First Home Buyers Continue to Struggle

July 20th, 2016
The number of first-home buyers in Australia has reached its lowest level in over a decade, according to new figures from the Australian Bureau of Statistics (ABS). After years of sustained slowdown, first-home buyer numbers are now sitting at just 13.9 percent as a proportion of all home buyers, the lowest level since March 2004. Despite tough conditions for new buyers, the market is showing some signs of cooling, with lower demand and increased supply likely to lead to price drops over coming months.

According to the ABS, first-home buyer numbers dropped to 13.9 percent from 14.4 percent in April, only slightly higher than the record low of 12.8 percent recorded in 2004 when first-home buyer grants came to an end. While investment in housing is far from the booming highs of 60 percent seen during 2015, with $12.96 billion of property investment loans approved over May, it's at the highest level since July last year.

According to BIS Shrapnel senior manager of residential Angie Zigomanis, potential home owners should be lowering their expectations as well as waiting for prices to drop: “A drop in prices of some sort is needed, but we’ll also need a reduction in expectations in terms of what [first-home buyers] are looking for ... At some point they have to come back, in theory … but for now the market is tough.”

An overall market slowdown may be on the cards, however, with property prices forecast to fall over the next three years according to a recent BIS Shrapnel report. Median house prices in Sydney, Melbourne, and Perth are expected to drop 1 percent over the next three years, with Adelaide and Darwin leading the slowdown with price drops of 2 percent forecast by June 2019. While low interest rates seem set to continue, an oversupply of new homes is causing cooling conditions along with weaker investor demand and lower population growth.

BIS Shrapnel has forecast an extra 24,039 homes above what are needed in 2017, meaning Australia will be oversupplied for the first time in more than a decade.

While NSW will still experience under-supply with a shortage of 41,031 homes, Victoria will have 21,881 too many dwellings in 2017. With supply levels set to exceed demand in most capital cities, rental values are likely to decline over the next year or two. Property prices are already slipping in many capitals, with the average residential dwelling price dropping 0.2 percent during the March quarter after similar falls in December.

While Sydney may experience a price revival due to high levels of demand and low supply, growth this year is far below the levels seen in 2015. According to Cameron Kusher, senior research analyst from CoreLogic RP Data, “we’re well below the peak of July last year”. Home lending figures are also down on a long-term basis, with overall lending figures slowing from the frenzied levels of 2015. According to HSBC chief economist Paul Bloxham, “We’re seeing a pullback in [housing finance] that has been going on since late last year, which is consistent with the idea that the housing market is set to cool." If you're ready to enter the property market and take advantage of cooling conditions, it's important to get advice from a professional mortgage broker.