First Home Buyer Strike? Lack of FHB recovery halting stronger housing market rebound; First-home buyers continue to stay on the sidelines of the housing market
Tweet Topic Started: 14 May 2013, 03:52 PM (2,752 Views)
First-home buyers continue to stay on the sidelines of the housing market with economists noting the flow-on effect this is having for the wider housing market recovery.
In addition the different incentives on offer in state and territory housing markets and with different expiry dates, is distorting the picture, pulling forward demand in some cases, but with a vaccum likely to follow when incentives are withdrawn.
ABS housing finance figures show that first-home buyer activity retreated further in March with this segment accounting for 14.2% of total owner-occupied housing finance compared with 14.4% in February.
First-home buyer numbers, as a proportion of the total dwellings financed, are at their lowest level since May 2004 – a nine-year-low..
A year ago they made up 18.1% of the market with the first-home buyer market peaking at 31.4% in May 2009, with first-home buyers spurred on by the $7,000 first-home owner boost (FHOB) for existing homes and $14,000 bonus for new homes, which ran from October 2008 to December 2009 (halved in the final two months).
This decline in first-home buyers is against a backdrop of a stronger-then-expected rise in home lending, which lifted 5.2% in March led by strong gains in NSW and Victoria.
Westpac economist Matthew Hassan highlights a point made by other economists like AMP Capital’s Shane Oliver that the current housing market recovery has been weak by comparison to previous easing cycles
He told the Australian Financial Review it had taken “a very long time to generate any movement in the sector", but that prior to yesterday’s housing finance bounce, the recovery had been “sub-par”.
Hassan pointed to the lack of activity in the first-home buyer market as a key issue for a sustained recovery, as they typically purchase the homes of those looking to upgrade and move up the property ladder.
“Ultimately you need a new entrant to drive ongoing growth on the buyer side,” he said.
A similar point was made by Commonwealth Bank economist Michael Workman who called first-home buyers “still the missing link to the overall housing activity story”.
“Higher levels of first home buyers in the market are needed to make a solid impact on total housing activity,” he said.
ANZ property market analysts David Cannington and Paul Braddick said that “looking through the distortions from state and territory government first-home buyer policy changes in recent months” the March data indicates “the combined impact of improved housing affordability and low rental vacancy rates (putting upward pressure on rents) is supporting moderate growth in first-home buyer finance, albeit from low levels”.
"First-home buyer activity increased in March (on a trend basis), however its share of the total value of housing finance commitments (excluding refinancing) decreased to 10.9% - the lowest first-home owner share since April 2004," said Cannington and Braddick.
"Growth in the number of first home-buyer commitments in March was lowest in Tasmania, followed by the Northern Territory (-21.3% m/m and -17.5% m/m respectively).
"The withdrawal of the First Home Buyer Grant on established homes in NSW and Queensland and the unwinding of Northern Territory first-home buyer concessions have weighed on first- home buyer lending in these states.
"However, moderate growth in first home-buyer finance in many states in recent months indicates the combined impact of improved housing affordability and low rental vacancy rates (putting upward pressure on rents) issupporting first home buyer activity," the said.
ANZ prepared the following sets of graphs to show how the first-home buyer segment is tracking in each of the state and territory markets, with the five biggest markets – NSW, Victoria, Queensland, Western Australia and South Australia – showing mild improvements, but declining trends in the three smallest states.
An entire machine telling them that housing has never been more affordable but having collective amnesia about the fact that interest rates rise as well and fall.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
An entire machine telling them that housing has never been more affordable but having collective amnesia about the fact that interest rates rise as well and fall.
In a way I agree, in fact it's always been that way, except I doubt that rates will rise to levels that previous generations endured.
The Australian residential property market has recently been showing signs of improvement.
Investors and changeover buyers are being drawn back to the market following interest rate cuts and the positive outlook for housing.
Unfortunately, first-home buyers are missing out on the favourable environment due to a number of reasons – stamp duty, the size of deposit required and ability to save for it, unemployment and underemployment concerns.
Recent changes to the first-home owner grant in all states and territories (except for Western Australia and the Northern Territory) have added to the uncertainty and impacted on the activity of first-home buyers in the market.
As part of the inter-governmental agreement (IGA) on the reform of Commonwealth/States financial relations signed in June 1999, all states and territories agreed to provide uniform financial assistance to Australians who are buying their new or established first-home through the introduction of the first-home Owner Grant.
