Fears for housing recovery as first time buyers walk away
The number of first time buyers entering the market fell to its lowest level in two years in January, according to the latest figures from the Australian Bureau of Statistics.
The 11 per cent drop at the national level marked the fourth consecutive monthly decline for what is considered to be one of the most influential segments underpinning the overall health of the property market.
MacroBusiness economist Leith van Onselen said the first home buyer figures were "atrocious", especially coming on the back of the low interest rate environment and recent price falls.
"It's surprising that it's fallen off this much and so consistently," he said.
In contrast, the ABS found the value of finance commitments for investors rose strongly over the month, and are now up 19 per cent in the last year.
"Young first home buyers are leaving the market but baby boomer investors are entering the market. There's a recovery going on but it's built on investor demand," Mr van Onselen said. "It's generally not great for sustainability when young people are not getting in. It's sort of uncharted territory."
In NSW, the number of first home loan approvals have dropped 63 per cent since the state government stopped offering the $7000 grant on established properties in October, focusing it instead on new homes. They fell nearly 65 per cent in Queensland over the same period. Both are the lowest on record for each state. In Victoria, where the grant for new homes was withdrawn in the middle of last year, the decline was 22 per cent over the last four months.
Andrew Wilson chief economist with Fairfax-owned Australian Property Monitors said it was clear the falls were being caused by a "pulling forward" of demand in NSW and Queensland due to changes to the grant in those states.
"I think we'll see first home buyers stay in the queue longer."
Frequently Asked Questions about this Article…
According to the article, first home buyer activity fell to its lowest level in two years in January, with an 11% national drop. The decline marked the fourth consecutive monthly fall in this influential segment of the property market, based on Australian Bureau of Statistics (ABS) figures.
The article cites several reasons: changes to state grant programs (which pulled demand forward in some states), and comments from economists like Leith van Onselen noting it is surprising given low interest rates and recent price falls. It also notes younger first home buyers appear to be leaving the market while older, baby boomer investors are entering.
The article warns the housing recovery may be less sustainable because it appears to be built on investor demand rather than first home buyers. Economists quoted say it's ‘not great for sustainability’ when young people aren’t getting into the market, raising doubts about the durability of any recovery.
The ABS data discussed in the article found the value of finance commitments for investors rose strongly over the month and is up 19% over the last year. The article also notes an influx of baby boomer investors entering the market, which is underpinning the current recovery.
The article links steep falls in approvals to changes in grants: in NSW, first home loan approvals have dropped 63% since the state stopped offering a $7,000 grant for established properties and refocused on new homes. Queensland saw nearly a 65% fall over the same period, both reaching record lows. In Victoria, withdrawal of the new-home grant mid last year coincided with a 22% decline over the last four months.
The article quotes Australian Property Monitors’ chief economist Andrew Wilson saying some falls were caused by a ‘pulling forward’ of demand due to grant changes, and he expects first home buyers may ‘stay in the queue longer.’ That suggests the reduction could persist beyond a short-term blip, at least while policy settings and incentives remain changed.
Everyday investors should monitor ABS indicators such as first home buyer approvals and the value of investor finance commitments, monthly trends in those figures, and state-level policy changes to grants. The article highlights these data points as key signals of market composition and recovery sustainability.
Based on the article, an opportunity is that rising investor demand and higher investor finance commitments could support prices and rental demand in the near term. The risk is that a recovery driven mainly by investors — with fewer first home buyers — may be less sustainable long term, and policy shifts (like grant changes) can rapidly alter demand patterns.
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