Should you buy a property now or wait until 2025?

It’s an age-old question and one that I hear time and time again.

Should I buy a house?

What if interest rates fall in 2025?

Shall I buy a property now or wait until then?

Unfortunately, none of us have a crystal ball, we can’t predict what the future will hold.

But there is one clear and obvious answer to this question (as you’ll find out later on).

When deciding whether to buy a property now or wait until 2025, there are many things to take into consideration.

To help, here’s a rundown of what we can expect from the property market in 2025, including key trends and a number of influencing factors, and the pros and cons of buying today versus waiting until 2025.

Interest rate predictions for 2025

Following the Covid pandemic, Australia enjoyed a record low interest rate of just 0.10% in November 2020 before the Reserve Bank of Australia (RBA) began its wave of interest rate hikes in May 2022.

And with 13 interest rate increases over 15 months, to today’s 4.35%, it’s no surprise that investors and homeowners are anxious to find out what will happen next.

The RBA has kept interest rates on hold since November 2023, and while the money market expects the first interest rate cut to happen later this year, RBA governor Michelle Bullock keeps reiterating her firm stance against a rate cut in 2024.

Economists at all 4 of Australia’s major banks now agree that there won’t be any more interest rate rises, but they differ on when and how quickly it might come down.

• CBA expect 5 x 0.25% rate cut starting in November 2024
• Westpac is forecasting 4 x 0.25% rate cut starting in February 2025.
• ANZ expects 3 x 0.25% rate cut starting in February 2025
• NAB forecasts 5 x 0.25% rate cut starting in May 2025

These differences likely stem from varying views on how fast the RBA’s rate hikes will cool inflation and allow for rate cuts.

But, as we now know, most of their past predictions haven’t come to fruition.

Either way, it means that if you are a borrower, interest rates will fall sometime in 2025 but the reduction in your mortgage payments will be gradual.

Ongoing mortgage trends in Australia

The mortgage landscape in Australia for 2024 has been shaped by several ongoing trends.

Despite high interest rates, property values have continued to increase for 18 of the last 19 months, driven by factors such as a surge in net overseas migration, fewer people per household, and construction sector constraints.

Here are 5 key mortgage trends that are occurring:

1. Higher home loan repayments

Increasing property values and high interest rates mean that the average home loan repayment in Australia has surged.

• The average monthly home loan repayment in Australia is $3,932, but the repayment amount varies across states and territories.
• Borrowers in New South Wales pay the most on average – $4,818 - with borrowers in the Northern Territory paying the least.

Average Home Loan Amount and Monthly Repayments by State:

Location	Average home loan amount	Average monthly repayment
NSW	$780,028	$4,818
VIC	$604,343	$3,733
QLD	$599,330	$3,702
SA	$545,816	$3,371
WA	$566,657	$3,500
TAS	$467,467	$2,887
NT	$437,427	$2,699
ACT	$614,242	$3,790
Australia overall	$636,597	$3,932

Source: ABS

2. Increased refinancing activity

High interest rates have created a strong trend towards increased refinancing activity, with many borrowers looking to take advantage of any potential savings.

Borrowers are either switching to a different lender to get a lower rate (external refinancing), or are switching their loan product with their current lender (internal refinancing).

The chart below from money.com.au shows how external refinancing has fallen while internal refinancing has grown, indicating that lenders have become more competitive in their products versus competitors and that borrowers can find a cheaper loan to better suit the current environment.

3. Variation in average mortgage sizes

There have been changes in average mortgage sizes across different states, reflecting the diverse economic conditions throughout Australia.

Not only that but there is a significant variation in average mortgage type depending on buyer type.

For example:

The current average home loan size for owner-occupiers is $636,597 for owner occupiers.

But the chart below from InfoChoice shows that, for investors, it’s $639,000 for investors, and for first home buyers the average is $535,000.

This trend highlights differences in property markets and borrowing capacities.

4. Mortgage brokers are becoming more important

As the mortgage market becomes more complex with a wide range of diverse products, mortgage brokers are playing a more crucial role.

They help simplify the process, ensure that borrowers get the best possible deal, and provide peace of mind by managing the complex and often stressful process of securing a mortgage.

