First home buyer frenzy!

With a rate cut, the great Australian bubble machine is coughing into life and its target is first home buyers. DE last week exposed the return of undisclosed real estate agents being touted as happy customers. Over the weekend, Stephen Nicholls, property editor at the SMH, offered a shiny, happy first home buyer assessment supported by a melange of innuendo and today its Dr Wilson of APM banging the “Spring bloom” of FHBs.

I thought, therefore, it might be timely to take a look at FHBs and whether the rumoured tsunami of activity augers a resurgence in the property market. From the ABS’s last housing finance survey, here is the absolute number of new loans created for FHBs per month:

Yes, that is a good little bounce from October last year, when FHBs cratered. But in the grand scheme of things, FHB originations are now running at the same absolute numbers as they did during in bubble hiatus of 2003 that saw Sydney prices correct, or in the pre-bubble years. Given the much vaunt population growth since, that seems to me quite subdued.

The same subdued mood is apparent in the average loan size taken out by FHBs, which, since the government engineered megaboom of 2009, has gone backwards:

Even as a percentage of overall housing activity, FHBs remain miles below historic norms associated with house price growth:

Now, this is September data so it’s possible that since then FHBs have come storming out of their bunkers, especially following the rate cut. I’d be surprised if there was no response at all but as you can see above, we’ll need a significant increase to give us a data profile consistent with house price rises.

The evidence we do have for October, at least for the market as a whole, is that housing finance growth fell from September levels. Here is the AFG chart, which gives a good read on what’s coming from the ABS:

But there stronger evidence of an ongoing recovery in FHB numbers in AFG’s percentage of total financing figures:

Obviously Victoria is missing out, again. And Sydney data is widely accepted to be driven by the short term stamp duty incentives. Qld, who knows? I also can’t explain the discrepancy with ABS data.

Bottom line, however, is this. Total new issuance of housing finance is going nowhere except in Sydney:

And that data remains consistent with stability in the blue ocean capital and price falls everywhere else.


  1. “DE last week exposed the return of undisclosed real estate agents being touted as happy customers.”

    Truth is not created by repetition.

    • Sorry Phil – I’m confused. Are you suggesting the article that DE referred to doesn’t actually exist?

      Would you care to elaborate – your one line statement doesn’t explain what your concern is with DE’s earlier point.

      Perhaps truth isn’t created by repetition – but it certainly isn’t created by denial either.

  2. The post-FHOB hangover is clearly still having an effect. I remember when the FHOB first came out that there were 1 or 2 charts comparing the boost (& subsequent decline) in FHB numbers on the changes in the FHOG in 2008/9 to 2001/2. In your first chart it seems to me that FHB numbers didn’t return to pre-boost numbers until late 2006. But with a much larger spike in FHB numbers in 2008/9 I can’t help but think that a lot more FHB demand was pulled forward this time around, meaning that there just aren’t as many potential FHBs to increase demand now.

    And while NSW FHBs seem to be increasingly rushing to beat their impending “deadline”, no doubt this state-based pull forward in demand will cause further downward pressure in demand next year. Although that should be counteracted somewhat by some owners who find their greatest fool FHBs this year buying back into the market.

    • It’ll probably cause downward pressure next year but don’t forget momentum, which can carry the market along for a while.

      The rush to beat the stamp duty increase up here in QLD pulled some demand forward but it also gave the market some momentum as news of increasing sales started to catch on. Based on the activity I’m observing in Brisbane I’d say that momentum is just starting to taper off noticeably, four months after the stamp duty increase took effect.

  3. Such a shame that SMH is being polluted by all these Domain, APM articles. It’s greatly damaging their reputation.

    • The comments section underneath virtually every article lately is proof of that. It must be giving some of the editors / executives at Fairfax food for thought.

        • I doubt it. The online version has been getting more and more tabloid, noticeably so over the last year in the quest for page views. There’s more entertainment/gossip, less real news and articles are designed to provoke.

          Most articles on smartphones, for example, are phrased to gets response out of the Apple or Android camps, usually sparking a back & forth comment ‘war’.

          The same is now happening on the property pages between bulls & bears.

          More clicks, more cash. That’s all that matters at SMH at the moment as the newspaper industry struggles to find a viable internet-age model.

