Sydney home prices plunge in risk for first-home buyers who used low deposit scheme

7 hours ago 1

Sydney’s real estate slump has worsened over the past month with an acceleration in price falls as higher interest rates and uncertainty over tax changes in the May Budget spook home seekers.

And it’s led to warnings that first-home buyers who accessed government’s low deposit scheme could soon be left owing the bank more than their properties are worth.

Figures released Tuesday revealed home values have declined an average $31,000 since the first rate hike in February, with price falls deepening over June.

Sydney home values fell 0.5 per cent over the month, a rise from the 0.2 per cent fall in May, and are now an average of 2.5 per cent lower than in February.

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Sydney auction clearance rates have been under 50 per cent, normally an indicator prices will fall, for seven straight weeks. Picture: Monique Harmer

The median price of a Sydney dwelling, based on sales of units, townhouses and houses is now $1.222m, a decline from $1.253m in February, according to PropTrack’s Home Price Index.

REA Group economist Anne Flaherty attributed the falls to higher interest rates and the fallout from tax changes announced in the May federal budget, including restrictions on negative gearing and capital gains tax reforms.

“Lower investor demand has softened prices,” she said. “There is also an expectation among home buyers that prices will continue to drop and that’s made a lot of them hesitant to buy.”

Recent drops in home values could prove problematic for those who used the Australian Government 5 Deposit Scheme at the start of the year as prices only need to fall marginally more for them to slip into negative equity, Ms Flaherty said.

Being in negative equity, where the homeowner has a mortgage larger than the value of their home, would mean they would be unable to settle their home loan debt if ever forced to sell.

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Realestate.com.au economist Anne Flaherty

Multiple real estate groups are now forecasting further falls in prices.

Modelling from SQM Research forecast a 9 per cent fall in Sydney prices over the calendar year, while ANZ has predicted a drop of up to 8.4 per cent. Commonwealth Bank has predicted a 6 per cent fall.

“Negative equity is an increased risk,” Ms Flaherty said. “If any of these buyers are struggling to pay a mortgage, it will be concerning.”

PropTrack figures showed Sydney’s market slump, which originally started among higher priced sales, last month spread to more affordable areas.

Prices in the inner south west, which includes much of the St George area and Canterbury-Bankstown, dropped by 3.28 per cent over the past three months.

Parramatta prices fell by an average of 2.4 per cent over the period, while prices in Ryde and the southwest, which includes Liverpool and Fairfield, dropped by about 2.4 and 2.1 per cent, respectively.

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Ray White chief economist Nerida Conisbee

Ray White chief economist Nerida Conisbee said government tax changes could raise the risk of negative equity for first-time buyers.

Ms Conisbee said the changes have reduced investor demand at the bottom end of the market, fuelling widespread value falls in the kinds of areas where many first-home buyers entered the market with 5 per cent deposits, supported by the government’s guarantee scheme.

“Government has messed around with the bottom of the market,” she said.

“The problem is they expanded (the guarantee) scheme in October, which pushed up prices at the bottom end.

“Then government went and reformed taxes for investors in the Budget, which has pulled down prices at the bottom end.”

By introducing one policy that pushed up prices for first-home buyers and another that later pulled them back down again, government created a lot of the negative equity risk, Ms Conisbee explained.

Experts said demand has fallen since Treasurer Jim Chalmers announced landmark tax changes in the Budget. Picture: Martin Ollman

“Confidence among first-home buyers has taken a real hit,” she said. “The (risk) is if any of the first-home buyers lose their jobs and have to sell.”

A spokesman for Minister for Housing Clare O’Neil downplayed the concerns about negative equity, pointing to Treasury modelling showing house prices “will be 2 per cent lower” than they would otherwise be. They said: “Most 5 per cent Deposit Scheme participants are ahead on their mortgage and defaults under the scheme are vanishingly rare.”