Falling property prices can create an unusual situation for Australian buyers. On one hand, lower prices may create opportunities to purchase a property for less than it would have cost during a stronger market. On the other, declining prices can signal broader economic pressures that may continue to affect property values, borrowing costs and household finances.

So, is buying property in a falling market a good idea?

There is no universal answer. The right decision depends on your financial position, borrowing capacity, cash flow, the property itself and your ability to manage further changes in the market.

In this episode of The CEO Breakdown, John Saade examines Australia’s changing property market, including falling prices, higher interest rates, borrowing capacity and the potential risks and opportunities for buyers considering their next property purchase.

For Australian buyers, the goal should not necessarily be to predict the exact bottom of the market. Instead, it is about determining whether a property is affordable and financially sustainable for you.

Why Are Property Prices Falling?

Property prices can decline for many different reasons. In the current environment, higher interest rates and reduced borrowing capacity are particularly important factors.

When mortgage rates increase, buyers generally face higher repayments. At the same time, lenders may reduce the amount a borrower can afford under their lending assessments.

This can reduce purchasing power and place downward pressure on property prices.

Other factors that can influence property prices include:

• Consumer confidence
• Employment conditions
• Household living costs
• Housing supply
• Investor demand
• Lending conditions
• Government policy
• Local economic conditions
• Expectations about future interest rates

A falling market can therefore be the result of several factors occurring at the same time.

Does a Falling Market Mean It Is a Good Time to Buy?

Not necessarily.

A lower property price can be attractive, but the purchase price is only one part of the overall cost of owning property.

Buyers also need to consider:

• Mortgage repayments
• Interest rates
• Stamp duty
• Legal and conveyancing costs
• Insurance
• Council rates
• Maintenance
• Renovation costs
• Ongoing living expenses

A property that is cheaper to purchase can still become financially difficult to hold if borrowing costs remain high.

This is why affordability should be assessed based on the total cost of ownership, rather than simply the purchase price.

Should You Try to Time the Property Market?

Trying to buy at the exact bottom of a property cycle is extremely difficult.

Nobody can know with certainty whether prices have reached their lowest point.

A buyer could purchase after a 10% decline only to see prices fall another 10%. Alternatively, the market could stabilise shortly after the purchase.

Instead of focusing entirely on timing, buyers should ask:

Can I comfortably afford this property if prices fall further?

Can I continue making repayments if interest rates remain high?

Would I still be comfortable owning the property if its value does not increase for several years?

These questions can provide a more useful basis for decision-making than attempting to predict the next market movement.

Understand Your Borrowing Capacity Before You Buy

Borrowing capacity is one of the most important considerations when buying property.

A buyer may find that falling property prices do not necessarily translate into significantly greater affordability if interest rates remain elevated.

For example, a property may become cheaper while the cost of servicing the mortgage becomes more expensive.

Before making an offer, buyers should understand:

• How much they can realistically borrow
• Their expected mortgage repayments
• The interest rate on the proposed loan
• Their deposit requirements
• Additional purchasing costs
• Their existing debts
• Their ongoing household expenses

It is also important to avoid borrowing based on the maximum amount a lender is willing to provide if doing so leaves little room in the household budget.

Consider What Happens If Prices Fall Further

Buying during a downturn means there is a possibility that prices could continue falling after your purchase.

This does not necessarily make buying a bad decision.

Property is generally a long-term asset, and short-term price movements may matter less to buyers who intend to hold a property for many years.

However, buyers should understand the potential consequences of further declines.

A further fall could mean:

• Lower property equity
• A higher loan-to-value ratio
• Reduced refinancing flexibility
• Less available equity for another purchase
• Greater difficulty selling without a loss

The risk can be more significant for buyers using high levels of debt.

Look Beyond the Property Price

One of the biggest mistakes buyers can make during a falling market is focusing solely on how much the property price has declined.

A property that has fallen substantially is not automatically good value.

Buyers should assess the property’s underlying fundamentals.

Location

Consider employment, transport, schools, amenities and future development.

Property Condition

Factor in potential repairs, maintenance and renovation costs.

Rental Demand

For investors, assess whether there is sustainable tenant demand in the area.

Comparable Sales

Look at recent comparable properties rather than relying solely on the seller’s asking price.

Long-Term Potential

Consider whether the property remains suitable for your objectives if prices remain flat for several years.

A falling market can create opportunities, but buyers still need to distinguish between lower prices and genuine value.

How Interest Rates Affect Your Decision

Interest rates can have a significant impact on the affordability of a property.

A buyer might save $100,000 on the purchase price compared with a previous market peak, but higher mortgage rates could increase the cost of servicing the loan.

This is why buyers should consider different interest-rate scenarios.

Ask yourself:

• What happens if rates stay higher for longer?
• Can I comfortably manage higher repayments?
• Will I still have enough money for other expenses?
• Do I have an emergency cash buffer?
• Would the loan remain affordable if my circumstances changed?

Stress-testing your finances can help identify potential problems before committing to a property.

What About Property Investors?

Property investors need to look at the purchase differently from owner-occupiers.

An investor needs to consider both the property’s potential long-term value and its ongoing cash flow.

Important considerations include:

• Expected rental income
• Mortgage interest
• Property management fees
• Insurance
• Repairs and maintenance
• Vacancy periods
• Council rates
• Land tax where applicable
• Tax implications
• Potential capital growth

A property can fall in value while still producing rental income. Conversely, a property can increase in value while creating significant negative cash flow.

