First-home buyers risk property price sting
From: The Australian
October 30, 2008
FIRST-HOME buyers risk going backwards if they take up Kevin Rudd's generous cash handouts to enter the market over the next eight months when prices are already falling in two of the key cities that will decide whether Australia avoids a looming global recession - Sydney and Perth.
Median house prices have been tumbling in Sydney's outer suburbs since 2004 and have also begun dropping in Perth, based on an exhaustive study by The Australian.
But prospective buyers in Melbourne, Brisbane and especially Adelaide may enjoy unexpected windfalls because some of the affordable postcodes are still recording double-digit price rises.
Property experts warn that if unemployment climbs towards 8 per cent, then even those voters who claim the first-home owner grant at the right time, and in the right city, may find their mortgages harder to service despite lower interest rates.
"No one knows how high unemployment will go," Tim Lawless, the research director of property market analysts RP Data said yesterday.
"If unemployment gets up to 6 or 7 per cent, it's not going to be a great deal to worry about, but if it gets higher than that then that's where there are going to be some issues."
Even if unemployment does not spike, ANZ bank chief economist Saul Eslake says, it is likely that workers will have their hours cut back. In two-income households, that may make things a little tight if the second earner is working less.
Labor is gambling that its $10.4 billion consumer relief package - including an unprecedented $1.5 billion boost to the first-home owner grant - will cushion the economy into the new year and reduce the danger of recession.
However, while the extra spending may be good for the macro economy, it may not make as much sense for individual households to follow the federal Government's lead into the property market.
Government officials and private sector economists are confident that Australia will avoid the sorts of confidence-sapping price crashes that have plagued the US in the past two years.
But the bad news for Labor is the price falls that have occurred in Australia are in the very markets needed to firewall the economy - Sydney, the nation's worst-performing city, and Perth, the capital most reliant on mining for its prosperity.
In Sydney, the typical outer-suburban home is worth less today than it was in 2003. In Perth, the boom has finally ended and prices have been in retreat this year.
The carnage in Sydney is concentrated in the middle- and outer-western suburbs, in particular the Liverpool and Fairfield areas, where 27 suburbs have had a slump in prices over the past five years.
One of the worst affected is Busby, only 30km from the centre of Sydney, where the median house price of $233,500 is 16.5 per cent lower than it was in 2003.
In total, 81 suburbs have recorded capital losses since 2003 - 80 of which are in Sydney, and just one, Cranbourne South, in Melbourne.
The Australian used RP Data to pinpoint the suburbs where people were most likely to move to following Labor's decision a fortnight ago to treble the first-home owner grant to $21,000 for the purchase of new properties, and to double it to $14,000 for established dwellings.
Those suburbs where the median house price was below $400,000 were counted as first-home owner territory.
Sydney, Melbourne, Brisbane and Perth have roughly the same price structure, with the inner city locked out to first-time buyers, The affordable suburbs tend to be located more than 20km beyond the city centre.
One of the problems for new buyers is that the major banks will be less willing to lend if prices are flat, or on the way down.
Mr Eslake said people should not worry about house prices falling outside western Sydney, or in those suburbs where investors got a little too eager during the boom.
"The other exception is the very top end, Bellevue Hill, in Sydney, and Toorak, in Melbourne, where what were $20 million properties might be going for $12 million," he said.