Take a breath before you buy

Potential home buyers may be feeling the sun on their faces in the next few weeks as they venture out into open home territory for the spring sale season.

Real estate agents will be telling them to get in now before prices rise and will hustle them into quick offers on the grounds that properties are selling fast and supply is tight.

Here are 10 reasons to take a deep breath.

1 Interest rates are rising - It's tempting for a buyer to believe they can afford a big offer because the mortgage is affordable at 5.8 per cent. But that won't last forever. Two-year fixed mortgage rates have already risen from under 6 per cent to more than 6.5 per cent in the past six months.

Variable mortgage rates may be down to 5.7 per cent now, but they are likely to rise quickly once the Reserve Bank starts increasing the official cash rate from next year.

Variable rates could be back over 8 per cent by the end of next year.

2 House prices may not rise much - It's different this time. The amount of new bank lending pumping up values is much less than it was through 2005, 2006 and 2007, when house prices were rising at 10-20 per cent a year.

That was simply not sustainable and now banks are reining in their lending, particularly to those with low deposits or who are self-employed.

Property investors are also being more cautious, particularly those in apartments or townhouses who have been burned by oversupply and leaky building syndrome.

3 You may lose your job - The recession may be over, but unemployment is still rising. Not only are more people losing their full-time jobs, but overtime is being cut and many people are "under-employed", a factor not reflected in many of the official statistics.

4 The supply is coming - Quoteable Value and the Real Estate Institute has reported that new supply of houses is returning to the market as sellers become more confident.

This will put downward pressure on prices and mean there will be more choice for those who wait.

5 Maybe it's cheaper to build - Construction price inflation has eased off in the past couple of years as tradespeople became more available.

Also, section prices have dropped more than established home prices.

Home buyers in provincial cities and towns now have a much better choice because land prices have fallen.

6 Wages are not rising - Home buyers who stretch themselves to buy their dream home often assume that their wages will rise to fill any gaps and bail themselves out of higher interest rates in future.

Median wages rose $2 a week in the past year and real wages fell sharply.

The subdued employment outlook will keep the downward pressure on wages for years to come.

7 Land or capital gains tax - The Government is actively considering imposing a land tax, which would work like council rates.

It would have to be paid every year as a percentage of the land value.

A 1 per cent land tax imposed in one hit would reduce land prices by 17 per cent, the Tax Working group has estimated.

8 Longer-term uncertainty - Anyone thinking about buying now should think about the longer-term economic outlook. The dire budget position will eventually mean higher taxes, more user-pays public services, and lower pensions.

A large debt taken on now will be harder to service and pay off in the long term if these living costs rise.

9 Long-term supply - Around 2020, many baby boomers will have to sell their properties to fund their retirements, having used their houses as their only savings vehicle. That will keep the downward pressure on prices.

10 Renting is cheaper - Renting still remains much cheaper than buying when comparing like with like.

Rents have been stable over the past two years, while housing affordability is again deteriorating as house prices edge up, interest rates rise and incomes stagnate.