First home buyers retreat from the market

According to new data from the ABS, there has been a remarkable shift in the home buyer market with the COVID stimulus created through the HomeBuilder scheme wearing off, and recent consecutive interest rate rises prompting some caution in the market.

The data indicates the number of first home buyers in the market has fallen below the decade average after hitting a record peak in January last year.

The Australian Bureau of Statistics lending indicators for July shows that the number of new loan commitments for first homebuyers was 8338 – falling below the decade average of 8787.

Analysis of the latest ABS data also shows that the number of new loan commitments for first home buyers have fallen about 48 per cent since its peak in January 2021.

Zippy financial director and principal broker Louisa Sanghera said first home buyer activity had now returned to a level lower than what was recorded pre-pandemic.

“Back then, first homebuyers had been increasing slowly after many years on the sidelines because of the high property prices at the time – or so they seemed in retrospect.

“However, the government’s popular HomeBuilder scheme changed that scenario, with a significant proportion of the 113,000 applications likely to have been first-time buyers, keen to make the most of the financial grants that were available.”

Ms Sanghera said owner-occupier and investor activity was reducing more generally because of the higher interest rate environment, which was creating plenty of opportunities for prospective property owners in a time of rising interest rates.

“Now that might sound counter-intuitive, but would-be property owners are the ones facing the fewest lending troubles at present, because they are borrowing ‘cleanskins’, so to speak.

“Borrowers with existing portfolios are often experiencing lending challenges at present, but not so much for people who are applying for their first-ever home loan.

“I do believe it’s a great time for first home buyers to purchase right now because we have seen such a significant softening in prices since last year.”

Ms Sanghera said the rising interest rate cycle appeared to be slowing, with rates still considered relatively affordable by historical standards.

“First home buyers really need to be out there purchasing over the next six months, because this market lull is not likely to last forever.

“Not only has there been an increase in property listings, but there also are far fewer buyers active in the market, which creates optimal buying conditions.

“My advice for prospective property owners is to strictly keep to their budgets, as well as calculate their potential future mortgage repayments by adding about one percentage point to the home loan rate on offer.

“That way they will be well-placed to manage interest rates increases over the next year, which are expected to be quite moderate.”