Can first home buyers still buy in Sydney?

By Cameron Micallef

June 21 2021
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Strong buyer interest, spurred on by record-low interest rates, as well as below average wage growth, means it could now be harder than ever for first home buyers to enter the market.

Can first home buyers still buy in Sydney

Ironically, a spate of new home buyers rushing to get into the market have made it more difficult for the next group of first time market entrants due to rapidly increasing house prices.

Data from Domain’s First-Home Buyers Report 2021 found that lower interest rates and improved mortgage repayments are acting as a double-edged sword for buyers, making them a key driver for property prices as well as the key reasons many first time buyers are finding it harder than ever to save for a deposit.

And while cheap interest is making it difficult for savers, it just got a lot harder with the overall increase in savings times across capital cities growing from between two to nine months.

In fact, according to Domain's data, a couple that wants to live in Sydney will now have to spend seven years and one month saving up for a 20 per cent deposit.

However, despite the sudden increase in prices for first home buyers, Pure Property Investment’s founder, Paul Glossop, highlighted a misconception with Sydney's apparent record smashing numbers.

“While the Sydney market has seen a strong increase over the past 10 months in the range of 8 to 20 per cent in some cases, it’s important buyers remember that between 2017 and 2019 that Sydney’s market saw its greatest reduction in history, falling by 20 per cent.

“The reality is at this stage, Sydney’s market is only tracking slightly higher than its previous peak,” Mr Glossop told nestegg.

Mr Glossop also highlighted the significant drop in costs when it comes to borrowing.

“Although Sydney property prices are continuing to increase, the actual affordability of the equivalent properties is still cheaper than where it was at its previous peaks of 2017,” he said.

Alternatives strategies

Forecasts continue to predict the Sydney's property market will grow by 15 per cent over the next 12 months, with Mr Glossop noting buyers may need to get creative if they want to get a foot in the door.

“It is always a good suggestion for first home buyers to consider other strategies to enter the market sooner. Strategies such as smaller deposits accessing equity from family members as guarantors or even considering joint purchases with family and or friends to get a foot in the door,” he said.

The property investor also pointed out that Sydney is Australia’s most expensive market, with investors able to look outside of the harbour city for an alternatives.

“There are a multitude of markets across Australia within very affordable price brackets that are experiencing rapid and record capital growth along with extremely strong cash flow and in many cases allowing the properties to be cash flow neutral or positive, which should be highly considered for first home buyers who may feel that they are priced out of the Sydney market currently,” he said.

Good for those in the market

While getting into the market might be a struggle, record-low interest rates that hurt would-be buyers, as well as savers, act as an advantage when it comes to repayments.

It is recommended that home owners dedicate less than 30 per cent of income towards mortgage repayments to avoid ‘mortgage stress’.

“All cities currently fall below this threshold based on a couple’s income aged between 25-34 years old, assuming a 20 per cent deposit has been paid on the entry-priced home,” Domain said.

“On average, across the cities the amount of income required to service a mortgage repayment has declined from 24 per cent in 2012 to 18 per cent in 2021 for an entry-priced house (assuming 20 per cent deposit). For units, this has dropped from 21 per cent to 13 per cent.”

However, it should be noted that the RBA has previously said interest rates will rise by 2024, with leading economists predicting a sooner move.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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