Investors should therefore assess the entire investment rather than focusing on capital growth alone.

What Does Falling Property Equity Mean for Buyers?

Property equity is the difference between the property’s value and the amount owed against it.

For example, if you purchase a $1 million property with a $700,000 mortgage, your initial equity is approximately $300,000, before considering transaction costs.

If the property later falls to $900,000 while the mortgage remains at $700,000, your equity would be approximately $200,000.

This matters because equity can influence your ability to refinance or use existing property to support another purchase.

Buyers using substantial leverage should therefore understand how changes in property values could affect their future plans.

Don’t Forget the Additional Costs of Buying Property

The purchase price and mortgage are not the only expenses involved in buying Australian property.

Depending on the transaction and location, buyers may need to budget for:

• Stamp duty
• Conveyancing or legal fees
• Building and pest inspections
• Loan application costs
• Mortgage-related expenses
• Insurance
• Moving costs
• Renovations
• Ongoing maintenance

These costs can add a significant amount to the total cost of purchasing a property.

Understanding them before making an offer can help prevent unexpected pressure on your finances.

What Should First-Home Buyers Consider?

For first-home buyers, a falling market can potentially make entering the property market more affordable.

However, buyers should avoid assuming that a lower purchase price automatically means lower financial risk.

First-home buyers should consider:

• Deposit size
• Government schemes and eligibility
• Stamp duty concessions where applicable
• Mortgage repayments
• Interest-rate changes
• Employment stability
• Emergency savings
• Future household expenses

Buying a first home is a major long-term commitment, so affordability should remain the priority.

When Could Buying in a Falling Market Make Sense?

Buying during a downturn may make sense when a buyer has:

• A stable income
• Sufficient deposit and cash reserves
• Manageable debt
• Comfortable mortgage repayments
• A long-term ownership horizon
• A property that meets their needs
• A purchase price supported by comparable sales

The strongest position is usually not simply having the ability to buy.

It is having the financial capacity to continue owning the property comfortably even if market conditions remain difficult.

When Might Waiting Be More Appropriate?

Waiting may be worth considering if purchasing would leave you financially stretched.

Potential warning signs include:

• Minimal emergency savings
• High existing debt
• Uncertain income
• Reliance on future rate cuts
• Reliance on immediate capital growth
• Difficulty covering repayments under higher-rate scenarios
• Purchasing primarily because prices have recently fallen

A falling market can create opportunities, but there is no need to rush into a purchase simply because prices are declining.

Get Your Numbers Right Before Making an Offer

Property decisions should be based on more than market predictions.

Before purchasing, buyers should understand their complete financial position, including income, debt, cash flow, tax obligations and available reserves.

For investors, it is also important to understand how a property purchase may affect your broader tax and financial position.

Professional advice can help identify potential issues and ensure you are making decisions based on your actual circumstances rather than assumptions about where the property market is heading.

The Bottom Line: Focus on Affordability, Not Just Falling Prices

A falling property market can create opportunities for Australian buyers, but lower prices should not be the only consideration.

The most important question is whether you can afford to own the property through different market conditions.

Before buying, consider your:

• Borrowing capacity
• Mortgage repayments
• Cash flow
• Deposit
• Existing debt
• Emergency savings
• Property-related costs
• Long-term financial goals

You do not need to perfectly predict the bottom of the market to make a good property decision.

Instead, focus on buying an appropriate property at a price you can afford and maintaining enough financial flexibility to handle uncertainty.

Frequently Asked Questions About Buying Property in a Falling Market

Is buying property when prices are falling a good idea?

It can be, but there is no universal answer. Buyers should consider their financial position, borrowing capacity, cash flow, the property’s fundamentals and their ability to hold the property through further market declines.

Should I wait until property prices stop falling?

Trying to identify the exact bottom of the market is extremely difficult. Rather than relying on market timing, buyers should focus on affordability and whether they can comfortably hold the property for the long term.

Can property prices fall after I buy?

Yes. Property prices can continue to move up or down after a purchase. Buyers should be financially prepared for the possibility of further declines.

How do higher interest rates affect property buyers?

Higher interest rates can increase mortgage repayments and reduce borrowing capacity. This means a lower property price does not necessarily translate into a lower overall cost of ownership.

What should property investors consider during a downturn?

Investors should assess rental income, mortgage costs, vacancy risk, property expenses, tax considerations, debt levels and the property’s long-term fundamentals.

How can Latitude Accountants help property buyers and investors?

Latitude Accountants can help clients understand the accounting and tax considerations associated with property and business decisions, including how a property purchase may fit within their broader financial position.

Make Better Property Decisions With Greater Financial Clarity

A changing property market can create both opportunities and risks. Before making a major purchase, understanding your numbers can help you make a more informed decision.

Latitude Accountants helps Australian business owners and investors gain greater clarity over their tax, accounting and financial position.

Stop Guessing. Start Making Better Decisions.

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📧 info@latitudeaccountants.com.au

Contact Latitude Accountants to discuss your circumstances and understand the financial and tax considerations relevant to your property or investment decisions.

Disclaimer

The information provided in this article is general only and does not constitute financial, legal, tax, property, mortgage, investment or business advice. Property markets, interest rates and lending conditions can change, and past performance or market forecasts are not guarantees of future results. You should speak with a qualified professional about your own circumstances before making financial, property or investment decisions.