As house prices drop will first home buyers finally get a property?

Reports the median house price could drop by more than $150,000 will be welcome news for first home buyers, but will it be enough?

Residz Team 3 min read

First home buyers are highly sensitive to price increases or falls. Every $100 they can scrape together could see them win an auction over the next highest bidder instead of walking away disappointed.

So reports the median house price could drop by more than $150,000 will be welcome news for many disheartened potential buyers among the Millennials and Gen Z. However, as we’ll see, there are plenty of hurdles to overcome yet.

Down, down, down

First, the news they’ve been waiting for. ANZ Research says it now expects Australia's housing prices to fall nearly 20%, before a modest recovery in 2024 as mortgage rates fall.



From Sydney to Adelaide, house prices expected to tumble

RateCity says its analysis shows Sydney’s median house price could see a drop of around $204,543 between now and the end of 2023, taking it to $1,141,650. RateCity says its figures are based on CoreLogic’s adjusted median values from December 2021, applying ANZ’s annual forecast.

Melbourne’s price could fall by $128,141 to $836,809, predicts RateCity, and Brisbane’s price could fall $160,000 (current median value for Greater Brisbane houses being $884,000).

Even Adelaide, where housing values are currently still rising, could see a reversal, with the median house price expected to fall by more than $160,000 by the end of next year, according to RateCity.

The median house price for Adelaide city in early August sat at $705,634. (CoreLogic)

First home buyer hopes

So who will be the winners and losers? For sellers, it will depend on where they are situated in what is a multi-speed real estate market. But for non-homeowners who feared they’d never be able to afford a home, hearing news that house prices are plunging at the sharpest rate in 40 years is offering them a chance to reassess.

A recent Canstar survey showed two thirds (63%) of first home buyers are aiming for a home valued between $400,001 to $800,000, 16% are planning to spend $400,000 or less, while 21% have their eye on a property worth more than $800,000.

Prices coming down closer to buyer budgets

These are huge sums of money, but they buy so little in today’s property market. While it’s not much comfort, predicted price drops are something positive on the horizon. RateCity’s price drop predictions show 1 in 5 first home buyers may find a Sydney house in their price bracket, and over 60% of them could potentially meet price expectations of sellers in other cities. Needless to say, the price placed on the home is only one factor in the decision to buy a house.

But how to save a deposit with the cost of everything?

That’s right, the bad news for buyers is that affordability is still terrible and probably getting worse. The ABC reported earlier in 2022 that it now took a first home buyer almost 11.5 years to save a 20 per cent deposit for an average priced home. That’s been a major cause of stress for first home buyers. Part of the reason is that cost of living pressures are biting hard, even if they’re better than shockingly expensive New York. And, the Reserve Bank of Australia has lifted interest rates so sharply, it’s hard to meet the home loan interest bills.

As Eliza Owens, CoreLogic’s Australian head of research said in May:

"The expectation is that property prices will fall off the back of higher interest rates, but this shifts the dynamic from trying to come up with a deposit to an increase in the cost of servicing [the loan].”

Indeed, ANZ has predicted the amount of household income directed towards the home loan is going to rise substantially.

“We expect that the average share of household income that goes to mortgage interest payments will rise to nearly 11 per cent at the peak.”

So, on one hand you have house prices falling, on the other you have bills, rent, and interest payments rising. It’s little wonder younger generations are going to bed and staying there.

Residz can help buyers and sellers reduce the stress of researching properties:


Photo by Juliana Romão on Unsplash