The successive rate hikes last year have discouraged many first-home buyers from opening the property market doors — will it be the same this year?

InvestorKit head of research Arjun Paliwal said there are five key market trends that will impact how first-home buyers will tackle their purchasing strategies this year.

“The dream of getting on the property ladder also put on the backburner for many first-home buyers as their borrowing power dwindled with interest rates increasing month on month — this is despite national house prices falling across our capital cities,” he said.

1. National home prices are likely to recover starting in the second quarter of the year.

Despite the decline in house prices that started in mid-2022 when the Reserve Bank of Australia started hiking rates, signs of recovery are likely to start showing by April to July this year.

The likely recover would be driven by the dwindling supply of houses available for sale.

“The latest October ending data reveals there were just 236,000 listings for sale — our housing supply levels remain constricted,” Mr Paliwal said.

While this isn’t as low as the January 2022 figures, at just 200,000 listings, the last time Australia had this little stock on the market was in March 2010.

“Back then, the population was at 22 million and we now have an additional 4 million. We are seeing roughly the same number of listings for sale as 12 years ago, which is concerning,” he said.

“This supply-demand dynamics is what will ultimately drive house prices up.”

2. First-home buyers are likely to enter the NSW property market.

First-home buyers in New South Wales will benefit from the First Home Buyer Choice, which have already taken effect.

The scheme allows first-time buyers to opt for an annual land tax instead of an upfront stamp duty on their property purchase.

“This will lead to more first-home buyers entering the market, as a one-off stamp duty cost has long been a barrier preventing them from purchasing sooner. If successful, I believe it will encourage other states to follow suit,” Mr Paliwal said.

3. Interest rates will balance out.

A potential rate cut could be in store later this year given the aggressiveness of the RBA in hiking the cash rate last year.

“The significant interest rate hikes have severely reduced credit take up, which means the RBA will need to balance credit flow, unemployment, spending and inflation, as we expect those things to worsen over 2023,” Mr Paliwal said.

“The RBA will realise their increases have been overshot, and as a result, lowering the cash rate in the final quarter of 2023 may prove to be their only move.”

4. Banks will likely review their lending requirements.

As potential borrowers delay their plans of applying for a home loan due to rising interest rates, banks are likely to consider changing their requirements.

“With home loan serviceability now calculated based on an 8-9% interest rate, scaring off borrowers from applying while others are being rejected for more expensive mortgages, the banks will need to find a way to bring borrowers back as borrowing capacity declines and shrinks credit up-take.,” Mr Paliwal said.

5. Smaller regional centres will remain hotspots for buying activity.

The relative affordability and strong local economies in regional Australia will continue to result in high demand for house prices.

Some of the regional hotspots that are expected to continue seeing high demand from buyers are Townsville, Toowoomba, Rockhampton, Bundaberg, Albury-Wodonga, and the Barossa Valley.


Photo by ratanakun on Canva.