First home buyers wait and see House price falls as interest rates rise

“During COVID with all the government incentives around HomeBuilder and other subsidies, it brought a lot of people forward with buying a home… and brought a lot of people who were out of the market back in,” Koutzamanis said.

He has a 30 percent drop in the number of first-time home buyers compared to last year as interest rate hikes make conditions more difficult.

Grants like HomeBuilder raised demand from first-time homebuyers.

Grants like HomeBuilder raised demand from first-time homebuyers.Credit:Justin McManus

“I have a client… get your pre-approval, and she’s decided it’s out of her budget now because interest rates have gone up,” Koutzamanis said. “The mortgage payments would take up too much of her monthly budget.”

Repayments are a top priority for first-time homebuyers like Luke Purchase, who hopes to hit the market sooner rather than later.

The 31-year-old owner of Nature’s Essence Landscaping rents in Elwood with his partner of eight years, and said they wanted to buy, although the interest rate hikes made them nervous.

“We’re probably looking at fixer-uppers or something that small — just to get a foot in the door and then upgrade,” he said. “We looked at two bedroom apartments and ideally, as a landscaper, I would like something with a garden.”

Luke Purchase hopes to buy his first home with his partner, but is nervous about interest rate hikes.

Luke Purchase hopes to buy his first home with his partner, but is nervous about interest rate hikes.Credit:Chris Hopkins

The couple is at the beginning of their search for a home, after talking with a mortgage broker less than two weeks ago. Purchase knows they are most likely not eligible for initial homebuyer subsidies for new construction or for stamp duty concessions.

“That’s a bit of a blow, and you only get the stamp duty waiver once and that’s for properties under $600,000,” he said. “Interest rates are going up and that sucks, but I still feel like it’s a better time to buy because there’s no rush — there’s no fear of missing out.”

Purchase understood why some first-time homebuyers asked their parents for financial help, but said he wouldn’t go to Mom and Dad’s Bank.

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Real estate Home Base buyers agent Julie DeBondt-Barker said the first home buyers who were supported by their parents to enter the market just six months ago were now being warned by them to wait.

“The parents remember the 17 percent and 18 percent interest rates [in 1990] and so they give their kids a lot of advice to be careful,” DeBondt-Barker said. “That, combined with the fact that there isn’t much on the market to choose from, means that there are fewer first-time home buyers.

“It’s just the uncertainty of what’s going on, and the cost of living is going up, the cost of electricity is going up — they’re just waiting.”

New buyers would wait for interest rate hikes to stop — which may not happen until mid-next year — before making a serious comeback, Oliver said.

In the past, governments had introduced incentives during recessions to help first home buyers and increase demand, he said.

“If the economy slows next year due to higher interest rates, it could mean more government stimulus.”

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