 First home buyer market
With fresh interest rate rises coinciding with the scaling back of the first home owner grant, the housing market is set for an interesting few months.
More than 170,000 first home buyers have entered the market in the past year, which is about 50 per cent more than usual. But now the Real Estate Institute of Australia expects these numbers to drop down to normal levels.
REIA president David Airey says first-home buyers are expected to take a breather, although only for a limited time.
Cash handouts along with an increased FHOG worked alongside record low interest rates to create a rush of first home buyers during the first half of 2009.
Mr Airey believes that housing prices will remain steady and that first time buyers should continue to be selective over their property choices.
"The reduction in first-time buyers will certainly have an effect in the $250,000 to $450,000 price range, which is typically where these buyers aim for. Properties in this range could see sales decline but it will be a limited affect and probably not noticeable until the first quarter of next year," he says.
Despite rising interest rates, Mr Airey does not believe this to be a huge problem yet for most first home buyers. Lenders will usually factor in rate rises when they approve a mortgage, and look to see if the borrower could manage increases in rates of about 2 per cent.
Mortgage brokers agree that if a small rise in interest rates such as the one seen last week pushes people out of the market then it perhaps was not the time to be buying.
First-home buyers are traditionally the most vulnerable to rising rates because they often have a bigger emotional investment in securing their first home, and may have borrowed to their maximum.
CommSec chief economist Craig James says the housing market will not be affected yet by rising rates as interest rates are still at historically low levels. And while he, along with many others predicts future rate rises, he believes they will be small rises.
"Rates will continue to rise in the next 12-18 months, probably between 1.5 and 2 percentage points," James says. When the Reserve Bank of Australia moved to raise rates for the first time in 19 months on October 6 by 25 basis points, most lenders passed on the increases to home owners. Now there is speculation about a November rate rise, and more to follow next year.
The RBA rate rise came on the back of new data showing Australia's economy was proving more resilient than first thought. Figures showed job security has improved for many, and property values were increasing nationwide.
Join the discussion on Renting Vs Buying: Questions
|