Property investors still not interested in boom

Courtesy of Martin North:

We are releasing the latest data from our household surveys to January 2020 relating to segmented buying intentions and home price expectations. This is using data from our rolling 52,000 households nationally.

In overview, households have got the memo from the Government, that home prices are expected to rise – and this is influencing their forward expectations and buying intentions; to an extent. However, high prices and the significant debt burden, along with no income growth, and overall financial pressures are working against this intent. And property investors remain on the side-lines while first time buyers are lining up to take advantage of the Government scheme which has just commenced. There are 10,000 guarantees available now, and a further 10,000 in the next financial year. Not enough to meet demand.

As normal we will begin with our cross segment comparisons, before looking in more detail at the highlights of specific groups.

The intention to transact in the next 12 months is supported by two segments, first time buyers and down traders. The former are trying to get into the market for the first time, the latter are trying to exit the market to release capital. There are net more exits than entrants, so this suggests a supply demand disequilibrium. Investors remain sidelined.

We find that first time buyers and want-to-buys are savings hard, though lower interest rates are making the task harder. Up traders (people planning to up-size) are also saving, but at a slightly slower rate.

The intention to borrow is an important measure as it drives prospective mortgage growth ahead. The survey results suggests demand will be anemic and be driven by first time buyers and up traders, rather than investors. Not enough to suggest a significant lending recovery, yet.

Price growth expectations are rising, led by property investors, up 14% from September, and first time buyers up 10%. Other segments appear less convinced however.

Across the segments, the preference for using a mortgage broker remains close to longer run averages.

Now, looking in more detail at the segments, those 500,000 households wanting to buy are largely limited by access to finance (37%) (often because their incomes are insufficient or uncertain), that prices are too high (26%), high costs of living (25%) and transaction costs, like stamp duty, LMI premiums, and legal costs (7%).

In trend terms, the availability of finance has eased, down from 43% to 37%, while high home prices and rising costs of living have become a more significant barrier recently.

Turning to first time buyers, there are around 350,000 households who are actively saving with an intention to buy when they can, and the count has been rising in the past few months, partly thanks to the announced Government-back deposit scheme, which is discussed recently in our post: First Time Deposit Scheme: Fish Or Fowl? Loan approvals are running around 10,000 per month, so only a small proportion of the first time buyer pool will be able to take advantage of the scheme, which may put upward pressure on property in the target zones! 22% intend to use the scheme, so more than the guarantees available.

First time buyers are motivated by needing a place to live (26%), with greater security than renting (13%) and to capture future capital growth (16%), or tax advantages (11%). Around 10% transact as part of a newly formed family.

The trends highlight the impact of the new Government scheme, and the rising expectations of future capital gains, compared with a few months ago.

But first time buyers are still facing considerable barriers, including availability of finance (40%), prices too high (26%) and pressure from costs of living rises (24%). Property availability and fear of rising interest rates have both dissipated.

The trends highlight how finance availability remains an issue, and home price concerns are rising again, while there has been a big spike in costs of living in recent times. So many will struggle to buy.

We also see a greater focus on purchasing houses rather than units, a reflecting on the bad publicity in recent times relating to the poor quality of construction and flammable cladding issues.

Turning to refinancing, we see the primary motivation is to reduce monthly costs (50%) , capital extraction (19%) and seeking a better rate (19%). Intention to lock in a fixed rate has fallen to 5%, on the expectation that rates will fall further ahead.

Among those seeking to sell and release capital – and perhaps buy a smaller place – our down trader segment, with more than 1.2 million are in this category, and 56% are hoping to transact. The main drivers are to release capital (56%), increased convenience (30%) and illness or death of spouse (11%).

In trend terms, interest in investment property remains at a low 6%, compared with 23% back in 2017.

Up traders remain active but there are around 500,000 actively in this category. The main motivations are a desire for more space (39%), life-style change (20%), and job change (16%). 24% are driven by the expectation of future capital growth.

The trend tracker shows the property investment driver is weaker now, while more space and life-style are stronger drivers.

