving, 35 per cent said stable and 25 per cent were expecting it to worsen.

The positive-weighted survey results were surprising given the amount of attention bestowed on falling consumer sentiment and increasing homeowner financial troubles in a time of volatile global liquidity.

With all the talk surrounding high living costs, mortgage stress, mortgage arrears, low consumer sentiment and the like, Australians are fairly optimistic.

Ultimately, the decision to enter or re-enter the property market — and perhaps pick up a bargain, given the current climate of low rates, relatively stable prices and little buyer competition — must balance a degree of risk with comprehensive research.

Kristy Sheppard is the senior

corporate affairs manager at

Mortgage Choice.