According to the recently released QBE Lenders’ Mortgage Insurance’s (QBE LMI) 2013 Mortgage Barometer Report, 84% of first-home buyers believe property prices are close to reaching or are above what they can afford and 69% worry they will neverbe able to afford their own home (compared to 24% of all respondents).
Unfortunately, governments of most states and territories have made it much harder for first-home buyers to see their dreams realised. Table 1 (below) shows recent changes to the first-home owner grant.
As a result of the new policies, the Australian Bureau of Statistics’ figures for March 2013 show that first-home buyers are becoming an endangered species.
Figure 1 (below) shows that in Australia, only14.2% of owner-occupier housing finance commitments in March were from first-home buyers – the lowest level seen since May 2004.
Housing finance figures for April show that in New South Wales and Queensland (both below), where the grant ended in Octobe rlast year, first-home buyers made uponly 7.3% and 10.3% of the owner occupier market respectively with both states significantly decreasing their share in the total number of first-home buyers in Australia.
Two out of three first-home buyers in NSW and Queensland surveyed by the QBE LMI’s indicated the new policies made an impact on their purchase intentions.
With new arrangements aiming to stimulate building activity, it is too early to expect substantial positive results on the industry. REIA has been lobbying hard against the breach o fthe IGA, however we are still to hear what the Commonwealth will do.
Evgeniya Hawthorne is Research Officer for the Real Estate Institute of Australia.
I came back to Australia last year and still have all of our cash in foreign bank accounts in foreign currency.
At the moment it makes no sense whatsoever to either
Buy Australian Real estate
or
Move foreign currency into AUD
I tend to the view that for Australian domestic economic reasons (well outlined by plenty of others here) that nominal AUD house prices fall will be minimal, but I think to achieve that outcome the AUD will have to be driven massively lower.
HnH in the podcast a few weeks ago was talking about AUD making the Australian economy competitive circa 0.75 but the AUD needing to go well below that for a period of time in order to send the message to global investors and Australian industry that it was serious. I think that is right on the money.
My suspicion is that even if they get that then there are RE problems because of the banking system need to fund a lot of borrowing from offshore, when the collateral they have for that is mortgages on Australian RE (basically AUD drops enough and mortgage rates would need to rise) but that if they don't get that then we are looking at employment taking a kicking and some of the most heavily privately indebted people on the planet turning up as NPLs.
I am more than happy to rent it out. I told my Mrs that we wait until she has an Australian passport (circa 4 years), while my son does some education here, and if the environment hasnt improved in that time we simply go back to Europe or elsewhere.
I came back to Australia last year and still have all of our cash in foreign bank accounts in foreign currency.
At the moment it makes no sense whatsoever to either
Buy Australian Real estate
or
Move foreign currency into AUD
I tend to the view that for Australian domestic economic reasons (well outlined by plenty of others here) that nominal AUD house prices fall will be minimal, but I think to achieve that outcome the AUD will have to be driven massively lower.
HnH in the podcast a few weeks ago was talking about AUD making the Australian economy competitive circa 0.75 but the AUD needing to go well below that for a period of time in order to send the message to global investors and Australian industry that it was serious. I think that is right on the money.
My suspicion is that even if they get that then there are RE problems because of the banking system need to fund a lot of borrowing from offshore, when the collateral they have for that is mortgages on Australian RE (basically AUD drops enough and mortgage rates would need to rise) but that if they don't get that then we are looking at employment taking a kicking and some of the most heavily privately indebted people on the planet turning up as NPLs.
I am more than happy to rent it out. I told my Mrs that we wait until she has an Australian passport (circa 4 years), while my son does some education here, and if the environment hasnt improved in that time we simply go back to Europe or elsewhere.
if interest rates do go down again while US keeps increasing AUD has a fair way down to go yet i think.. i also don't see house price growth matching currency decline in coming year and content to wait it out.. but im no economist and its just my humble opinion..
Since June 2000, first-home buyers (FHB), nationally, have averaged around 27% of purchasers in the market seeking finance—from a low of 19% (March 2007) to a high of 42% (May 2009).
A recent Property Observer article outlined the national situation for FHBs and noted the shallowness of the housing recovery in comparison to previous cycles.
Focusing on NSW, FHB numbers have averaged some 26% of purchasers over the same period—a low of 11% (May 2013) and a high of 47% (May 2009). Since November 2013, FHB numbers have not exceeded 15% and have averaged about 12%.
The demise of NSW’s FHB is far more than an issue for market—it is the issue. FHB are the foundation market.
