Charting the Australian first home buyer retreat

ScreenHunter_15 Apr. 24 14.56

By Leith van Onselen

Yesterday’s housing finance data, whilst strong overall, was once again concerning from the viewpoint that first home buyer (FHB) demand remains weak, despite nominal mortgage rates at near multi-decade lows. As shown below, the lion’s share of mortgage demand in Australia is currently being driven by investors and upgraders:

ScreenHunter_19 Sep. 09 17.58 ScreenHunter_20 Sep. 09 17.59

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_22 Sep. 09 18.02 ScreenHunter_21 Sep. 09 18.01

Whereas the FHB share fell to just 14.7% nationally in July, well below the 5-year moving average (5yMA) of 20.0%, the shares in New South Wales and Queensland were just 7.7% and 11.3% respectively, down from 5YMAs of 19.6% and 18.4%.

Perversely, the number of FHB housing finance commitments in Victoria rose by 7% despite it joining New South Wales and Queensland in cancelling the FHB grant on pre-existing dwellings from the beginning of the month. This increase is likely explained by a surge in the number of FHB sales contracts signed in June, whereby buyers obtained finance in July. Hence, the expected downturn in FHB demand in Victoria following the removal of subsidies is likely still to be reflected in housing finance the data.

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 1.4%, whereas the average mortgage for the market as a whole has grown by 7.9% (see next chart).

ScreenHunter_23 Sep. 09 20.29

With changes to FHB grants favouring new construction over pre-existing dwellings still to take effect in Western Australia and the ACT from September, and the effects of the 1 July cancellation of grants in Victoria yet to be reflected in the data, mortgage demand from FHBs is likely to weaken further over the remainder of the year.

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Leith van Onselen
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  1. The LNP show few signs that they have any understanding that the housing industry doldrums are due to “Price sticker shock” on the part of prospective buyers – especially FHBs.

    Based on statements made to date, Andy and Joe seem to believe that the solution lies in easier credit, the wealth effect and rebooting the mining boom so they have a fresh stock of candy for the kiddies.

    One hopes that their State LNP colleagues are not nearly so dim and book some flights to Canberra to explain that the housing construction industry is comatose because the prices of new houses are too high.

    Good to see that the Greens are up to their usual tricks in Sydney.

    They are opposing the new planning rules – because they will make it harder for NIMBY’s to stop intensification of sites in areas approved for intensification – while maintaining their usual objections to any expansion of urban limits as well.

    Of course plenty of crocodile tears about affordability yet total denial of their role in perpetuating our constipated dysfunctional housing supply system.

    If they were opposed to population growth you might tempted to cut them some slack but nope – very keen for plenty of migration and an expansive refugee policy.

    To address this obvious cognitive dissonance they have the following incoherent policy on population

    Which basically can be translated as meaning – we don’t need population limits if we ‘magically’ change the structure of our economy and society but even though there is no ‘magic’ we will not have a policy on population growth in the mean time.

    All care and ‘feel good’ and no responsibility.

    • “All care and ‘feel good’ and no responsibility.”

      At risk of inciting knee-jerk “shoot the messenger, ignore the message” responses, I have to say that one of the very best opinion columns I have read in recent years, viz. what I might describe as “the spirit of our age”, was … wait for it … Andrew Bolt’s ‘The Age of Seeming’, in late 2009 –

      Like him or hate him, IMHO that piece (and perhaps even moreso, the title) is an absolute bloody ripper.

      • Thanks a lot! It is absolutely the best.

        We are living in a society where only the appearance matters and the real content is hidden or should not be shown as it is as superficial as the whole political correctness, care and useless economic policy and models, theories etc. We are living in a short attention span society and fame and entertainment is the main vehicle to personal glory and prosperity.

      • Velocity,

        Nothing wrong with intensification but in NSW the Greens are usually the first on the scene to support each and every NIMBY objection to actual intensification projects. About the ONLY sites they seem to support for intensification are old industrial sites – and even then they want lots of the old structure preserved as a theme park. Net result – intensification = expensive land and house prices.

        Stop the waste of vacant buildings?

        Rather than some crazy paper shuffle scheme where land owners are bribed with taxpayer money to use their land in a particular way. How about just tax the unimproved value of the land to encourage land owners to use it for its best most productive use.

        When combined with a sensible approach to land zoning the rest will happen naturally as valuable land – ie close to the city and existing transport connections gets re-developed into medium high density housing.

        But as PhilBest often notes – to really ensure that the prices are as low as possible, allowing people who choose to build houses on old cow paddocks on the outskirts is also important.

        By all means lock up some land for whatever purposes are considered important (heritage, parklands, environmental reserves etc) – but we need to relax the development rules for all the rest.

        For example have few if any restrictions on development for 1.5 km (about an 18 minutes walk) around every railway station.

        In Sydney we have about 200 railway stations and the majority of them are surrounded by quarter acre blocks.

  2. Mining BoganMEMBER

    Walked past a real estate place in Margaret River yesterday. Sign out the front urging the youngun’s to buy before the FHB changes next week. When you see the colossal amount of stock plus the ludicrous prices I was wondering just what was on offer for the newcomers.

    Nothing. Nothing at all. Spoke to a couple of kiddies later and they’re moving on. Reckon these places have got old and stupid. Kids are just used up and spat out as service staff.

    It’s a national tragedy.

    • With so many millions (just from the 1% of Chinese richest) on our doorstep buying houses in Sydney and else where, the realm of sanity is gone for ever. I am waiting already 10 years for my son to be able to buy a home for a normal price, not a hollow on the bush and we have patience, but I have lost hope that maybe it will never happen. It is because of the insane prices and nothing else.

