The Experts

First home buyers are back – in large numbers! 

New figures from Australia’s largest mortgage broker, AFG show a surge in first home buying in July as rising rents, decreasing interest rates and good value buying create a compelling environment for young people to purchase. 

The interest rate factor plays a huge role in young people’s decision to purchase.  According to the Reserve Bank, the home loan rates on offer today are about 50 basis points below their 15-year average. That’s seriously cheap money for young people on tight budgets. 

And then there’s rising rents, with RP Data’s latest numbers showing a 3.3% increase in weekly rents across the capital cities over the first seven months of the year alone. When rents keep getting higher, people start getting their calculators out to compare the cost of renting vs. buying. 

A surge in first home buying is an important indicator for the broader market too, and here’s why.  First home buyers are arguably the most cash-strapped budget buyers in the market. They’ve often spent years saving a deposit and have no assets to leverage from.  As a result, we don’t see a huge number of them unless market conditions are very favourable. When first home buyers start buying in droves, it tends to impact the other sectors of the market with a cascading effect.  

Check out these stats. AFG (Australia’s largest mortgage broker) reports that first home buyer activity on a national level increased by 1.7% from 15.6% to 17.3% in July.  Now 1.7% might not sound like much, but it shakes out to be an additional 172 first home purchases in just four weeks – and this is only AFG customers.  At 17.3%, this is the highest level of first time buying in two years.

In New South Wales, the July surge is even more significant at 3.5%, up from 10.9% to 14.4% in just one month. In addition to national factors such as rising rents, good value buying opportunities and lower home loan rates, I think NSW buyers are also being driven by the October 1 deadline for the First Home Owner Grant. 

In NSW, the $7,000 benefit is available to first home buyers of established properties under $835,000. Earlier in the year, the State Government announced it was abolishing the grant in favour of enhanced incentives for first home buyers of newly-built or off-the-plan properties. No doubt, the loss of this critical incentive that has been available for more than a decade has got many young buyers in NSW into gear. 

The state with the highest proportion of first home buyers in its market is Western Australia. 
At 22.7%, this is about as high as it gets. First home buyer activity in WA has been strong all year but this is the highest level we’ve seen for a long time. In June 2011, it was as low as 13.3%. I’d say rising rents are probably the No 1 factor, in addition to lower interest rates, prompting young WA buyers to act. RP Data reports that Perth rents have risen by an incredible 13.7% since January, which is remarkable stuff and two-and-a-half times the increase in Darwin, where the second biggest rise in rents has occurred at 5.4%. 

Here’s a brief snapshot of first home buying nationally and in the big states from AFG. 

National – 17.3% in July, up from 15.6% in June 
NSW – 14.4% in July, up from 10.9% in June
VIC – 21.7% in July, up from 19.5% in June 
WA – 22.7% in July, up from 22.2% in June
QLD – 13.8% in July, up from 13.5% in June