Mitchell Kelly scored himself a bargain as a first-home buyer dipping his toe into the market during the coronavirus pandemic.
Kelly has just picked up a four-bedroom, two-bathroom townhouse in Scarborough, a beachside suburb of Perth, for $545,000. The same property was on the market earlier in the year for $700,000.
Although he does concede that the property needs some work.
Before buying, Kelly, who had previously been renting, had been looking for a property to buy for six months. “I was outbid on a place in January,” he said. “Then six weeks ago I found the place I ended up buying just when the federal government shut everything down.”
He described the vendor as motivated.
Up until that point Kelly hadn’t even factored the COVID-19 pandemic into his thinking about buying a property. “Then I started second-guessing myself as to whether it was the right thing to do to buy something or hang back for six months and see where the market goes.”
Despite the virus, he took the view it was a good time to buy, as any fall in property prices would be temporary and buying property required a long-term investment horizon.
“I also found a place I liked and it was a good price,” he said. “Based on everything I saw, it was the best place I’d looked at in six months.”
Domain economist Trent Wiltshire says it’s too early to tell how much prices have come off for the average first-home buyer, but the market has clearly trended down.
“Prices peaked around February and since then they have fallen by about 5 per cent to 10 per cent on average. That varies across suburbs and capital cities,” Wiltshire says.
“More vendors are taking some money off the asking price. But it’s another question whether prices have bottomed.
“The outlook has improved over the past few weeks as we’ve made good progress containing the virus and with the economy reopening.
“But although it’s looking more positive, prices won’t necessarily rebound rapidly. It’s more likely they’ve still got a little bit further to fall, but not too much. That’s the base case,” he adds.
Auction conditions have improved after open for inspections and in-person auctions started up again. Recent weekends delivered the best auction clearance rate since on-site auctions were banned.
“Signs have improved a bit and the outlook is better than it was,” Wiltshire said. “But a lot of people are out of work or working reduced hours. So people’s income has taken a hit and that’s going to be the case for a number of months, even if things do improve quite rapidly.”
The big risk to the outlook is another outbreak or multiple outbreaks, and a subsequent shutdown.
“That will have a big impact on consumer and business confidence and we might see prices fall further,” Wiltshire said. “So we’re definitely not out of the woods. But the news is a little more positive. Prices are still going to be soft for a while, so there’ll still opportunities out there for buyers.”
First-home buyers were particularly active before the crisis thanks to the federal government’s first-home loan deposit scheme. The proportion of first-home buyers in the context of all home loan approvals for owner-occupied dwellings in March was 29.3 per cent, the highest it has been since 2010.
But given young people have been some of the hardest hit by shutdowns, with many employed in sectors such as hospitality, retail and entertainment, it’s possible this trend will reverse.
Nevertheless, real estate agents report more inquiries from first-home buyers given the dip in property prices and cuts to interest rates.
Couples with dual incomes and job security are finding low interest rates mean repayments are close to or similar to paying rent, making it affordable to buy their first home.
“They are realistic and looking for property they can move into that offers the opportunity to add value in the future.”
First-home buyers may also be able to get into the market by acquiring properties from distressed sellers willing to lower their prices.
“There will be some good buys due to some home owners being in financial distress and needing to sell. But this is on a case-by-case basis and not something that is happening widely across the nation”
Kelly is extremely pleased with his purchase. “At the end of the day, the market will recover, whether it takes 12 months or longer. I certainly didn’t want to put my life off for a year or more, so I’m glad I bought now.”