First Time Buyers Still Want Property By Martin North | September 23, 2015 | Household Survey LINK HERE Continuing with data from the latest edition of the Property Imperative, today we look at first time buyers. Our latest survey identified about 319,000 households who are first time buyers. The majority are seeking to purchase, or have recently purchased an owner occupied property (80%), the remainder preferring an investment property. Only 9% of these households expect to transact within the next 12 months, despite 67% believing house prices are set to rise in the same term.
The biggest barrier to purchase include high house prices (52%), fear of unemployment (11%), finding the right property (22%) and rising costs of living (6%). In terms of financing 61% of households will need to borrow more than they can currently obtain to transact, whilst 62% of households will consider using a mortgage broker to assist with the finance arrangements.
The barriers do vary by state. In NSW, first time buyers were finding it more difficult to find a suitable place to buy (28%), whereas costs of living were less significant here. In WA, fear of unemployment (22%) and high prices (54%) were the most significant barriers. First time buyers are split between looking for a house or a unit (in Sydney more are looking for a unit). A greater proportion (21%) this time were simply not sure what to buy, or where to buy, a rise from 4% in 2013. A greater proportion of first time buyers in Sydney are likely to buy, or have bought a unit, rather than a house. In the other states, the preference for a house is stronger, though in Melbourne and Brisbane, it continues to drop. In Perth, house preferences are stronger. When we compared the elements which influence a buying decision, we see a stronger focus on price in 2015. Schools are important, then access to transport. We see consideration of absolute commute times to be less important now than in 2010. However, almost all elements are traded away because of high prices.
Whilst the ABS tweaked their estimates of first time buyers taking a mortgage to adjust for the decline in first owner grants, they still give an incomplete picture.
The traditional wisdom is that first time buyers are sitting out of the property markets, because prices are high, loans harder to get, and confidence is falling. However one of the most significant developments surrounding first time buyers is that many more are now going direct to the investment sector.
The original data from the ABS, shows a small fall in the month to 15.4% in July 2015 from 15.8% in June 2015. The DFA data for investor FTB also fell. The number of first time buyers are still sitting at around 12,000 a month in total, still well below the peaks in 2009. Our surveys indicate strong FTB investor appetite. The changed underwriting requirements however are having an impact. There are a number of drivers to this trend. First, most first time buyers were unable to afford to purchase a property to occupy, in an area that made sense to them and were being priced out of the market. Next, many were anxious they were missing out on recent property gains, so decided to buy a less expensive property (often a unit) as an investment, thanks to negative gearing, they could afford it. They often continue to live at home meantime, hoping that the growth in capital could later be converted into a deposit for their own home – in other words, the investment property is an interim hedge into property, not a long term play. Some are also teaming up with friends to jointly purchase an investment, so spreading the costs. In fact about one third who purchased were assisted by the Bank of Mum and Dad, and would consider an investment property by accessing their superannuation for property investment purposes, a bad idea in our view.
Given the heady state of property prices at the moment, this growth in investment property by prospective first time buyers is on one hand logical, on the other quite concerning. We would also warn against increasing first time buyer incentive.
Remember, also the data refers to loans, not property transfers, and we know from our surveys that additional purchases were made without the need for a mortgage by overseas investors, and local purchases cashed up thanks to the Bank of Mum and Dad.
Turning to the reasons why first time buyers are going down this track, our analysis of buyer motivations draws some striking observations. We see that the prospect of potential capital gains is now the highest rated driver at 30%, whilst the desire for somewhere to live is just 27%. We see the prospect of gaining tax advantage is growing, now up to 10%, whilst the advantage of a First Home Owner Grant (FHOG) is falling away as these grants become less accessible (6%). Fewer buyers now expect to pay less than renting, whilst the prospect of greater security remains about the same. So putting this together, we conclude that first time buyers are reacting to the current house price boom in logical ways. They are however being infected by the notion that property is about wealth building, rather than somewhere to live. This notion, which served previous generations quite well (once they were on the property escalator), may be tested if interest rates rise later, or property prices fall from their current illogical stratospheric levels. The overriding result from the survey is the first time buyers are very fearful of missing out, and that delaying potential entry into the market will simply make it less affordable later. Recent changes to underwriting standards may cramp their style, but we still expect to see a continued rise in the number of first time investor buyers.
