On a crisp winter Saturday morning, newlywed couple Ruban Parajuli and Arya Katel stood among more than 60 prospective buyers at a house auction in Sydney's inner-west suburb of Glebe. For the 25-year-olds, who have just begun house-hunting, attending their first auction was 'a bit scary.'
'Everyone else here is a little bit older than us, so it's a bit daunting,' Parajuli said. Katel added: 'Also, we're on a very restricted budget.' Within minutes of the auction beginning for the two-bedroom, one-bathroom house, bids went up by more than $200,000, forcing the couple to bow out. 'It escalated a bit quickly, faster than we were expecting … Plenty of notes to take to the second [auction],' Parajuli said.
Optimism Amid Falling Prices
The couple said their dream of home ownership lives on, despite the early blow, attributing their confidence to falls in property prices across Australia's capital cities. 'Since the market is going down, we are just trying out our luck,' Katel said. Parajuli added: 'Areas like Glebe were probably untouchable before and now they've come into a bit of a touching range.'
They are not alone in their optimism. At another auction the same morning, first home buyers crowded a quiet cul-de-sac in nearby Erskineville to bid on a three-bedroom terrace. A 22-year-old, who asked not to be identified, attended with his mother, who beamed with excitement at her son's first auction. With property prices cooling, she said she was hopeful he could 'get a bargain.' 'I'm not certain that 10% off the property market really fundamentally makes that much difference but, in a marginal way, I think that is good for some first home buyers,' she said.
Market Cooling and Its Drivers
In June, house prices fell across four capital cities, with Sydney and Melbourne recording their biggest one-month decline in values in almost four years. More than half the homes taken to auction are not selling, a sign that buyer demand has cooled. Independent economist Peter Esho, founder of the property finance service Flexdoc, described the cooling as 'a normal market cycle,' pointing to the Reserve Bank's interest rate rises this year as the main factor 'dampening prices.'
But he argued that 'this cycle is different to previous cycles … because you've got the government's hand at play,' referring to changes to capital gains tax and negative gearing announced in the May federal budget. These policies have had the greatest impact at the lower end of the investor market, he said, reducing confidence and pulling some out of the market. 'Investors tend to compete at around the same price point that first-time buyers [do] … that's where there's been crowding out,' Esho said. As investors retreat, 'that's the segment that is going to open up for first-time buyers.'
But at the same time market conditions are 'a bit of a paradox,' he said. First home buyers are highly sentiment-driven and 'don't want to be buying into a market that's not rising.' 'When they want to get in, it's probably the time not to get in, and when they don't want to get in, it's the time to be getting in.' Esho described this phase as 'a healthy consolidation' rather than the start of a severe downturn. He expects the next move to be driven less by investors and more by first-time buyers getting into the market.
Affordability Still a Hurdle
Hamish Sutton, a Sydney-based lawyer hoping to buy his first home, said price falls come with a 'huge sigh of relief' but they have not gone far enough to create any real urgency in his search. 'Prices are still unaffordable for me, so it's not like I'm chomping at the bit, ready to go,' he said. 'It just means that for the cheaper, lower-value apartment stock, there might be a more realistic chance of being able to purchase it.'
Sutton described his 18 years of renting as 'a sense of transient existence … at the mercy of landlords.' 'I just want to make my own space, have a little nest that's mine, and be able to paint the walls whatever fucking colour I want,' he said. 'I have been in this [rental] for five years and I still have picture frames on the ground because owners won't let me put hooks in the walls.' The 35-year-old said the dream of owning a free-standing house is 'so out of the question' and all he hopes for now is 'just enough space to survive.' 'Even just a small unit somewhere that's not in the middle of nowhere,' he said. 'That's all I want, I'm not asking for some crazy McMansion in the eastern suburbs.'
