The cash rate will remain the same following the Reserve Bank of Australia’s (RBA) August Board meeting. The cash rate is currently 4.35% – 0.75 percentage points higher than it was at the start of the year.
The Board’s decision follows inflation data that came in lower than expected, meaning costs are not growing by as much as many economists had predicted. Talking about costs – house prices in many areas around the country have stagnated or slightly dropped in the last few months.
According to Cotality, Sydney home values saw the largest decline of 4% over the quarter. Melbourne, Canberra, Brisbane and Perth also recorded decreases of 3.4%, 2.1%, 0.6% and 0.3% respectively. Darwin is experiencing growth of 2.4% followed by Hobart at 1.4% and Adelaide stagnant at 0.1%.
With this in mind, many people are wondering if now is a good time to buy property. The answer really is: it depends.
Why now may be a good time to buy property
There are a number of opportunities that this market presents. If you are in a position where you are ready to buy, this could be the sign you have been looking for. Some of the things working in your favour include:
Reduced competition. Loan Market data showed a 26% drop in loan applications since the start of the year. Ray White data also shows an average 2.1 people at open homes. Less competition means more space to consider your purchase and negotiate terms that work for you.
Cooling prices. With prices stagnating or decreasing in many areas, some properties have a lower price tag now than they did earlier in the year. This presents a lower barrier for entry and a smaller loan needed to buy.
Anticipated peak for cash rate. The most recent predictions from economists are that the cash rate has reached its peak. This means if you can afford the interest for your loan now, many do not anticipate you will need to face future hikes and may see some reductions next year.
Why now may not be a good time to buy property
Although there are many opportunities for buyers, there are a few challenges to also understand.
Lower borrowing capacity. With the cash rate currently sitting higher than it was at the start of the year, your borrowing capacity is likely currently lower.
Potential for further price decline. There is a chance house prices will continue to decline in some areas. This could result in your property being worth less than you purchased it for. Historically, house prices have rebounded and come back stronger over the long term. For this reason, it could be wise to consider how long you intend to hold the property and whether that could ride out any near-term potential losses.
Investors may need a new strategy. With the recent changes to investment taxation, investors purchasing property today cannot negatively gear beyond July 2027. There are also changes to capital gains tax discounts. It is a good idea to talk to your accountant or financial advisor about your strategy.
What does this mean for you?
At the end of the day, the right time to buy is when you are ready. The market can be tricky to “time” and historically has had its moments with both decline and growth. If you’re thinking about purchasing, it is a good idea to chat to your Loan Market broker to help get your finances in order and get a plan in place.
Keep in mind, past performance is not an indicator of future performance.
Find a Loan Market broker near you to get started.