5. Demand for fixed-rate home loans slumps

When the RBA cash rate hit all-time lows, borrowing reached all-time highs and the share of new home loans on fixed rates skyrocketed.

But, as rates began to rise, the popularity of fixed-rate loans plummeted - a trend which is expected to remain in the near future and at present, fixed-rate loans make up less than 3% of new loans coming into the market (including refinances), with variable-rate loans accounting for the remainder.

Housing affordability outlook

Housing affordability in Australia has been a growing concern in recent years with high interest rates and a low supply of good properties at a time when demand is high, resulting in house prices in major cities like Sydney, Perth, Adelaide, and Brisbane having skyrocketed, making it challenging for first-time buyers to enter the market.

While house prices have risen substantially, wage growth has not kept pace, eroding the purchasing power of many Australians.

At the same time, the cost of living has increased, further stretching household budgets and making it harder for people to afford to buy or rent homes.

Government policies and interventions have also played a role in shaping housing affordability trends in Australia, with various programs aimed at assisting first-time buyers, such as grants and stamp duty concessions, giving first homebuyers more money, which they spend on properties only pushing the value of established properties even higher.

You see… government stimulus to increase demand and make it easier to buy without addressing supply constraints only creates a tighter bottleneck.

Despite some signs of potential relief, affordability issues will likely persist for many Australians in the near future.

While many first-time buyers can afford mortgage repayments, they find it difficult to save the 10 or 20% deposit required to get into the market.

The rental market also plays a crucial role in the housing affordability outlook.

Rising rents across the country, driven by high demand and low vacancy rates, have made it increasingly difficult for renters to save for a home deposit.

This is particularly challenging in larger cities where rental prices have surged, squeezing the budgets of many households and limiting their ability to transition from renting to owning a home.

However, there is a group of home buyers who are being helped by their parents and grandparents – frequently called the bank of “mum and dad”.

Gifts, loans and bank guarantees to this fortunate group of first homebuyers are helping them get onto the property ladder.

Potential impact of global economic conditions

Understanding the many factors influencing Australian property prices is crucial for anyone navigating the real estate market, and economic indicators provide essential insights for making informed decisions.

The interplay between international finance trends, foreign investment, interest rates, and economic stability all play crucial roles in shaping the trajectory of property values and affordability in Australia.

1. Global interest rates and inflation

Global economic conditions often influence Australian interest rates, particularly through the actions of major central banks like the U.S. Federal Reserve.

It seems that inflation is being tamed around the world and the central banks of many countries are likely to start lowering the interest rates.

Indirectly this will put a lid on Australian interest rates and make it a little easier for the RBA to start considering lowering rates back home.

2. Foreign investment

Australia's property market has historically been attractive to foreign investors, particularly from Asia.

Changes in global economic conditions, such as economic downturns or changes in foreign government policies, can affect the flow of international capital into Australian real estate.

For instance:

Stricter capital controls in China or the economic and property market slowdown in China have decreased foreign investment in Australian properties.

On the other hand, if global investors view Australia as a safe haven during times of international uncertainty, there may be an influx of foreign capital, driving up property prices.

While there has been much controversy about foreign property investment in Australia, foreigners cannot usually buy established properties.

However, they have been a critical factor in financing many of the apartment towers built during the last boom, either by buying properties off the plan apartments or through foreign developers initiating the project.

This, of course, provided desperately needed accommodation for Aussie tenants.

• Also read:Perth housing market update | September 2024
• Also read:Sydney housing market update | September 2024
• Also read:Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
• Also read:Melbourne housing market update | September 2024
• Also read:Australian housing market update [CoreLogic’s video] | September 2024

3. Global economic stability

Global economic stability plays a significant role in shaping the confidence of both domestic and international investors.

A stable global economy gives confidence and encourages investment in real estate.

Meanwhile, global recessions or financial crises can lead to increased uncertainty and risk aversion, which might reduce investment in the property market.

4. Commodity prices and trade

Australia's economy is heavily influenced by the global demand for commodities, particularly minerals and energy resources.