By and large, FHBs aspire to become upgraders, since property (or more precisely, the consumption of living space) is a normal economic good—the wealthier we become, the more of it we tend to consume. FHBs possess the momentum investors generally lack; to improve, to buy better, and move up the ladder. With a diminished base, up-graders must either sell into their own market or to investors.
Such momentum is necessary for the state, whose finances are bound to the market’s transactional volumes—Macquarie Street really needs to think that one through and come up with a less volatile revenue stream. Stamp duty in my opinion is a retrospective capital gains tax for the state—since it indirectly taxes the wealth made on the sale of an existing property at the time a new property is purchased.
How fair or sensible is it to tax FHB for wealth they haven’t yet earned? In this regard, stamp duty for FHB is a punitive tax; it sits closer to the suite of measures government employs to discourage self-harming activities, so society doesn’t stray too far from the straight and narrow. It’s surprising to see that first-home ownership is one of them.
In October 2012, the NSW government varied the FHB concessions and grants in the hope of stimulating housing supply and supporting a weak construction sector. Both the $7,000 cash grant and—far more importantly—the stamp duty exemption were replaced by the first home-new home scheme; increasing the grant to $15,000, raising the price thresholds, exempting stamp duty payment for new homes only.
Following the October 2012 where FHB represented 22.8% of the market, their numbers fell away precipitously compared to the same month a year prior:
The NSW state government’s policy is failing and is flawed. The numbers speak for themselves, but who is speaking for the FHB?
Cash grants for the most part inflate property prices, ultimately harming those they purport to help—but they win votes, apparently. FHB, by and large, are not new dwelling purchasers; these dwellings more commonly are bought by up-graders and investors for differing reasons. The key factor in the purchase equation for a FHB is stamp duty and how this plays through the purchase transaction via the “funds to complete” scenario. The following table illustrates the situation faced by a FHB prior and post October 2012:
From the above it can be seen that FHB wishing to purchase a secondhand $350,000 property today will require an additional $20,000 deposit. But, it presumes that they will find a bank willing to lend on a 15% deposit—the banks wish to minimise their risk exposure by qualifying their borrowers. And the banks never lose, which is why lending to upgraders and investors makes so much more sense as they are a far less risky proposition.
Importantly, the table highlights that pre-October 2012, FHB who were in the market to purchase a $460,000 property are now restricted to those priced $350,000 and below. The inference being that FHB will have to consider areas that are cheaper because they are either further out or stigmatised so as to become affordable.
The following chart illustrates in a general way how this could result, by looking at the median 2-bedroom unit values for inner, middle, and outer ring Sydney.
This is a claytons solution, since the housing affordability problem is simply being transferred to the less affluent; what happens to the existing residents in these areas?
What the table doesn’t illustrate is the FHB’s life situation; how many are about to start a family (knock around $20,000 off what the banks are prepared to lend)? How many are working as contractual employees (higher mortgage insurance or deposit, if approved at all)? How many are in stagnant businesses where wages haven’t changed, for the better? How many carry education debt?
It would be fair to argue that for some (especially those who have started a family as tenants), October 2012 marked a line in the sand for home ownership. Not only have FHB been dealt a blow to their purchasing power, by delaying their entry into the market, they will fail to benefit from the compounding wealth effect of real estate.
There are long term implications here, unless of course, today’s generation of property owners are smart enough to work out how to transfer the affordability baggage to future generations.
As a potential FHB with no desire to buy any time soon I don’t feel any resentment or bitterness. Indeed I feel sweet relief I haven’t chosen to become a mortgage slave. I look at people who dived in to the property market since 2008 and feel nothing but pity for them. The banks own their arse & it’s telling in the long hours they do, the sleepless nights, the stress when they discover their job is not as secure as they think it is, the strained relationships with their partners/ family & the emergency (car needs major repairs, health issues crop up) funds they can’t procure when needed.
Me? I’ll happily spend less than one-fifth of my income on rent, have plenty of spare cash available in the event of a personal financial crisis (e.g. unemployment), spend money on fun & leave work at a reasonable hour to actually live.
I get people who say “but if you don’t buy now, you’ll be renting in retirement & that’s baaad”. To which I say (1) first I have to make it to retirement age & there’s no guarantee of that (I want to enjoy my life, not be restricted by my mortgage or job I must keep because I need it to pay my mortgage) and (2) I have very savvy, prudent & frugal parents/ grandparents from whom I’ll likely inherit before retirement age (& I don’t feel guilty about this – they inherited much of their wealth from their own parents/ grandparents & have nurtured/ invested/ grown it over the years). I do feel for those not in a position to inherit or who would like to buy for personal reasons (don’t want to move family from rental to rental) though.
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