  4. The FHB got sucked forward into the 2009 Bribe-a-thon.
    Might take some time for MSM to weave their spell of naïve on the next lot.
    According to MSM lap-dog (not watch-dog) source (1), QLD govt has a new plan (2) to increase sales – pretend to the average salary earner they can buy (via a ballot) cheap housing in select areas.
    Not sure if homes are really cheaper (no mention of amount of discount to equivalent sales). The beauty of the plan is that ‘buyers’ (read potential investors) need only live in for 12 months before going after the tax breaks as an ‘investor’.
    QLD seems to be trying to outsmart FHBs. However,the recently launched $10k Building Boost Grant Bribe has so far managed to blow only $3.8M (of $140M allocated) “sparking calls from builders to increase the amount of the grant.” (3)
    Maybe FHB are not that gullible after all.


  5. I still shake my head when I scroll down the SMH website briefly each morning and note the section headings:

    Headlines (tick)
    New South Wales (tick)
    National (tick)
    World (tick)
    Property (WTF?)
    Business (tick)
    National times {opinions} (tick)
    Money / Tech / Travel / Cars (tick, tick, tick)
    Sport (tick)

    Property? Really? Just does not sit right with me.

    • The proverbial tail (Domain liftout) is now wagging the dog (Newspaper).
      SMH now stands of Shaking My Head (in disgust).

      • He who pays the piper calls the tune. Most of the SMH’s revenue comes from the real estate industry.

  6. I’m a bit dubious about the effect of stamp duty holidays on house prices. For someone borrowing money to met a total house purchase cost, it makes no difference whether they pay some of it as stamp duty or as part of the house price. In effect, I’m thinking that house prices would naturally ‘rise’ to fill the stamp duty gap, as the market is purely dependent on the availability of credit. The revenue lost to stamp duty holidays would thus go directly to the vendors. Isn’t this just another populist policy stunt? Why would it increase sales?

    • I think it’s the psychology behind removing it causing a few people to act irrationally and bring forward a purchase decision in order to avaid paying the tax.

      Aside from that, didn’t somebody pick up on this FHB “increase” last week, not actually being an increase. It was just the effect of fewer investors causing the FHB % to rise, and the absolute numbers of FHBs was much the same, might have actually fallen very slightly.

    • Because first home buyers find it difficult to save for a deposit, and to save to cover the stamp duty costs plus the other fees such as conveyancing costs.

      Saving for a deposit is not enough, other costs must be met.

      You will find all of that out when or if you buy a home.

      Do some investigation first, don’t let it be a rude surprise.

      • Because first home buyers find it difficult to save for a deposit, and to save to cover the stamp duty costs plus the other fees such as conveyancing costs.
        And our banks handout loans to such people??

        • With the difference between rent and a mortgage on the same place, people who are struggling to save a deposit while renting are going to be in big trouble once they buy.

          • Why, your point is completely illogical. If someone can pay their rent AND save a house deposit simultaneously, why will they have a problem with a home loan repayment that won’t be that different from a rent payment.

            Simple maths is like gravity – you can’t beat it with cutesy hyperbole.

    • Jumping jack flash

      It is purely a stunt to entice those simple-minded greatest fools.

      These are all tricks so people can get OUT of the game and walk away with great wads of debt money that is somebody else’s problem.

    • Read the comments under this article. Chris Tolhurst got completely blasted by the readers. This article is a good example of what DE has been writing about for quite a long time. Completely irresponsible investment advice with no responsibility for the end result and zero risk analysis.

    • It’s good to see that pretty much all the comments are negative. People may be starting to wake up to the politico-housing-complex kool-aid.

        • StanGoodvibesMEMBER

          I never read the SMH except when I see a link on here. However…

          While I agree the article is best used as toilet paper, the differential in rental costs vs property ownership CAN be leveraged to your advantage as suggested in the article. As an example I rented with a friend who covered his share of the rent on a $700k inner city apartment with the income he got from renting out a $350k suburban family shack out West.

          IF you avoid speculating on increasing values and invest in a solid family renter or two it can help you live in a rental property you couldn’t afford to buy outright, and still give you that nice ‘mortar and bricks’ aspect to your portfolio….

