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Five Reasons Why First Time Buyers Should Buy Now

17 September 2013

First time buyer activity has been a bit subdued over the past twelve months with the ABS reporting a sustained decline in activity since September 2012. For the month of July this year first time buyers accounted for only 14.7% of all dwellings financed, well down from its heyday of 20%+ from only a year or two ago. And these results are not surprising given the uncertainty and lack of confidence over the state of the domestic and world economies.

While things are still far from certain there are nevertheless five key factors which may persuade more first time buyers to enter the market now, rather than wait in the hope that things will get considerably better during the next year or so:

1. Political certainty

The seven month election campaign had to be a world record and did nothing more than create even more uncertainty since it appeared the focus was more about winning an election than governing and growing our country. In any event a new coalition government has now been elected and although there are challenges to overcome (like a minority Senate), political certainty (and good government policies!) should translate into Australia moving forward with a resulting increase in business and consumer confidence.

This in turn should hopefully result in greater investment and economic activity leading to more job growth and increased job security. These are important factors for borrowers (as alluded to in my earlier article Understanding the risks of property investment: Part 2) and will hopefully provide the job certainty needed for more first time buyers to have the confidence to take on the long term financial commitment of a home loan.

2. Property prices are heading up

The general expectation is that residential house prices in the major capital cities will move up over the next three or so years. Predictions vary in terms of quantum from state to state but the conditions are good for positive capital growth, certainly over the longer term. The probability of across the board house price reductions is now considered minimal (although possible in specific cases, for instance in mining towns where there is a reduction in activity or investment) so the benefit of waiting for prices to drop further may have passed.

As demonstrated in my column Buy now or save a bigger deposit? we are probably at the point where most first time buyers would be better off buying now rather than waiting and having to pay and borrow more given the likelihood that house prices will move up.

3. Low borrowing costs

Mortgage rates are the lowest they’ve been for decades and there is competition among lenders for good quality borrowers. This means there are good deals to be found (including fixed rate deals) which greatly improves affordability. With interest rates predicted to remain low for the foreseeable future, borrowers are in a great position to borrow cheaply and, provided they manage their mortgage sensibly (for instance, not over-committing), could even pay off their debt sooner thus saving themselves time and money.

Now is a great time to take out a home loan providing you can afford it and you borrow sensibly.

4. Property choice

With confidence in the property market returning, more and more sellers are entering the market, especially now that we are in the spring selling season. This provides first time buyers with not only more, but also (hopefully) better quality properties.

As a first time buyer it is better to buy when there is more to choose from rather than having less stock and more competition to deal with. There are good quality and value properties out there, now is the time to get out and find them.

5. If you don’t, someone else will

Not necessarily a reason in itself but nevertheless a good case to get out and not be left behind. There’s not much point waiting and hoping for a great deal if all the good properties get sold. I know this sounds a bit like a spruiker talking but if you do come across a property that ticks all the boxes and that you can afford there would need to be compelling reasons not to buy.

Holding off in the hope that you could negotiate a lower price is not an unreasonable tactic. After all, as a buyer that’s exactly what you want. But just be cautious because by holding off you might let someone else in which could result in a bidding war or worse, that you lose the property altogether.

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