Aspiring homebuyers who are currently renting are facing a dilemma – buy in a falling market while interest rates are rising or continue to rent and be at the mercy of landlords capitalising on the current rental crisis.
The Reserve Bank’s move to raise interest rates by 75 basis points in the past six weeks and inflation-linked cost-of-living pressures have created a more cautious environment in the housing market.
Prices have dropped across Sydney for two months in a row and Commonwealth Bank has now predicted prices could fall another 18 per cent over the next two years.
It’s coincided with a staggering rise in rents, with the average advertised price of rental houses in Sydney climbing nearly 20 per cent over the year, while unit rents are up nearly 10 per cent.
And with international migration levels expected to climb as the year goes on, the current shortage of rental housing that’s driving up rents is expected to get worse.
One of the country’s top buyer’s agents Pete Wargent, the co-founder of BuyersBuyers, said the property market changes were creating “some tough decisions” for buyers to weigh up over the coming six to nine months.
“It’s a case of choosing your poison at the moment,” he said. “Overall, the price of money is going up, but so too is the price of renting or building a home.”
Mr Wargent said an increase in property listings in the second half of 2022 may make it easier to purchase properties, but there would be critical housing shortages over the long-term and pressure on renters would be severe.
“There’s already a chronic shortage of rental properties since the average household size declined through the pandemic, putting intense pressure on the available rental stock and causing advertised rents to soar in many locations.
“Then you look at the likely dwelling supply response and see that a chronic shortage of building materials and availability of services has also put a rocket under construction costs.
“A clutch of developers has already become insolvent, while many planned projects are now being put on hold or aborted,” Mr Wargent said.
BuyersBuyers CEO Doron Peleg said that interest rates are expected to climb in the second half of 2022, dampening sentiment not only in the housing market, but also in the economy.
Mr Peleg said: “when house prices decline the wealth effect goes into reverse, and consumer spending tends to slow quite abruptly.
“The cash rate target remains low in historical terms, of course, but sentiment is critical in the housing market, and the threat of further hikes over the coming months has been a negative indicator for borrowers.”
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