Any expressed market opinion is my own and is not to be taken as financial advice
An entire generation who have been told from birth that you WILL become wealthy from property, you can't lose, there is no risk other than the risk of missing out forever and bring a lesser form of life.
An entire generation that have been force fed the ideal that renters are scum, if you don't own by you 20's you are a failure, you are to be looked down on and shunned.
I'm sure they all feel absolutely compelled to buy, I can't imagine they would feel they have any choice at all but to desperately want to buy.
Glad you like this research. I think there's much to like about their whole "consumer-centric" research objectives, methodology, and insights.
I don't always agree with Martin Norths interpretation of the info, but hey that's OK, we don't need a consensus. The data he produces is always interesting and he does research from a perspective that isn't usually available to the general market. Usually surveys like this are only available to market researchers and large developers, so for me it's like having another window to the world, even if it sometimes lets me see information that I wish was different.
Any expressed market opinion is my own and is not to be taken as financial advice
An entire generation who have been told from birth that you WILL become wealthy from property, you can't lose, there is no risk other than the risk of missing out forever and bring a lesser form of life.
An entire generation that have been force fed the ideal that renters are scum, if you don't own by you 20's you are a failure, you are to be looked down on and shunned.
I'm sure they all feel absolutely compelled to buy, I can't imagine they would feel they have any choice at all but to desperately want to buy.
Except for you though Chris - right? You're smarter than all those dumb people aren't you?
For Aussie property bears, "denial", is not just a long river in North Africa.....
I'm sure they all feel absolutely compelled to buy, I can't imagine they would feel they have any choice at all but to desperately want to buy.
Yes, they all want to own a home, who doesn't, it's just too bad most young ones can't justify it at the current prices on their shit wages.
Sydneyite
23 Sep 2015, 08:26 PM
(Bitter Personal Attack)
I'd have thought someone who owned sydney property would be a lot mellower than you? Shadow is mellow, gold is well up so I'm mellow. Perhaps your investments have not done well at all? Sorry for your losses...Not.
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
An entire generation who have been told from birth that you WILL become wealthy from property, you can't lose, there is no risk other than the risk of missing out forever and bring a lesser form of life.
An entire generation that have been force fed the ideal that renters are scum, if you don't own by you 20's you are a failure, you are to be looked down on and shunned.
I'm sure they all feel absolutely compelled to buy, I can't imagine they would feel they have any choice at all but to desperately want to buy.
You're getting as full-on with the hyperbole as Loki Chris.
But anyway, to put it back into some sort of semblance of perspective (from my mob's perspective anyway), the youngest Gen Y in my family would like to buy, and probably will in maybe three years. Her older brother is busy enjoying himself for now, so almost certainly won't - That's life.
A Professional Demographer to an amateur demographer:"negative natural increase will never outweigh the positive net migration"
I don't always agree with Martin Norths interpretation of the info, but hey that's OK, we don't need a consensus. The data he produces is always interesting and he does research from a perspective that isn't usually available to the general market. Usually surveys like this are only available to market researchers and large developers, so for me it's like having another window to the world, even if it sometimes lets me see information that I wish was different.
I agree. Nevertheless, the researcher needs to remove himself from speculating on "what it all means" and let you think about that for yourself. It's a tremendous resource and I wonder what they actually offer their clients as opposed to these public releases.
The sampling seems very sound, if not a little too large, which means that the actual data collection costs can't be cheap.
You're getting as full-on with the hyperbole as Loki Chris.
But anyway, to put it back into some sort of semblance of perspective (from my mob's perspective anyway), the youngest Gen Y in my family would like to buy, and probably will in maybe three years. Her older brother is busy enjoying himself for now, so almost certainly won't - That's life.
You mangling the English language again?
To put it in perspective, First Time Buyers always want to buy. Saying so is about as insightful as saying Virgins Still Want Sex.
Those who have no intention of buying still don't want to buy would be it's corollary.
“Talk sense to a fool and he calls you foolish.” - Euripides
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