Australia is experiencing one of the steepest housing downturns since the 2007 global financial crisis, where property prices fell by as much as 5%.
Yet after peaking in October 2017, house prices have dropped once more, with a 6.1% reduction in value across the country’s major capital cities.
While this market dip isn’t exactly welcome news for current homeowners and investors, millennials are now finding themselves faced with new opportunities to get a foothold in the market.
Previously, skyrocketing prices made it all but impossible for millennials to afford a home, but with house prices in some cities tipped to drop by as much as $57,000 by the end of 2020, the time is ripe for young investors to strike.
New research by Finder reveals that over one-third (35% ) of millennials are planning to take advantage of falling property prices by investing in real estate. This is far more than their generational counterparts, with just 16% of generation X and 4% of baby boomers planning to do the same.
Similar findings appeared in The Australian Millennial Report 2019, which suggested that saving up for a house has become a bigger priority for millennials now than it was in 2018. The number of millennials now living with their parents in order to save for a deposit has risen from 2% to 7% in just 12 months. Those who are renting while saving for a house deposit have also increased significantly, jumping from 4% to 13% in a little over a year.
With experts predicting that property prices will continue their decline throughout the remainder of 2019, millennials might just be able to have their avocado and eat it too.
Here’s what first home buyers should consider before entering the property market:
Save, save, save
You should be making regular contributions to your savings account if you want to grow a sizeable house deposit. Anything less than 20% of the property’s value and you’ll have to fork out for lenders mortgage insurance (LMI) which can be pricey. Try to cut back on non-essentials like food delivery, Uber and streaming services. Though they might seem reasonably cheap at the time, they have a sneaky tendency to creep up on you.
Seek home loan pre-approval
If you’ve got your deposit ready to go, seeking pre-approval for your loan means you’ll be able to act immediately when you find the right property. You’ll also be taken more seriously by real estate agents when placing an offer.
Consider future rate hikes
Although Australia is experiencing historically low rates at present, allow for a buffer of 2-3% on top of your current interest rate to accommodate future rate hikes. A rate hike can leave you hundreds of dollars out of pocket if you aren’t prepared, so it’s important to give yourself some financial breathing space when budgeting for monthly repayments.
Use your buyer-power
Remember to utilise the power you have as a potential buyer in the current market. If possible, try and bargain down the price at which you think the market will level out. For instance, if you think that prices will drop a further 3% before they start to recover, reduce your offer by the same amount. That way, you’ll be somewhat protected against future market falls.
Costs extend beyond the sale price
As many first-time buyers are prone to forgetting, the costs associated with buying a house don’t stop at the sale price. You’ll most likely be up for stamp duty, solicitor’s fees, settlement fees and building inspections as well, so remember to factor in these costs when creating a budget.
Graham Cooke is the Insights Manager at Finder