In the past, high global commodity prices have led to economic growth and increased wealth in Australia, boosting consumer confidence and spending, including in the property market.

However, commodity prices are currently falling at a time when China, our most significant consumer of mineral exports, has drastically reduced its demand for iron and steel.

This could cause economic challenges down the track.

Key factors to consider before buying a property

Before asking:

Shall I buy a house now, or wait?

Here is a list that will help ensure you’ve ticked off everything that might affect your property purchase.

1. Interest rates

Although we’ve covered the topic of interest rates in detail above, it’s a vital factor to consider before buying a property because they directly affect mortgage expenses and borrowing capacity.

As the interest rates start to fall next year, this will lower your mortgage costs, and if you buy a property today borrowing using a variable interest rate loan, you’ll reap the benefits next year.

2. Employment

Currently, unemployment is at historic low levels, and despite strong immigration and more people looking for a job, businesses and, in particular, the government are creating more jobs than ever.

While general unemployment levels are likely to rise a little over the next year as the RBA continues to try to slow our economy, it is likely that anyone looking for a job will be able to find a job.

Of course, if unemployment levels rise too high, that will dampen consumer confidence and people will put off making big decisions like buying a home.

3. Population growth and migration trends

Population growth, whether it is fuelled by immigration or natural increase, puts pressure on demand because as Australia's population continues to rise, so does the need for more housing, which places further strain on the market.

Meanwhile, migration patterns also affect housing demand and the overall cost of property.

Surges in overseas or internal migration create pockets of strong demand in certain locations.

For example:

In 2022-23 many Sydneysiders and Melbournians flocked northwards to relocate in Queensland, and the state’s economy and housing market boomed under the sudden demand.

Likewise, in 2023 Australia experienced a surge in overseas migration, most of whom moved to our big capital cities, creating pockets of strong demand in central urban areas close to workplaces and universities.

4.    Infrastructure development

Urbanisation and infrastructure development are another factors that affects property prices.

Urbanisation also draws more people who want to migrate to better areas in search of a better lifestyle, which also further pushes up prices.

5. Consumer Sentiment

This might seem like an obvious one, but when consumers are optimistic about their financial prospects, they are more willing to buy property.

Conversely, if consumer sentiment dips, concerns about economic conditions might cause property buyers to delay or pull out of the market.

6. Local market conditions

Local market conditions can greatly affect how the housing market performs.

Things like supply and demand, employment rates, and vacancy rates can vary greatly from one area to another.

That’s why it’s important to research specific locations before deciding where to invest.

7. Financial readiness

Understanding economic factors to consider is one thing, but there are also personal factors that you need to keep in mind before buying a property.

You need to assess your financial readiness and ability to take on a home loan before trying to buy.

Ask yourself the following questions to determine your financial readiness:

• Is my credit score in good shape?
• Am I financially stable?
• Is my employment stable?
• Can I service home loan repayments?
• What is my budget?
• How much can I afford to borrow?
• Do I have a deposit?
• Can I afford the ongoing costs?

8. Personal circumstances

Your personal circumstances should also be a key consideration because you need to ensure that any property purchase aligns with your personal goals and current circumstances.

9. Long-term financial planning

Consider how buying a property fits into your overall financial plan.

Are you planning to stay in the property long-term, or is this an investment?

Understanding your long-term goals can help you choose a property and mortgage that aligns with your future plans and ensure that you’re making a sound financial decision.

The pros and cons of buying a property now

There are many pros and cons to consider when buying a property in 2024, so to help, here’s a list of the potential benefits and drawbacks of buying in today’s market.

Advantages of buying now

1. Current market opportunities: It’s clear that property prices are continually rising, which means there might be an opportunity to buy at a price lower now, as opposed to paying more next year.
2. Start building equity: Buying now means you can start building equity and enjoying the benefits of homeownership right away.
3. Rental demand is robust: With a rental crisis in full swing across the country, not only can a property investment help make one step to resolving the issue, it also gives the added confidence that you can lease your property with ease. And rental income will help boost your bottom line.
4. Stability: Compared to other investments that can jump around a lot, Australian real estate offers significantly more stability. By investing in the property market now, buyers and investors can position themselves to benefit from the likely upward trajectory of the economy.
5. Historically low interest rates: While interest rates have seen a steady increase recently, it’s important to note that they are still relatively low compared to historical averages.
6. Government grants: The Australian government continues to introduce initiatives and support measures to home buyers (mostly owner-occupiers) with the goal of stimulating the property market.