Turning to property investors, tax efficiency features as the strongest driver at 41%, down from 50% back in 2018. Better returns than deposits rose to 27%, reflecting the recent cash rate cuts. Low finance rates also feature at 11% and appreciating property values at 17%, higher than a few months ago. Within the investor segments, portfolio investors (those with multiple investor properties) are most hopeful of capital growth.

Barriers for investors include they have already bought property (30%), they cannot get financing (38%), down 2% from September, and changes to regulation (13%), including tighter rules on income and cost assessments.

There are around 1.3 million property investors, and many remain on the sidelines, due to low rentals, higher vacancy rates, and financial pressures. Of course the switch from interest only loans continues to bite too.

So, in summary, while there are some signs of interest in property, the segments really active are primarily first time buyers, and those trading down and up. There are more sellers than buyers in these groups, so if investors remain on the sidelines, we doubt prices can continue to drive higher, unless mortgage lending really accelerates (who would borrow?) or rules on loan serviceability are loosened further. The first time buyer deposit scheme will not be sufficient to turn the market around, though it may help some builders to shift newly completed or vacant property in the short term.

Nevertheless, households appear more bullish about future home price growth than a few months back – despite the fact the levers of growth appear disconnected from reality judging by these survey results.

David Llewellyn-Smith


  1. Those in the bull trap camp, say aye. Aye. Well done Martin, a bit of reality in a sea of hype.

    • north is a clown looking to profit off idiotic, desperate housing bears. Was only a few months ago he had his stupid forecasts of an accelerating crash…how did that turn out for you losers? Permatards now going into full delusional mode – look at bcbich and his incredibly retarded comments

        • weak

          You better get out there and start earning those pennies. Unfortunately for you house prices will outpace your efforts. Keep deluding yourself though, im sure its the helpful thing to do….LMFAO

          • What a boring and bitter troll you are, and I’m not going to improve things.

            You say “Unfortunately for you house prices will outpace your efforts.” I say, already bought and paid off. I’m just on here to add to the collective heap. Have a nice day.

  2. Boomers look to be clenching that they can get out the door to a comfortable retirement without getting hit by it…. Funny tho… Used to feel bad about the FHB cohort getting fed to the machine to help the fogies cash out/keep prices high… but as 50% of them only look to be in it for the tax advantages, FHOG or future CG (Equity maaate!), they can get fvkd too.

    • Yup, it’s amazing the number of posts on various forums of FHB’s saying they want to buy a house, then turn it into an IP in x number of years. Geez, this country, people collect houses like kids collect marbles. It’s infected everyone’s brains.

    • Most FHB’s now are not even Australians. They are new migrants being fed to the mortgage machine. Don’t feel bad for them.

  3. our property market cannot rely on BBs anymore, they are either retired or close to retirement so buying IP at this stage doesn’t work for them financially

    it’s time to get gen X in, and that may prove to be a bit harder …

  4. Portfolio investors have the strongest conviction that prices will rise in the next 12 months. Quelle surprise!

    Triumph of hope over anything else I suspect. Save us, ScoMo!

  5. Jumping jack flash

    “only a small proportion of the first time buyer pool will be able to take advantage of the scheme, which may put upward pressure on property in the target zones!”

    Not sure I understand this mechanism, and later he does mention that due to more sellers than prospective buyers there’s not much hope of prices rising. Maybe he means “in desirable pockets”?

    In any case there needs to be more and larger deposit supplements or loosening of all standards including interest rates and deposit requirements to resume debt growth at the required rate to turn this recession around.

    I can’t really fathom how anyone can comment that prices are too high because prices are not an issue at all if the required amount of debt is available. The barriers to debt of course are serviceability and deposit requirements, so fix those issues and debt will take off again.

  6. From what I see in my area 2257, most places are going straight from sold sign to for lease, so it seems that the specufestors are the ones buying up, it may be that there are places in the sub 700k category so perhaps they are trying to front run the FHB’s