          • Stan, I must be missing something here. How was your friend clearing cash on his investment? The only way I can imagine it happening was that he paid for the shack in cash and was simply transferring the rent he got from it to his own landlord? If he obtained finance for the shack, wouldn’t the interest paid more than gobble up the rent receipts?

        • How long before the comments function gets disabled on articles like this?
          As I pointed out this morning, Doc Andrew Wilson has already adopted this approach. I presume after a torrent of critical comments last week.

  7. The BurbWatcherMEMBER

    For what it’s worth, I have discussed the recent (last 2 weeks) NSW sales surge, in the context of the recent slight Australia uptick, here:

    Though there does seem to be a particularly positive response to Vendor price reductions increasing in frequency per unit of sales listing, it does not seem unlikely that this response has been coming in large part from FHBs.

    My 2c

    • Nice informative graphs Stewart. One thing you should take into consideration – banks are cutting three year rates again – Citibank has dropped their rate to 5.95% which is very attractive for 3 years. It will be interesting to see whether the others follow them.

      It is a bigger decrease than I had expected.

      • The BurbWatcherMEMBER

        Thanks, Pete.

        I’m sure it will at least help people to respond to vendor price reductions in the short to medium term (or at least that’s how it will look by some of my metrics…)

  8. “FHB originations are now running at the same absolute numbers as they did during in bubble hiatus of 2003 that saw Sydney prices correct, or in the pre-bubble years.”

    – or even the early 90’s recession years.

    • That is the worrying feature given the population has grown about 13% since 91. You would expect it to show a general trend upwards in absolute numbers, but it doesn’t, it’s more of a volatile flat line. Amazing surge with the FHOG boost in 08-09, sellers should be happy there are any first home buyers at all after that effort.

    • The fiscal child abuse movement talks about low interest rates being a “sweetener” to the already-wonderful “opportunity” of first home ownership. Rubbish, low interest rates (and special govt grants) are just bait on the fiscal child abuse trap.

      Doing a bit of simple maths proves that it is far more costly to the mortgagee and far more profitable for the banks, if interest rates are low and house prices high; rather than the other way around.

      Baby boomers grizzle that they went through periods of mortgage interest rates of 18 to 23 percent. So what. It was still far cheaper for them to get a house at 3x a single income, financed at 20%, than it is for the young today to get a house at 6X a double income, financed at 6.5%.

      When interest rates were 20%, inflation – and rises in incomes – were of course something like 15% to 18% per annum. So after a few years your mortgage did not look like much, did it? PLUS, interest rates came DOWN since then and these moaning hypocrites had the lot paid off in only a few more short years.

      NOW, our young couple with a mortgage several times bigger relative to their incomes, have no such chance that interest rates will be LOWER for any significant part of the time during their lifetimes; in fact we are in such volatile times that a few percent points increase in interest rates and the bankruptcy of nearly every young household who bought their first home since about 2003, is actually quite likely.

  9. I have a suspicion that FHB can buy a house at the same or less “net” price as they could when FHOG was in force. Would be a shocking revelation if that was the case!

  10. I got some insight into the market from a HockingStuart (Melbourne) RE agent yesterday. The guy said that even if you ask for a price which is quite a bit lower than twelve months ago people will offer you much less. Probably unwittingly he made a comment was that the market has not dropped 30%. Another RE agent from Stockdale&Leggo told me that they are getting many lowball offers. It seems to be quite clear that the market expectation is for a significant price drop next year, especially in Melbourne.

  11. Fear, Sex and Craving are the cornerstones of any good spruiking campaign. Whether to induce a war, create a new market (or bury one), manipulate social well-being, incite a revolution – you name it. These time hounoured themes have been around for centuries and I’m sure will continue to manifest desired outcomes for centuries to come. Lord knows, my wife is a merciless with this stuff.

  12. I might have potentially just bought my first home last night. But it was a bargain, so I couldn’t resist.

  13. Where art thou?

    “First time home buyers have little confidence in the Australian economy, as they baulk at property purchases and hoard their cash, a leading consumer sentiment survey has revealed.

    The Commonwealth Bank/Mortgage & Finance Association of Australia Home Finance Index has found that just 5.4 per cent of the surveyed first time buyers are intending to buy property in the next six months”