Potential risks of buying in the current market

1. Prices are high: Property prices in many areas are high, which could mean higher entry costs and the potential for overpaying if the market corrects.
2. Borrowing capacity is reduced: Lower borrowing capacity due to current interest rate means you’ll be forced to readjust your budget lower.
3. Potential market correction: While a correction is unlikely, there is always the chance that better conditions are around the corner.
4. Property investment is long-term: Unlike stocks and shares, which you can trade fast, property investment takes a lot of time. This lack of liquidity, or easy access to your cash, might not be ideal if you need money quickly.

The case for waiting until 2025

Of course, there are also many pros and cons of waiting until 2025 to buy a house.

Potential benefits of delaying your property purchase

1. Potential market adjustments: While it is unlikely property values going to drop over the next year or so, it is possible that uncertainty before the federal election next year will create a pause in the market which may offer a short term opportunity.
2. More savings: High interest rates are great for savers. So by having more time to save, you could be better positioned to buy with a bigger deposit. This can both improve your financial position and potentially reduce your mortgage size as long as you can save faster than property values increase.
3. Potential increase in supply: There could be more properties on the market for sale, which means you’ll have more choice about what you want to buy. Better supply can also help to take the edge of inflating prices.

Risks associated with waiting

1. Timing the market is risky: Even if you’re confident of what the future might hold, timing the market almost never works out.
2. Rising prices: If the market continues to grow, waiting could result in higher property prices, potentially offsetting any benefits of waiting.
3. Loss of equity: Waiting means missing out on building equity and enjoying homeownership benefits now.
4. Potential higher demand: while there may be more supply in 2025, there will also likely be more buyers entering the market which could intensify demand.
5. Changes in lending policies: Policy changes or withdrawal of government incentives could make financing more difficult for some people.

Final thoughts: Should you buy now, or wait?

When it comes to property investment, many buyers and investors become obsessed with the idea of timing their property purchase with the view that buying at the bottom of the market for the cheapest price is a formula for property success.

Of course you’ve missed the bottom of the property market which occurred in early 2023.

But in my mind, it’s the wrong strategy to employ.

While it's tempting to try to time the market to maximise your profits, this strategy is often a poor choice for property investors.

Instead, focusing on "time in the market" is a much more effective approach.

Remember, property markets are cyclical - there is no ‘perfect time’ to buy.

When considering whether to buy a house now or wait until 2025, the decision should be based on your personal circumstances.

Sure, waiting until 2025 may lead to more favourable market conditions, lower interest rates or less demand, but there’s never a guarantee.

It’s also possible that demand will be higher, supply will be even more scarce and borrowing will be more expensive than today.

The important part of that statement is that they always buy “investment grade” properties in good locations because these are the types of properties that will outperform in the long run.

Smart investors don’t wait for the lowest prices or a downturn; they buy when they have their finances ready.

It can be tempting to wait until 2025 with the idea that you might get more ‘bang for your buck’.

But the reality is that investment-grade properties in good locations are more stable than in other markets because they are in continuous, strong demand.

This means that it doesn’t really matter when you enter the market if the value of your property will double in value over a 10-year period as it has over the last 40 years.

What’s important is that you hold the property for long enough to see compound growth.

This strategy would also help you to ride out any temporary market fluctuations.

So my recommendation is:

If you're in a financially sound position, you should buy today while others are sitting on the sidelines.

But don't look for a bargain - A-grade homes and investment-grade properties are in short supply and still selling for reasonably good prices.

These high-quality properties tend to hold their value far better than B and C-grade properties located in inferior positions and inferior suburbs.

There’s a saying in property circles that goes:

When was the best time to buy property? - 20 years ago!

When is the second-best time? - Today!

In other words, you buy when you can afford to and when you are ready to.