Motley Fool Australia

Should first home buyers be rushing to buy a property?

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Plenty of first home buyers are desperate to buy property right now.

After around a year of declines the property market has suddenly swung back to boom times. In the three months to October 2019 national property prices rose 2.9%, combined capital prices increased by 3.6%, Sydney prices went up 5% and Melbourne prices jumped 5.5%.

Not every city is seeing such a strong recovery, but it certainly seems that the bad times have passed. I can imagine the management of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), REA Group Limited (ASX: REA) and Domain Holdings Australia Ltd (ASX: DHG) are pleased by this.

I can totally understand why some first home buyers are fearing they won’t be able buy property unless they jump in now.

But for anyone who’s thinking about buying it’s hard to know what to do. Should people try to buy even if they don’t have a deposit? Should they still aim for a 20% deposit even though it’s a moving-upwards target? Should people come to terms with long-term renting instead?

There is an alternative path that some people take of renting and investing in shares as much as possible. But it’s not for the faint hearted and you’d have to plough a lot of money into shares to make sure the net worth stays on course compared to a home owner.

Buying a home with anything less than a 20% deposit attracts lenders mortgage insurance which is an added unnecessary cost, although Genworth Mortgage Insurance Australia (ASX: GMA) appreciates the business. Stamp duty can also make tens of thousands of dollars vanish before you’ve even walked through the door.

Foolish takeaway

I’m saving for a first home but I’m not going to buy at any cost. Interest rates are low, but they may not be low forever. Signing up to huge debt for 30 years is a big commitment, so your finances need to be in order as well as having a budget buffer in-case of higher interest rates.

Having said all that, buying a property is a lifestyle decision rather than financial decision. If you can comfortably afford and it makes sense to buy then buying in this market could make sense.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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