Tick tock – is time running out for first home buyers?

Is time running out for first home buyers?

The housing affordability crisis in Australia is getting worse. In Sydney and Melbourne, the best suburbs for first home buyers have become increasingly unaffordable. First home buyers have the least amount of time to save for a deposit compared to other groups. In Sydney, a first home buyer has 14 weeks to save for a deposit, whereas a couple with two incomes has 35 weeks. That doesn’t even include the financial consequences of a delayed mortgage payment, which are devastating for many first-time buyers.

The first home buyer market had a bumper year in 2020 due to modest declines in property prices, reduced investor activity, and a range of government incentives. But with those advantages tailing off, how will first home buyers compete in 2021?

Another week, another big bank tipping national property prices are set to boom.

This week it was Westpac’s turn, with their senior economist tipping property prices to increase 10% in 2021 and another 10% in 2022.

This follows AMP predicting a 5-10% property price increase in 2021, and Commonwealth Bank expecting house prices will increase by 9% in 2021 and 7% in 2022.

Meanwhile, auction clearance rates are high – in the 80% plus range, according to CoreLogic.

So is time running out for first home buyers?

Not at all, but it sure won’t get any easier as property prices increase throughout the year.

Furthermore, the federal government’s HomeBuilder scheme is set to finish at the end of March.

The scheme provides buyers with $15,000 grants to build or substantially renovate homes that are generally in the first home buyer price range.

With the above in mind, the REA Insights Property Outlook Report 2021 states that ‘first home buyers are set to moderate in 2021’.

“In 2021, it is unlikely first home buyers will continue to be as active as they were. Prices are moving quickly; investors are coming back and any incentives available to first home buyers are likely to be eased,” the recently released report says.

The REA adds that first home buyers tend to be more active in slower markets when they can take their time.

But with savvy property investors returning to the market, this can add pressure to first home buyers.

“Investors and first home buyers frequently target the same sorts of properties at similar price points,” explains the report.

So what can first home buyers do to compete in 2021?

Rest assured there are a number of strategies first home buyers can employ to crack the property market in 2021.

With competition for properties heating up, it’s important to have your ducks-in-a-row when it comes to finance before you start looking.

This can help you find properties within your price range, identify any additional costs you may not have factored in yet, and make an offer while your preferred property is still available.

It’s also worth noting that the federal government is set to release another 10,000 spots in its First Home Loan Deposit Scheme on July 1, which can help you buy your first home with a deposit of just 5% without having to pay lenders mortgage insurance (LMI).

Another consideration is shifting the focus of your property search – whether that be the location or property type.

For example, house prices are predicted to grow a lot quicker than apartment prices this year.

So if you’re not quite ready to buy just yet, and it appears that properties are rising quickly out of your price range, consider that the apartment market should move more slowly.

What does the future hold for first home buyers?

In the future, first home buyers could be able to buy a home with little money down and no mortgage repayments for a period of time, says Dr. Shane Oliver, Chief Economist at AMP Capital and Head of Investment Strategy and Economics at AMP Capital Investors. Oliver believes demand will start to loosen up in the second half of 2021 because the construction sector is expected to slow down to a crawl by September or October at the latest. As construction picks back up, and with the number of properties available for sale starting to inch back up, first-home buyers will likely be able to turn to smaller, more affordable homes — which will mean they’ll have more equity to get out of their mortgage quicker.

Despite concerns that the coronavirus could cause a supply shortage and prices could fall, Chief Economist Sherry Cooper-Reinier’s forecasts that first home buyer demand for this year will be solid. “The proportion of first-time buyers is expected to have actually increased over the current year as a result of rising median home sale prices,” she says. “With rising employment, higher wages and record low interest rates, the mix of buyers currently available has been shifting towards those with more disposable income.”

The report also shows that the digital native demographics that were once considered crucial to a booming real estate market are beginning to cannibalize themselves. Despite being a vital source of demand, Asian Pacific buyers have dropped from 29.8% of the market to 27.7% in the last three months of 2019. For Americans, the share has dropped from 46% to 42.8% in the same time. On the other hand, Black and Hispanic buyers have increased from 12.2% to 13.9%.

This dump in Asian and Black-owned demand has negatively impacted other demographics as well, with Black Americans now coming in second to Hispanic Americans when looking at their preference for first houses.

How can you make sure that you are getting a good deal on your property purchase?

When you’re looking for the right place to buy property or perhaps make an offer on a property, the first thing you need to know is the cost of the property. While numerous other countries have seen their housing markets boom and bust, one key difference in the Australian market has been the huge capital gains and the lack of appreciation — with real estate having appreciated by a total of 254% since 2001 (for context, the median home price in Australia in 2019 was $664,000, compared to a US price of $438,000 for a similar home, according to the National Association of Realtors (NAR).

In other words, home buying in Australia is very different from what we’re accustomed to in the US or rest of the developed world. Prospective home buyers often don’t get the appreciation they’d expect, and are looking at desultory returns even after taking into account inflation.

First home buyers, therefore, are facing an extremely tough market — one that is only expected to get worse as high net migration that was expected to flow into the country only fuels an overheated market. The lack of supply (as we’ve seen in the US) combined with high demand (from both foreign buyers and people looking domestically) has driven up the prices of houses and apartments, including houses already owned. The Wall Street Journal recently explored the issue in depth, noting that “first-time buyers have the highest debt burden of all, and a low percentage of pay down that debt.”

Experts warn that the issue will only get worse before it gets better:
The increased focus from taxpayers on the need to address affordable housing appears to have cooled sales. However, SIGREX reported that high third-party debt in the first quarter of 2020 led to the highest intake of empty homes of any quarter since the start of the housing downturn.

Get the ball rolling today

If you’d like to discuss more options when it comes to obtaining finance to pay for your much-anticipated first home, get in touch with us today.

As mentioned above, the more prepared you are when it comes to financing your first home, the less stressful the whole buying process will be.

At Premium Finance Group Australia, we offer personal, car, business, SMSE, and home loans, we also have the most competitive rates on the market.

To find out more, give us a call on 07 4720 8888 or reach out through our contact form at https://www.premiummortgage.com.au/contact-us.