First home buyers bouncing behind
EVER felt like a dog chasing its tail, going around in circles but never catching up with your objective?
If you’re a wannabe first home buyer, especially in Sydney and Melbourne, you’ve probably got that feeling right now.
Just when significant property price falls of around 15 per cent in Sydney and more than 10 per cent in Melbourne gave some prospective purchasers a sniff of breaking in, those markets turned around and launched higher again.
In fact, the last three months of 2019 saw the fastest quarterly property price growth in a decade, according to CoreLogic’s numbers.
Nationally, home prices rose 4 per cent during the fourth quarter, with increases of more than 6 per cent in both Sydney and Melbourne.
While Sydney and Melbourne, as well as the national average, are still below their 2017 peaks, at the current pace of growth those record price levels are set to be broken by March this year.
Data on vendor asking prices for houses from SQM Research also has them back around record levels, with Sydney again above $1.3 million and Melbourne above $1 million.
The situation is even worse for those hoping to live somewhere close to the major cities’ CBDs, with Melbourne’s inner-east and Sydney’s inner-west leading the price rises over the past year, while other inner-urban and more prestigious suburbs filled out the remainder of the top 10 highest annual growth rates.
From a personal perspective, the 8.8 per cent jump in prices across Sydney’s inner-west over the past year means I would no longer be able to afford the home I purchased and moved into late last year.
I wasn’t the only first time buyer taking advantage of the downturn to get into home ownership — with new first home buyer loans averaging close to 10,000 a month over the past couple of years, the highest numbers since peaks of up to 17,000 seen during the Rudd government’s first home buyer boost payments from late-2008 to late-2009.
But many others, who weren’t fortunate enough to be in a position to buy while the market was down, are again finding themselves locked out of locations with good access to transport, amenities and jobs … or simply priced out of home ownership altogether.
These prospective buyers have been hit with a triple whammy of factors good for those who already own property, but bad for those wanting to buy — lower interest rates, looser mortgage lending restrictions and the retention of negative gearing and the 50 per cent capital gains tax discount.
Let’s go through each. The absence of a change in federal government and, therefore, in these property related taxes has drawn more buyers into the market, including a return of investors who had largely been on the sidelines ahead of the election.
Having more than halved from May and June 2017 to a record low of $4.12 billion in January 2019, the value of new investor loans had partially recovered back to $5.46 billion in October.
More buyers generally equals higher prices, especially when there’s limited stock on the market.
While looser lending restrictions would seem to make things easier for first home buyers, they too have contributed to the rise in prices by allowing people to borrow and offer more.
Those with existing home equity are better able to take advantage of this rise in borrowing capacity because the value of their existing assets is also rising, meaning they have enough security to be able to access a bigger loan.