If you plan to buy your first house in Melbourne, it may be better to wait until 2020 to take advantage of falling prices. While home values in Victoria have dropped by $56,000 in 2018, property experts believe that the trend will continue in the following year.
You could maximise the current situation by looking for properties in the outer suburbs of Melbourne. For instance, a house and land for sale in Whittlesea could be much cheaper today. The reason for delaying a home purchase mostly concerns the risk of having negative equity from mortgage repayments.
Why You Should Wait
Average home prices in Victoria’s capital city will further drop between 18 per cent and 20 per cent peak to trough. As of December 2018, the median value of homes in the state cost almost $700,000. This means that even when prices fall by another $50,000 next year, the price tag remains too expensive for many first-time buyers.
Tighter lending rules among banks and other financial institutions also serve as another reason for delaying a home purchase. Interest rates for loans remain high and despite locking in a mortgage with a decent rate, you may find it challenging to meet the required deposit. Some experts said that a lot of Australians who bought their homes two years ago might have fallen into negative equity, mainly because of being unable to settle monthly repayments.
The Consequences Of A Loan Default
Loan defaulters risk losing their deposits when they start to miss mortgage repayments. Not only that, you could pay a higher price if your home’s market value upon default costs less than the amount of your mortgage.
This is how experts describe negative equity, which you could avoid when you are confident about your finances during the duration of your loan. For this reason, choose a property that fits your budget and lifestyle since lower home values are expected to persist in the coming years.
What If Prices Increase?
There’s a slim chance of home prices picking up not only in Melbourne, but also elsewhere in Australia. The Reserve Bank of Australia could reduce interest rates to stimulate demand for homes, and consequently drive up prices. This may have worked in the past, but property analysts expect that it won’t lift values more than 10 per cent to 20 per cent in a year.
A rate cut, however, will increase home buying activity although it may not be evident in Melbourne and Sydney among other cities. The monetary value of homes in these areas could still be too high for many buyers, and most owner-occupiers won’t be too keen to sell their properties at a loss.
First-time buyers should plan their finances before looking for properties even if the price is already tempting. Careful planning will be essential to avoid buying a house just because it was cheap, especially when the property is located in Melbourne’s city centre. You could prevent this from happening by looking for real estate developments in outer suburbs, where home prices and interest rates are likely more affordable.