House prices surge, driven by rate cuts and first home buyer scheme
AMP chief economist Dr Shane Oliver admitted record house prices could push more first home buyers to look at properties.
“When property prices rise, houses go up first, then as affordability worsens, they move into flats,” he said. Higher prices could push home seekers further out, he said.
Melbourne house prices have risen at more than twice the rate of inflation, but some areas have experienced faster increases.
The Mornington Peninsula had the strongest price growth of the year through December, at just over 11 per cent. The Southeast was the strongest region in terms of units throughout the year, with an increase in the west in the final quarter.
As homes move beyond the limits of affordability, buyers are looking for other ways to secure their first home.
Christian Montti and his partner Rhiannon Collins, both 35, were pre-approved for an $830,000 mortgage in late September.
Christian Montti and Rhiannon Collins with their dog Henry and cat Nudie in their new home in Upwey.Credit: Arsineh Houspian
When they started looking for homes the first weekend in October, they found they were competing in a crowded market.
“The number of people there and the interest in these homes has increased almost exponentially,” Montti said.
Working in construction, Montti could see that the homes they could afford were either too small or would need renovations they couldn’t afford.
Frustrated, the duo suspended their search.
They moved in with Collins’ family. Collins, a regular veterinary nurse, took a second job as a business analyst in the tech industry. In late December, the couple applied for pre-approval again, this time with a higher salary and a family guarantor.
“We had no idea [a guarantor] It might even have been an option initially, Collins said, adding: “That changed our trajectory in a big way.”
After being pre-approved for a $1 million loan, they started calling again and within a few days they made an offer and the offer was accepted.
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Mortgage broker Jacob Decru, director of Loan Market Connect, said more customers were looking at ways to expand their borrowing capacity beyond the deposit scheme cap.
“There’s a lot more competition in a smaller market,” he said. “It becomes about do we need to start getting creative with them and say, ‘Okay, are we using a family guarantee instead of a government guarantee to open you up to the next level?’”
ANZ economist Madeline Dunk said despite its limitations, the program should support more people entering the market, particularly in Melbourne.
“The share of first home buyers is actually higher in Melbourne than in other parts of the country, and given the first home buyer deposit scheme, that should be more support to bring them into the system,” he said.
Dunk, Oliver and Powell highlighted that Melbourne remains affordable compared to other capital cities, which is likely to increase returns for investors seeking capital growth and attractive rental yields despite high land taxes.
However, this may be mitigated by the looming threat of interest rate hikes.
“It’s quite possible that the Melbourne property market will fall again if we raise rates,” Oliver said.
“Houses are more likely to feel it than units. If you get a rate rise… well, they’re a bit like cockroaches; if you see one, you get another.”
