Charting the first home buyer retreat

ScreenHunter_15 Apr. 24 14.56

By Leith van Onselen

Today’s housing finance data, whilst strong overall, was concerning from the viewpoint that first home buyer (FHB) demand remains weak, despite mortgage rates falling to near multi-decade lows.

As shown below, the lion’s share of mortgage demand in Australia is currently being driven by investors and upgraders (see below charts).

ScreenHunter_14 Aug. 07 13.24
ScreenHunter_15 Aug. 07 13.24

Looking at the state-by-state break-down, you can see that the FHB retreat has been driven by New South Wales and Queensland, where grants on pre-existing dwellings were cancelled in October 2012 (see below charts).

ScreenHunter_16 Aug. 07 13.29
ScreenHunter_17 Aug. 07 13.31

A final interesting observation is that the average loan size for FHBs has shown minimal growth over the past four years. Since March 2009, the average FHB mortgage has grown by only 1.8%, whereas the average mortgage for the market as a whole has grown by 9.6% (see next chart).

ScreenHunter_18 Aug. 07 13.36

As noted earlier today, with changes to FHB grants favouring new construction over pre-existing dwellings taking effect in Victoria and Tasmania from July, and in the ACT from September, mortgage demand from FHBs is likely to weaken further.

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Leith van Onselen
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    • Is it possible? A flickering light of reason through the housing policy gloom.
      Make it quick. Rip the bandaid off.
      We’ll find out tomorrow

  1. “first home buyer (FHB) demand remains weak”… not for long. A federal government First Home BUILDERs grant is coming to kick start FHB demand and the construction industry.

      • What’s your thinking, Ralph?

        A first home builders’ grant would (in theory):
        – help to boost construction (economic activity and jobs)
        – increase housing supply
        – and possibly slow the price inflation of existing homes (by divirting the last few FHBs into new stock, and by boosting supply).

        Yes, it would cost money, but the policy outcomes are mostly good, surely?

      • Not much wrong with it apart from a continuation of the endless tinkering of FHB grants by various state and federal governments in recent times to try and squeeze some more juice out of the FHB lemon. If it encourages more construction of new houses and therefore greater supply and the therefore downward pressue on prices over all, then I’m for it. But they’ve done FHB grants to death. They are seen as a cynical ploy to increase house prices for the benefit of the construction and real estate industries. Warming them up to have another crack is desperation politics. I’d rather they just got out of the game and let the market work. But that’s not going to happen, I know.

      • This time is different, you know what? This time the gov is trying to bailout the major land bankers. While the investors and upgraders are out in force. No one is touching new built (ex knockdown). This is the group of vast interest the HIV is trying to help this round.

      • Ralph – fair enough.

        Overall – in a world where we can expect nothing sensible from either major party on housing affordability, and where neither party can resist some sort of big cash splash, I reckon a new-builds-only grant is the least-harmful option.

  2. LabrynthMEMBER

    If the government wants to help FHB’s just implement the following policies.

    1)Shift negative gearing to only be eligible on new properties. (you can’t negative gear on a property that is more than 10 years old). This makes it more attractive for investors to buy an OTP property and negative gear it for 10 years.

    2)Give investors stamp duty exemptions on new builds.

    3)Let the government go guarantor on loans to FHBs. The government is already implicitly backing property, why not just back FHB, it won’t cost anything upfront. If the government is guarantor then the banks will lend more to FHB so they can compete with the remaining investors and owner occupiers in the existing market.

    Implementing these three policies will shift investors to new builds and allow FHB to get access to the existing property market.

    Buying off the plan is high risk and pushing FHB into this area is not fair. Investors can handle the risk, FHB not so much. With more investors buying new property we might get that transition that the RBA so desperately wants post mining boom.

  3. Wasted OpportunitiesMEMBER

    Jolly gee wilikers Batman, only 7% of NSW dwellings financed by FHBers. 1 property in 14!

    And if my contemporaries are anything to go by, most of those are using parental assistance to bulk up the deposit. Only investors and upgraders left in the building, looking for history to repeat itself.

    In the early 90s I was a young boy when Telecom introduced phone cards for payphones. I collected all the used phonecards from the box at the end of the street, and some nearby backpacker hostels. Sometime around 1994 there was a collectors convention at the Menzies hotel in Sydney, and someone offered me about $2000 for my collection. I refused and a few years later they were worthless.

    I often think my parents should have had the wisdom to encourage me to cash in.

    I wonder if my parents generation (boomers) will look back and think that now would have been a great time to liquidate their investment properties, rather than holding or in some cases doubling down via SMSF or children FHBers?

    • Most of the 50 – 65 year olds I come across have at least one investment property, geared to the eyeballs, all with the intention of liquidating the day after they retire and some super sweet multi-gazzillion-dollar profits.

      Most Australian “property investors” have zero understanding of markets, and even less of an understanding of property markets (or even the history of Australia’s property market).

      Ain’t no money to be made out of talking people off the cliff. Might as well join in (Property doubles every 7-10 years, don’t you know?)

  4. tsport100MEMBER

    It’s not lack of demand, it’s lack of a 20-30% cash deposit. How long would it take a 20-30 something to save $100,000? Forever!

    A high LVR is the banks admitting they expect a housing market correction and they’re not getting left holding the bag by wide spread low equity defaults (any more than they already would be with the worlds most residential mortgage over-weight banking system in the world).

    If only they’d stop propping up the market by lending to these idiot investors and upgraders!

    • It’s not the banks’ fault. They’re in it to make a buck, and there are plenty of prospective homeowners that look forward to the camaraderie of being locked into a 25-year mortgage. It’s the Australian way.

      (I don’t mind people making stupid mistakes if they go into it with their eyes open. It’s the media spin and misinformation I have a problem with. People honestly still believe that values will continue to double every 10 years or so! It’s dumb, but it’s what the headlines want us to believe)

    • I have > 20-30% deposit.. but I am not fazed by the “Buy now before it is too late” scare-mongering.. a bit weak and tired, that attempt.

    • Why would it take a “20-30 something” forever to save $100,000? With (often) two incomes and no kids this is the easiest time in life to save money.

  5. PrinceOfPersia

    Even the Chinese investors are cutting back, nice. It never be a better time to buy, lol. Where are the rest of the spruikers?! 🙂

  6. RapperWithABaby

    Well, it’s a step in the right direction, but still piss-weak:

    “Mr Buswell also confirmed there will be changes to the State’s first homebuyers’ grant scheme.

    Currently the Government provides $7,000 for purchases of both new and established properties. Under the changes, the grant for established homes will drop to $3000, while the new house grant will jump to $10,000.”