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Why first home buyers should rent for longer

The market hasn't bottomed out yet, says CoreLogic.

Azal Khan

Digital Journalist, Your Money

The property market hasn’t bottomed out quite yet, so aspiring first home buyers should keep saving their deposits while paying cheaper rent.

That’s the advice from Cameron Kusher, CoreLogic’s head of research, as new figures show the rental market is falling across most capital cities.

Rental prices are down three per cent in Sydney over the last 12 months and 3.9 per cent from their peak, Kusher said.

Falling rents are an unusual trend.

“Typically when you see the housing market in terms of values falling, you actually find a bit of strengthening in the rental market,” Kusher told Business Breakfast.

“But at the moment we are seeing both values and rents falling.”

That’s the result of too much stock being purchased by investors in the last five years and an excess of housing construction. Kusher believes it leaves renters in a better position to shop around and negotiate a better deal.

“I think the sense is we will still see some price falls for a while. And we are still going to see some rental falls in Sydney and Melbourne, given how much stock is coming online.”

CoreLogic’s figures come as a new report from Domain found Sydney is no longer the country’s most expensive to rent a house.

The report found rental prices have fallen for the first time in 12 years, with Canberra now the most expensive city to rent in the country. Sydney’s average house rent is down to $540 and Canberra is up to $560.

Kusher says first home buyers don’t need to hurry into the market.

“You’ve got the option to pay less rent and you’ve got the ability to save up a bigger deposit. Save up and buy cheaper a few months down the track.”

Will falling rents scare off investors?

The new figures are good news for renters and home buyers trying to save a deposit but bad news for investors

The winning investors are those who bought property five years ago in Sydney and Melbourne. Those homes would have seen a significant rise in value.

But investors who bought into the market 12-18 months ago who would be looking to exit the market, especially those how bought off-the-plan who would be facing the most challenges, Kusher said.

“You’re seeing falling values, falling rents and higher vacancy rates as well.

“You’re going to be underwater from day dot.”

Kusher thinks Sydney and Melbourne are not the places to be investing right now.

“To me, there are better investment opportunities elsewhere.”

If you’re an investor looking for rental growth, he suggested Hobart and Canberra as the cities with the best rental growth right now.

“Darwin rents down are down 5.7 per cent over the last 12 months. Perth rents down 20 per cent from where they were are their peak.

“We are starting to see a recovery in Brisbane. Regional markets are seeing stronger rental markets than capital cities.”

What does it mean for first home buyers?

Lower rents might discourage people from buying straight away, with people given more opportunity to save up while paying cheaper rent. Kusher predicts.

“I would suggest for first home buyers to save up a bigger deposit and pick the bottom of the market.

“It’s pretty obvious right now we are not quite at the bottom of the market yet.

“We know that credit conditions are very tight and for first home buyers, accessing finance is a challenge. We know that nothing has really changed from late last year that is going to see the market turn around.”

But how exactly can we tell when the market has bottomed out?

“There are some signals to watch, like if we see some of the macroprudential policies eased off a little bit.

“We will know more next month when the banking royal commission’s final report is handed down,” Kusher said.

Read more: Mistakes to avoid when buying your first property
More: Hobart a winner in property downturn
More: Metro vs regional property: where should you invest?

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