      • Yes Lori, what I find to be especially frightening is that theoretically, and maybe one day in practice, the rich Chinese could buy out the whole of Australia. The government would hardly bat an eyelid because after all, someone would be buying and bidding up prices. At the moment, the Australians who have already bought are sitting pretty on their huge capital gains, and anyone else who wants to buy has to struggle for years, giving up any hope of a balanced lifestyle if they want to pay off their mortgage. As the wealth divide grows, why not just sell out to cashed-up foreigners if that’s what it takes to keep the bubble going?

  3. Investors and upgraders think they do not need FHB! They can do it all themselves, well let’s see what happens. Maybe they can (investors and upgraders) keep rolling the economy and maintain the multibillion dollars housing industry, LOL.

    • reading posts at the australian property forum reveals an even more conceited attitude.
      they firmly believe that if the investor led recovery falters and FHBs fail to prop up the ponzi, the government will jump in with increased immigration and foreign investment.

      and they’re probably right, at least i think everything will be thrown under the bus before this thing goes pop

      • They will do exactly that.

        Then the very same investors will complain about all the foreigners in “their” country.

      • I wouldn’t call it a conceited attitude as much as a resigned attitude, certainly from those like me who have been waiting a long time for the bubble to burst.

      • con·ceit·ed
        excessively proud of oneself; vain.
        synonyms: vain, narcissistic, self-centered, egotistic, egotistical, egocentric

        have you ever read anything on the australian property forum?

        me personally, i didn’t vote, both parties were useless.
        i won’t be buying a house, i think prices are crazy.
        i am living abroad and will be dumping the AUD for USD as soon as i can.
        i’m a young modern australian.

  4. I’d argue that a 5 year MA is probably too short a period to draw any real conclusion, except as a yardstick to guesstimate policy (hand out) inspired peaks & troughs.

    Of course the difficulty in using longer data sets for comparison suffers the same problems due to tax changes (neg gearing etc). Not sure what would constitute a “normal” level of FHB mortgages, but my feeling is we shouldn’t read too much into this data.

    The idea that prospective FHBs are “on strike” is only one way of interpreting the data — for many affordability is what’s holding them back from chasing the Great Australian Dream (though being unable to afford to buy a mortgage will, in my opinion, save a lot of heartache and financial loss when prices adjust).

    Just saying. Good data sets nonetheless. Keep up the good work!

    • this generation y has never really experienced job security and will probably never develop the appetite for risk this property market demands.

      its a big ask to borrow half a million bucks on a thirty year mortgage when the average dude my age has rarely had a job thats lasted four years

    • The normal mortgage should be 2 to 3 times maximum of disposable income of ONE person, not double wage, because FHB have to raise kids, otherwise why would they buy a home at first palce?

  5. there has been a lot of chat about improving policy for home ownership.

    i think we all know that a number of the changes are unlikely to be popular with significant segments of the population.

    perhaps we should focus more on improving conditions associated with renting. after all it is just shelter we are talking about and providing additional freedom for renters associated with modifying the property or other features would improve the prospect of renting.

    this would be an alternative way of providing some of the benefits associated with home ownership without owning a home??

    the big plus with the above is that it does not disturb the silly policies that are in place and benefit existing property holders and would provide some sort of benefit to FHB and increase flexibility for how we choose to pay for shelter.

      • @Burgo100, Dr Gavin Wood of RMIT and AHURI has been out on this point, that if we are to have a significant and permanent renter population, then we should alter tenancy rules that currently heavily favor investors.

        Problem is, meaningful rebalancing could affect returns and capitalisation – gulp, the market price – and the 1.5+ million ‘Gearers would militantly crush any government that abridged ‘their’ rights. They are, one and all, temporarily embarrassed millionaires.

  6. The leader of the NT government was interviewed by Ticky Fullerton of the ABC yesterday.

    Said he was selling off anything that could be gouged out of the ground or sucked through a pipe. Said it was all about investment in the future. Said nothing much about the massive housing crisis in the NT or where we are going to house all these people.

    This hovel
    just went under contract for between $550k and $600K. It needs new tiles, paint, 3 new air con’s, new kitchen and one bathroom. Its not a great house for the tropics as its got a tiled roof (holds heat) and no louvred windows.

    The cheapest house in Darwin is $495k. Its a two bedroom demountable.

    Abbott was talking about putting the CSIRO up here. Where are we going to put these people? How could they afford to live here on government wages?

    Darwin is turning into Port Headland, a sea of high vis bogans in $100k mining utes. Its very sad to see a once vibrant city changing like this.

  7. There was a post on the MB site yesterday about “Home owners are vastly more wealthy than renters”. There was a similar post in the Age about a week ago.

    Look, I am sure that aircraft owners are vastly more wealthy than passengers. But that does not mean that aircraft owners are wealthy BECAUSE OF THE PURCHASE, or it is a good idea to buy an aircraft.

    In fact, one should be accumulating more wealth by renting than owning a house if he/she is doing right things with their excess liquidity. I think (would be) first home buyers are wising up.

      • Jumping jack flash

        I see your point, but equally, it could also be said that after paying the mortgage there is no excess liquidity.

        The “wealth” is actually measured as the value of the property, or unrealised capital gains which can only be realised through additional debt, or sale with someone else’s debt.

        “My house is worth a million, its appreciating at 2% a year. Somethingsomething equitymate. I’m wealthy beyond my wildest dreams”

        Therefore, wealth = money borrowed = a liability.

        In conventional terms, the renter, with no debt, is far “wealthier” than the homeowner with hundreds of thousands of dollars worth of negative wealth.

        The real problem is a combination of counting our chickens before they hatch, and the fact we are all banks.