New modelling has exposed the best and worst capital cities for first-home buyers, with some low-deposit purchasers at risk of negative equity while other markets surge.
Australia’s best and worst capital cities to buy a first home have been exposed in a sharp property market divide.
New Canstar analysis of Commonwealth Bank forecasts shows low-deposit buyers in Melbourne and Sydney face falling into negative equity by December, while Perth buyers could build a $154,347 cushion.
CBA is forecasting Melbourne dwelling prices will fall 7 per cent this year and Sydney values will drop 6 per cent.
Perth is tipped to jump 12 per cent, Brisbane 8 per cent, Adelaide 6 per cent, Hobart 4 per cent and Darwin 8 per cent, while Canberra is forecast to fall 2 per cent.
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A first-home buyer who purchased at Melbourne’s $950,000 Home Guarantee cap with a 5 per cent deposit could end 2026 owing $7995 more than their home was worth, if CBA’s forecast plays out.
A Sydney buyer who purchased at the scheme’s $1.5m cap could be left with just $2377 in equity.
But a Perth buyer who purchased at the city’s $850,000 scheme cap could end the year with $154,347 in equity.
Australia’s largest bank expects Sydney and Melbourne prices to rise again in 2027, with both forecast to gain 3 per cent next year.
Canstar.com.au data insights director Sally Tindall warned recent buyers with small deposits had little protection if property values fell.
Canstar.com.au data insights director Sally Tindall said falling prices in Sydney and Melbourne might sound like welcome news for aspiring buyers, but recent purchasers with small deposits had little protection.
“For those who only recently scraped together a deposit to get into the market, these declines could leave them dangerously close to negative equity,” Ms Tindall said.
“A buyer who purchased with a 5 per cent deposit at the start of this year has very little buffer against falling property prices.
“If CBA’s forecasts play out, some recent buyers in Melbourne could owe the bank more than their home is worth by the end of the year, despite making their mortgage repayments on time.”
Low-deposit first-home buyers in Melbourne and Sydney could face shrinking equity buffers if Commonwealth Bank’s property forecasts play out.
Ms Tindall said negative equity was not necessarily a crisis for buyers who planned to stay put and keep making repayments, but could become a major problem if they were forced to sell or wanted to refinance.
“If you do find yourself in this position, don’t panic,” she said.
“Instead, put your head down and keep your mortgage repayments up.”
She said borrowers should also avoid assuming rate relief was guaranteed, with the big four banks split on the outlook.
CBA is forecasting the cash rate will remain on hold this year before two cuts in May and August, 2027.
Margin Finance director Damian Medici said Melbourne was among the better major capital city markets for first-home buyers.
Westpac is forecasting two more hikes this year, NAB is forecasting one hike and ANZ is expecting no change.
Margin Finance director Damian Medici said Melbourne was probably the best major capital for first-home buyers, while Brisbane was among the toughest.
“I would probably say Brisbane is one of the toughest markets for first-home buyers right now,” Mr Medici said.
“But I would say Melbourne is probably the best of those markets at the moment.”
First-home buyers using 5 per cent deposits have been warned falling values could become a problem if they are forced to sell or refinance.
Mr Medici said the biggest risk for buyers using the 5 per cent deposit scheme was in the first 12 to 24 months after purchase.
“The risk is much higher in that first 12 to 24-month window,” he said.
“That is where buyers can be more exposed if values fall and something goes wrong in their personal circumstances.”
He said negative equity became a real problem when someone was forced to act, including through a separation, divorce, job loss or inability to keep up with repayments.
“If nothing forces you to sell, negative equity may be uncomfortable on paper, but it does not necessarily become a practical problem,” Mr Medici said.
“The real issue is when life forces your hand.”
MR Advocacy director Madeleine Roberts said Melbourne still offered strong value for first-home buyers despite forecast short-term price falls.
MR Advocacy director Madeleine Roberts said Melbourne was also her top pick for first-home buyers because of its relative affordability, amenity, employment access, infrastructure and long-term fundamentals.
“For first-home buyers, I would also put Melbourne first because of affordability,” Ms Roberts said.
“It is still offering better entry points than a lot of the other major capitals.”
Ms Roberts ranked Brisbane second for first-home buyers, followed by Adelaide, with Sydney last because of its high prices.
“Sydney is just a much harder market for first-home buyers to break into,” she said.
Perth buyers could build a much larger equity cushion than those in Melbourne and Sydney under the latest property price modelling. Picture: NewsWire/ Monique Harmer
But Ms Roberts said buyers should approach Perth and Brisbane with extreme caution, despite CBA forecasting further gains in both markets.
“I would be approaching Perth and Brisbane with extreme caution,” she said.
“From what I am seeing in the data, both markets are getting to the later stages of their growth cycle.”
She said buyers should avoid high-density apartments, off-the-plan stock and far outer-ring suburbs with significant future supply.
Ms Roberts said older, low-density apartments in well-located inner areas could still represent good buying, including pockets such as St Kilda.
She also pointed to Frankston North as an area where careful buyers could still find houses on about 700sq m for less than $800,000.
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