More evidence of FHB retreat

The retreat of first home buyers (FHBs) following the recent reduction of FHB grants in New South Wales, Queensland, and Victoria has been well documented. While the number of FHB mortgage commitments rose by 2% in the month of February, they were down by -19% over the past year and were -39% below the 5-year moving average (5YMA):

Further, despite the modest lift in numbers, the proportion of total owner-occupied loans going to FHBs fell to -14.4%, which was the lowest reading since mid-2004 (see next chart).

The Australian Housing and Urban Research Institute (AHURI) has released an Evidence Review suggesting the recent decline in FHBs is part of a longer-term trend away from home ownership, caused primarily by spiraling housing costs, which have more than offset increases in mortgage availability and higher incomes:

Younger Australians (aged 18–34) today are having a very different housing experience than their parents and grandparents. Research indicates that the percentage of households aged 25–39 who were owner/buyers fell from 65 per cent in 1986 to 58 per cent in 2006; in both 1986 and 2006 about 70 per cent of all households were owner/buyers. The research also shows that, depending on income, ownership rates for those aged 25–44 living in metropolitan regions fell by up to 13 per cent in the 20 years to 2006.

Although younger Australians have been helped to purchase by the First Home Owners Grant (introduced in 2000), a more flexible housing loan market and an increasingly prosperous economy (compared to older generations who needed to save for an extended period to secure a home loan and had lower household incomes), they are paying proportionally more for their homes than previous generations. For example, in one major Australian city median house prices doubled relative to annual gross household income between 1985 and 2009. This has meant younger Australian home buyers have greater amounts of debt than previously; between 1990 and 2007 the average loan-to-value ratio for buyers aged 25–34 years climbed from 41 per cent to 57 per cent…

AHURI also found the increasing trend to part-time employment (see below chart) is acting as a barrier to ownership amongst FHBs:

For those aged 18–34 there is a clear relationship between being in part-time or full-time employment and buying a home. Those in permanent employment are twice as likely to be home owners and three times as likely to be home purchasers as those where no adult member of the household has full-time work. This reflects the need to have a stable and adequate income when borrowing to buy a home, and being able to keep it. In 1976 (when 65 per cent of 25–34 year olds were recorded as home buyers), only 11 per cent of 18–34 year olds worked part-time, by 2011 that had tripled to 34 per cent.

Finally, AHURI found increasing ‘churn rates’ amongst younger Australians, whereby people move back and forth between home ownership and renting, often due to relationship breakdowns:

Between 2001 and 2009, 20 per cent of Australian home owners sold the home they lived in; just over half later rebought, and 5 per cent did this more than once. This is in contrast with the UK, where less than 10 per cent of home owners sold over the same period.

A higher percentage (than in older generations) of young Australians have had to sell their home—largely due to a divorce or relationship breakdown. Thirty one per cent of people who divorce or separate, and had been buying a home, had to sell within one year of the relationship breakup. As a result, the five yearly Census can fail to record younger Australians’ shortened home buying experience.
Increasing churn rates amongst younger Australians is particularly worrying given the exorbitant amounts of stamp duty charged by Australia’s state and territory governments on housing transfers (see next chart).

Overall, the AHRUI research suggests that decline in FHB activity could be structural (due to high costs and lack of stable employment) as well as cyclical (caused by the withdrawal of FHB grants).

[email protected]

www.twitter.com/leithvo