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Silver lining for borrowers as new home sales fall

By Jack Han
February 15, 2010

New home sales are suffering while the economy recovers, according to leading industry bodies. This has caused concerns over the future of housing sales in Australia and home loan prospects, due in part to the increasing trend of interest rates.

New homes sales fell by 4.6 percent in December 2009, according to figures released by the Housing Industry Association (HIA). While home sales increased overall in 2009, it is evident that this has largely been due to first home buyer activity throughout the year. With the First Home Owners Boost lowering back to $7,000 in January, some experts are doubtful about whether the housing recovery can continue into 2010.

HIA’s Chief Economist, Dr Harley Dale is hopeful that new home sales will grow in 2010 after the trend set by first home buyers. However, the likelihood of further interest rate hikes keeps him cautious.

“We don't as yet, however, have evidence of trade-up buyer and investor activity gathering sufficient momentum to propel us into the second round of a new home building up cycle,” says Dr Dale.

Many financial experts and institutions are predicting that the Reserve Bank will raise the cash rate by at least one more percentage point before the end of 2010. However, after the Reserve Bank kept the cash rate at 3.75 percent at their last meeting, the pace of interest rates remains uncertain.

So have home buyers really lost the incentive to buy new homes? The mentality of only purchasing homes when the incentives are high makes sense, but thousands of Australians who are waiting to be baited could be missing out on much more.

Despite the expected rise in interest rates, there are many great home loan deals on the market. For example, the benchmark (the average of the four major banks) standard variable rate is 6.63 percent however, a quick comparison on RateCity found the cheapest advertised variable rate at 5.59 percent – that’s more than 1 percent difference.

There are still extra government grants in place in some states. For example in New South Wales, there is a $3,000 supplement for new housing contracts made until June 30, 2010, for those buying or building a new home.

And while new home sales might be down, housing prices are rising faster than ever; experts are estimating that the median Sydney house price will reach $1 million by 2020. This means that Australians who are waiting around to buy a new home are potentially forgoing thousands of dollars of equity per year.

Australians who push against the trend are comparing home loans to find the cheapest deals in the market for their new home purchases. You can do the same, and enjoy the benefits of home ownership without worrying about market trends for years to come.

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