The pros and cons of buying a first home in a falling market

The pros: 

One of the primary positives that are presented to first home buyers is the decline in property prices. Values have fallen by as much as $59,568 in Sydney since its market peak in January 2022, with similar declines experienced nationwide.

These price decreases may make accessing both a home loan and a debut property a little easier, with those who began their savings during the market’s upswing the beneficiary to the fact that these funds will now account for a larger portion of the home price, ensuring they are able to provide a larger deposit.

On top of this, Ms Owen outlined that a reduction in property prices also results in a decrease in transactional costs such as stamp duty, as well as making more homes qualify for first home buyer schemes that would have previously been outside of the price caps. 

The researcher also noted that many properties are now taking longer to sell, with the national median time on market sitting at 32 days. This factor provides home buyers with more time to organise their finances, complete their due diligence and scan the market for options, she advised.

Moreover, sellers are more likely to add a discount when time on market balloons out, with vendor discounts up to 3.8 per cent over the three months ending in July.

In addition to this, despite rising interest rates potentially being a purchasing deterrent, Ms Owen has explained that lenders are offering competitive rates in an attempt to attract customers in a softening market — with the gap between rates on average new and existing loans being 47 basis points suggesting this.

Another pro for entering the home-owning market is to escape the rental market, which has grown increasingly tough in recent months. Listings are one-third below the previous five-year average, national vacancy rates are at a record-low level of 1.2 per cent and CoreLogic’s rent value index up 9.8 per cent in the past year. 

As property prices fall and rent rises, it may trigger more home buying from current renters.

The cons:

On the flip side, one of the primary downsides to purchasing a property in the current market downswing is falling home values due to the associated risks, such as the fact that buying in a declining market could mean the property potentially becomes worth less than the purchase price — although this is only an issue if the owner intends to sell in a short period of time. 

Furthermore, rising interest rates also present obstacles to home buyers, as their debt compounds in line with likely cash rate rises that are expected over the coming months.  

Would-be buyers are also warned that there will be more limited options available to first-time buyers, as vendors are less likely to sell in a declining market as they attempt to avoid major losses. 

Despite all these conditions that contribute to whether or not it is currently a good time to buy or not, Ms Owen did stress that the perfect time to buy is dependent on personal circumstances rather than market conditions.