Property Cycle and how it affects first home buyers
We are informed today that “first-home buyers hit lowest level in a decade, price falls ‘needed’”, probably not surprising news particularly if you understand the property cycle and how it affects first home buyers.
Data released on Monday shows that first-home buyers are now at their lowest levels in the last ten years. First-home buyers dropped to just13.9 per cent in May, according to the Australian Bureau of Statistics. We have questioned before, the accuracy of these figures and perhaps the definition of “first home buyer’ being used by the ABS.
How do the ABS know who is and is not a first home buyer? The obvious and easiest measure of course, is just to look at the number of people claiming the first home buyer’s grant. Our feeling is that these are the figures that are being represented here. Otherwise, how do we know that the $800,000 house or unit being sold in your street is to a first home owner? As the property is not brand new and is over the first home owner’s grant price limit, the new buyers will not be applying for a first home owner’s grant. It would also appear that most first home buyers actually purchase a second hand property and so disqualify themselves from the grant.
Affordability for first time buyers is cyclical
So, what about the property cycle and how it affects first home buyers? Isn’t it going to be pretty obvious that if house prices are at their highest peak then fewer first home buyers can afford to enter the market? The first home buyer market collapsed in Sydney back in 2004 and didn’t really start to recover until around 2007 or later. This was the few years after the huge 140% rises in the housing market we saw between 1996 and late 2003. At that time, Sydney with a median price of around $510,000 was just seen as totally unaffordable. As time went on, after the GFC we saw the lowest interest rates in living memory, a NSW surge in employment and growth, we saw an average 21% growth in income from 2003 to 2009 resulting in a Sydney property market that was relatively affordable again. We all know what has happened to Sydney property prices since 2010.
Now we are back to the days after the last boom. Property investors are looking outside of Sydney to buy their next property investment and first home buyers find it just too expensive to enter the market. It’s all part of the same continuous cycle.
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