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Interest rates are expected to be cut again tomorrow on Melbourne Cup day by half a percent. Lower interest rates and increased government grants are certainly an extra incentive for first home buyers, however auction clearance rates are pointing to a wait and see approach emerging. There’s no question that since the government increased first home owner grants, inquiry levels for established and new homes has risen. According to Lev Milkovits, head of Melbourne-based house builder AV Jennings, inquiry levels over the last few weeks have soared by almost 90%. The opportunity for a bargain exists if vendors desperate for a sale before Christmas drop their house prices, but there’s speculation that first home buyers will hold off, and wait until the new year to make buying decisions.

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Since the recent doubling of the First Home Owner’s grant for buyers of existing homes and tripling of it for first home buyers of new homes, the possibility of falling house prices is a potential risk for first home buyers keen to take advantage of the generous grants. The risk lies in the potential for property prices to continue to fall, leaving first home buyers in ownership of a property where their mortgage is larger than the value of their home, resulting in a "negative equity" situation. While it could be the right time to buy for some eager first home buyers, it’s also worthwhile considering the risks.

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The Rudd government is hoping that the $10.4 billion consumer relief package will lure young families and first home buyers into spending the extra grants and in so doing, stimulate the economy. The interesting question is whether or not this will indeed unfold as the government plans. With growing job insecurity and unemployment, falling share prices and more restrictive bank lending there’s no telling if Australians will choose to hold onto the extra cash or hold off on buying a first home. There’s talk of this being the most dire financial crisis since the 1930s Depression. Changing attitudes and behaviours amongst 18-30 year olds will emerge and may begin to show similarities to that of their grandparents in the way they begin to view their financial security.

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Recent figures show a small improvement in housing affordability for first time buyers, according to the latest HIA-CBA First Home Buyer Affordability Report. 

Results show that due to lower median first home prices, over the September quarter the average first home loan repayment fell by 1.5 per cent to $2,785 per month, though housing affordability for first home buyers remains near record lows.

According to HIA Chief Executive – Policy, Mr Chris Lamont, there are some reasons to be cautiously optimistic about improved housing affordability, with additions to the First Home Owners Grant providing a welcome confidence boost, and recent interest rate cuts expected to provide further improvements.

Mortgage repayments accounted for 27.5 per cent of total first home buyer
income, which while lower than the previous quarter were still the fourth highest on record.

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