Why falling property prices are actually bad news for first home buyers

Prospective first home buyers’ relief in seeing property prices fall could be short-lived as higher interest rates reduce the amount they can borrow and the gap between what they can afford and house prices widens.

Falling house prices may not be the blessing for first-time buyers it seems, with higher interest rates reducing their borrowing capacity.If the cash rate climbs 2 per cent, which some economists are forecasting to be the top of the current tightening cycle, the couple’s borrowing capacity would reduce by almost 18 per cent to $1,066,000.

However, as interest rates rise, their borrowing power would continue to be depleted. Rents are rising rapidly, too, making it harder for first home buyers to save their deposit. Philip Lowe, Reserve Bank governor, has indicated that official interest rates could eventually rise to 2.5 per cent, but with no guidance on how quickly this would be achieved. Money markets are expecting the cash rate to reach an even higher 2.75 per cent by year-end.

“We expect the combination of worsening affordability, along with rising mortgage rates, to drive a top to bottom fall of 10 to 15 per cent in average home prices [nationally] from mid-year out to early 2024,” he says.Commonwealth Bank economists are forecasting Sydney dwelling prices to track Melbourne declines to fall 3 per cent this year and 9 per cent in 2023.

Source: Loan Digest (loandigest.net)

jcollett_money Really need to limit the number of properties people can buy, many established Australians have multiple and are able to easily buy more. They are squeezing the market for new buyers. Please limit properties or at least cut investing tax benefits.

jcollett_money Send back the Union Jack Referendum

jcollett_money The only “good” news for 1st home buyers is that their parents, and preferably both, have suddenly been killed and left them the house. Still hope they had enough equity and your an only child if you wanna buy in Sydney

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