First Home Buyers Retreat To The Sidelines

Feb 18 2011 / 6:38 am Was written by Atwell & Co. Comments Off

Article by RP DATA

The number of housing finance commitments being taken by first time buyers were at their lowest level in six years during 2010 with much of the demand brought forward during 2009.

During 2010 only 96,201 first home buyers committed to housing finance for the purchase of a home. This represented the lowest volume of first home buyers annually since 2004 and came off the back of the largest number of first time buyers in a single calendar year in history during 2009.

Number of first home buyer commitments

It is very clear that the surge in first home buyers during 2009 due to low interest rates, improving affordability due to property value falls during 2008 and the First Home Owner’s Grant Boost pulled forward the majority of first home buyer demand for 2010 into 2009. 2010’s volume of first home buyers was 50% lower than it was during 2009. Between 1993 and 2010 there has been an average of 116,284 first home buyer finance commitments annually. Given this, 2010 recorded first home buyer activity which was -17% below the long-term average.

An interesting point to note is that over the last 10 years first home buyers have become much more active at times when the market has been recording superior levels of value growth. A good example of this was during 2001 when capital city home values increased by 18.7% for the year. At this time there were 145,000 finance commitments to first home buyers. 2009 was the busiest year for first home buyers with more than 190,000 housing finance commitments, at the same time property values increased by 12.1% that year. In most instances over the past decade, when there has been periods of strong property value growth these have been accompanied by an above average volume of first home buyers.

Annual growth in capital city home values

This would seem to indicate that a higher level of activity by first home buyers typically has a positive impact on the residential property market. This is no surprise given that a greater volume of active first home buyers has a knock-on effect throughout the market encouraging more people to upgrade their homes. In saying this, the more savvy first home buyers should probably be looking to become active in the market place during the quieter years as market conditions tend to be much more in favour of buyers rather than sellers, providing first home buyers more time to make a decision and secure the best possible price for their new home.

Over the long-term average standard variable mortgage rates have been recorded at 7.22%. Although it is probably expected that first home buyers would be more active at times in which interest rates were lower, it hasn’t necessarily been the case. Looking at the interest rates as at December of each year shows that between 2000 and 2010 there has only been three years (2001, 2008 and 2009) in which below average interest rates have resulted in an above average level of first home buyer activity during the year. This is quite an interesting finding, indicating that first home buyers are not necessarily as sensitive to interest rates as one might expect. In saying this, 2009 recorded the greatest number of first home buyers in history and was also the time in which interest rates were at their lowest level in almost 50 years.

FHB finance commitments as a % of all owner occupier loans

Despite such a strong focus on first home buyers and their prevalence in the market, between December 2000 and December 2010 they have only accounted for 18.5% of owner occupier finance commitments on a monthly basis. As at the end of 2010, first home buyer finance commitments accounted for 15.8% of all owner occupier commitments. As previously noted, this may be a major contributor to the fact that property value growth has been significantly lower during 2010 than it was in 2009.

With 2009 having had the most active first home buyer market in history it is interesting to note that at their monthly peak first home buyers only accounted for 28.5% of housing finance commitments to owner occupiers. Importantly, this does not include finance commitments to investors which the ABS does not publish at the same level of detail.

FHB finance commitments by state

With first home buyers far less active during 2010 each state has recorded a lower proportion of first time buyer commitments compared with 2009. Currently, first home buyers are most active in Western Australia (18.9%), Victoria (16.8%) and New South Wales (15.4%). Meanwhile, they are least active in South Australia (12.4%), Tasmania (13.5%) and Northern Territory (13.6%).

With interest rates at above average levels and recent strong property value growth, affordability constraints have once again become present in the current market. With job security reasonably high thanks to unemployment at 5%, the prospect of wages growth and a higher degree of confidence around interest rate movements, it is possible we may start to see an uptick in first time buyers numbers later in the year.


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