Fight against rate rises

Homebuyer budgets may have taken a hit, but that does not mean it’s game over, writes Kirsten Craze.

IT’S been a rollercoaster ride for real estate. Since April, property prices across the country have dropped as interest rates rose and borrowing power fell. Although house hunters are looking at slightly lower home values compared to what they were in the first quarter of 2022, their borrowing power has likely dropped more than $100,000 according to recent research.

As a result, wish lists should be undergoing an overhaul with floorplan “must haves” being rethought and suburbs that were no-go zones now back in contention.

TIGHTER BUDGETS

The Reserve Bank of Australia’s efforts to tackle inflation since May have pushed the official cash rate from 0.1 per cent to 3.1 per cent.

Comparison website Canstar has crunched the numbers to demonstrate the blow to borrowers’ budgets.

A single person with a 20 per cent deposit and a full-time gross annual income of

$92,000 (the national average according to the Australian Bureau of Statistics) has had their borrowing power crunched by about $125,000.

For couples earning $138,000 (based on 1½ average single incomes) the difference is $212,000.

Couples on two average incomes totalling $184,000 are about $289,000 worse off.

“People will have to curb their expectations, it’s sad but true,” Canstar’s Steve Mickenbecker said.

“It’s really unfortunate for first-home buyers who’ve been in the wings saving, thinking they can get into the suburb they want, and now they might not.”

Mr Mickenbecker said this had shifted the dynamic for those looking to break into the market.

Earlier this year they only had to worry about saving a deposit. Today they have to be sure they can pay a growing mortgage, too.

TIME TO COMPROMISE

Upside Realty sales director James Kirkland said although prices in many markets were down from their peaks, the correction had not made up for a loss in borrowing power.

“Buyers are having to compromise,” Mr Kirkland said.

“Whether it’s a smaller backyard, or the street mightn’t be as protected and is on a main artillery in the same suburb. Some people are having to look at a completely different suburb or property type.”

He said some would now be looking at an apartment instead of a three-bedroom house on a small block.

Mr Kirkland said although the “renovator’s delight” had fallen out of favour over the past year due to chronic tradie shortages, skyrocketing building costs and supply chain challenges, unrenovated homes were also increasingly back in consideration.

“As long as it’s liveable and it’s not something they need to do work on straight away, and it’s acceptable in terms of aesthetics, people are more open to buying those types of homes again,” he said.

Real Estate Buyer’s Agents Association president Cate Bakos agreed.

“Looking at a less-polished interior is clever,” Ms Bakos said.

“If the property is comfortable, the right size, and safe, a renovation can wait — particularly in this climate with tight building supplies and builders.”

LOOKING AT LOCATION

When it came to the trend of what today’s buyers were willing to sacrifice, Mr Kirkland said location was rarely considered.

“It’s probably one of the last things on the list they’ll give up, but it’s probably going to have the most impact in terms of affordability,” he said.

“Most people are pretty wedded to a suburb for various reasons, so they’re more willing to compromise on one less room, a slightly smaller back yard or slightly different aspect before letting go of their ideal location.”

Ms Bakos said the old real estate adage rang true in all market conditions.

“Location counts for everything,” she said. “Compromising on things that can one day be changed is sensible (like dated interiors, rotten weatherboards, styles that can be upgraded), but compromising on the address or the quality of the street is something that can’t be changed, as is poor orientation.”

But a lower-priced suburb could still be a good idea.

“It enables a buyer to continue focusing on quality A-grade streets, instead of trading down from A-grade streets to C-grade areas in their favourite suburb,” Ms Bakos said.

She said buyers should also think twice before giving up.

“Waiting in the hope the market crashes, when you do have sufficient budget to buy something that appeals now, is dangerous, too,” she said.

“If the market picks up, a buyer can find themselves priced out of a market they could have afforded. 2020 taught us this.”

Mr Mickenbecker said that the timing conundrum should be carefully considered during a market correction.

“Whether you’re a first-time buyer, or are trading up, you’ll be putting on more debt now,” he said.

“Do think about timing, because if you go too soon – some experts are still predicting more price falls to come for some markets – you might find yourself starting to look a little bit stressed.

“Not only will you have higher repayments because of interest rate increases, and we’re not at the end of those quite yet, but your equity will also diminish.

“If that became your situation and you struggled to make repayments, you would have less equity and fewer options “to get out of trouble”, he said.