The Interest Rate Waiting Game

With economists not expecting rate drops until next year, waiting for lower interest rates and potential housing price reductions may be tempting. However delaying your purchase could be a more costly gamble.

The mirage of falling prices
It’s important to understand that the Australian housing market is unlikely to experience a significant price drop in the foreseeable future.

Several factors contribute to this.

1. Supply and demand imbalance
   The demand for housing continues to outpace supply, especially in major cities. This imbalance has created upward pressure on prices, even in the face of rising interest rates.
2. Construction costs
   The cost of building materials and labour has been rising steadily, making it more expensive to construct new homes. This, in turn, has pushed up the prices of existing properties.
3. Population growth
   Australia’s population is growing and, with it, the demand for housing. This sustained demand further supports property prices, making a significant price drop unlikely.

The hidden costs of waiting
While you might save on interest payments if rates eventually fall, delaying your purchase could incur substantial opportunity costs:

1. Lost capital growth
   Property values tend to appreciate over time, even in a fluctuating market. By delaying your purchase, you’re missing out on potential capital growth. This could far outweigh any savings from lower interest rates.
2. Increased competition
   As interest rates eventually stabilise or start to decline, more buyers will likely enter the market. This will intensify competition and potentially drive prices even higher.
3. Rental costs
   If you’re currently renting, you’ll continue to incur rental expenses while waiting for interest rates to drop. These payments could be put towards building equity in your own home, or at least an investment property.
4. Inflation
   Inflation erodes the value of money over time. If prices continue to rise while you wait, your savings might not be sufficient to purchase the same property later.
5. Emotional costs
   The stress and anxiety of waiting for the ‘perfect’ time to buy can take a toll on your mental wellbeing. The uncertainty of the market can lead to missed opportunities and regret.

The power of time in the market
A common misconception is that timing the market perfectly is the key to success. However, history has shown that time in the market is often more important than timing the market. By purchasing a property sooner rather than later, you allow your investment to grow and benefit from the potential compounding returns over the long term.

The importance of financial preparedness
While the decision to buy or wait is a personal one, it’s crucial to assess your financial readiness. Ensure you have a stable income, a healthy deposit and a clear understanding of your borrowing capacity before entering the market.

The allure of lower interest rates can be tempting, but delaying your home purchase comes with significant risks and potential costs. The Australian housing market is unlikely to become more affordable in the foreseeable future and waiting could mean missing out on valuable capital growth.

Instead of focusing on timing the market, prioritise your financial preparedness and consider the long term benefits of homeownership.

Remember, the best time to buy a property is when you’re financially ready and have found a home that meets your needs and budget.

As always, our finance team awaits your call to help guide you through all your finance questions, concerns and to understand your capacity to borrow.

With interest rates on the potential downside mid to late next year, NOW may be the best opportunity for you to consider buying your first home, upsizing or investing in property.

Remember, we are only a phone call away.