With affordability at its lowest level on record, first-home buyers have to think outside the square.
The home-ownership dream rarely used to feature a sibling in your bathtub and a parent on your certificate of title. But these days, first-home buyers are prepared to be flexible.
Housing affordability fell to record lows in the March quarter this year according to the latest Housing Industry Association-Commonwealth Bank report. Mortgage payments now account for 30.7 per cent of total first-home buyer income!
Generations X and Y are also settling down later meaning for many home ownership is a solo battle.
It’s not surprising then that increasing numbers of first-home buyers are teaming up with siblings, parents or friends in a bid to break into the property market.
“There has been a noticeable trend towards family members buying property together, as property prices are still very high, particularly for first-home buyers,” says Aussie Home Loans boss John Symond.
The number of family members taking out mortgages together has jumped from about 1% of all loans originated by ‘Aussie’ to 5 per cent over the past two years! Mortgage Choice has reported a similar trend. A survey carried out by the company last year revealed more than 6 per cent of people who bought property within the past two years had done so with family or friends. And of those who intended to buy property within the next two years, more than 8 per cent intended to do so with family or friends!
Melbourne’s outer suburb vacancy rates have improved from 0.7 per cent to 1.8 per cent in the past six months, according to the Real Estate Institute of Victoria’s April vacancy rates.
The vacancy rate across Melbourne is reasonably steady having been between one and 1.4 per cent for 12 months. However it‘s significant that there’s a recorded improvement in the outer suburbs.
The improvement could be due to the number of first homebuyers that are moving from their rented accommodation into their own home with the assistance of the grants, bonus and boosts.
The March quarter median prices showed that most of the activity in the marketplace has been in the outer suburbs; for instance Craigieburn, Melton South, Hillside, Epping, Caroline Springs, Werribee and Meadow Heights – all outer suburbs of Melbourne popular with first homebuyers.
It‘s great news for renters if a by-product of the grants, bonus and boosts is an improvement in the availability of rental accommodation, however monitoring of the situation over the next few months to will tell of continual improvement..
We would consider that the rental market would be in balance once we reach a Melbourne-wide vacancy rate of three per cent.
In the last month the figures from our REIV members have shown a very minor change in the inner suburbs where the vacancy rate moved from 1.5 to 1.3 per cent and in the middle suburbs where it moved from 1.4 to 1.3 per cent.
It’d seem the stars are aligned: low rates, population growth, low vacancy rates, strong rents and a shortage of housing in most capitals.
Since late 2008, the number of loans to first home buyers has outweighed substantially those to existing owner-occupiers and investors as first-time buyers rush to take advantage of the increased government grant. These numbers are set to surge in the next two months after the Prime Minister indicated that the increased grant will end June 30. In previous interest-rate cycles, lending to investors and existing home buyers increased alongside that to first-home buyers.
Part of the reason is that investors are not getting the first-home-owner grant, and when you have to lay your own money down instead of the government’s, you tend to think more carefully before deciding to take the plunge. Unemployment concerns and fears about how the economy will evolve this year are also key reasons why investors are not yet entering the market.
Consumer sentiment figures released earlier this month by the Westpac-Melbourne Institute Survey found pessimists still outnumbered optimists and, with the prospect of more unemployment, that’s unlikely to change soon.
Interest rates are one of the crucial aspects investors consider. During the past month or so, several of the big banks have increased their fixed mortgage rates, even though variable rates are expected to go even lower.
Banks say it’s because of an increase in the rates in the wholesale market where they access funds. Not everyone accepts that that is the reason, but most acknowledge it’s a signal borrowing costs are near their lowest levels!!
Some economists believe fixed rates will continue to rise as banks manage their risk, and it’s just a matter of the speed at which it happens. Of course, fixed rates are not popular at the moment even with investors who traditionally use this option.
That’s not a surprise, given the cash rate is expected to fall to 2 per cent by the end of the year.
But fixed rates are a bit of a barometer of the longer term trend in interest rates, so they are worth watching. It also pays to remember that just because the Reserve Bank of Australia cuts rates, that doesn’t mean banks have to follow suit.
Only time will tell whether property buying will be better next year.
Perhaps investors are waiting for a sign that unemployment will stop rising, or for first-home buyer activity to dry up!
The value of Aussie homes increased in the first quarter, bucking a global trend downwards, according to a recently issued report.
House and flat prices in Australia increased in value by 1.6% in the first three months of the year, helped by a scarcity of supply, lower interest rates and incentives to first-home buyers.
The slight recovery in Australia “has been driven by the 40% fall in home loan rates to 5.7%, which are now at their lowest levels since July 1968!”
March’s three-month gain follows a 0.1% rise in the three months to February in the RP Data-Rismark’s national dwelling value index, and a 3% fall in the value of capital city homes in 2008.
The strength of Aussie home prices is a world away – so far – from the 2.7% drop in British home prices over the first quarter, capping a year to March 17.5% plunge.
US housing didn’t fare that much better, with prices in the top 20 cities sinking 1.9% in February, which brought the 12-month fall to 18.6%, according to the most recent S&P/Case-Shiller index, a widely followed measure.
RP Data-Rismark said the first-home buyer’s grant, which ends June 30, has acted like a catalyst for new home buying in Australia, but lower interest rates are sustaining the market’s growth.
Increasing rents have boosted the housing component of the Consumer Price Index (CPI) by 0.9 per cent for the quarter and the overall annual increase to 5.5 per cent, that’s according to Australian Bureau of Statistics (ABS) figures released this week.
The CEO of Real Estate Institute of Australia has said, “The majority of this increase in the housing component was driven by rents, which increased nationally by 1.7 per cent over the quarter and 8.4 per cent over the year. The cities where rents increased the most were Perth and Darwin with annual increases of 10.9 per cent and 13.5 per cent respectively!”
This rent increase in the recent quarter reflects low vacancy rates and the scarcity of rental properties across capital cities, combined with the decrease in building approvals and housing finance for investment.
The National Rental Affordability Scheme should hopefully relieve this figure, however the impact won’t be felt for quite some time.
“With underlying demand for additional housing at around 200,000 dwellings per year and commencement of new dwellings of 147,000 in 2008, Australia will need to build significantly more houses than what has occurred to meet rental demand.”
Whilst housing affordability improved since the Reserve Bank rate cuts, there’s really been very little flow-on benefit to those in the rental market.
“With lower interest rates and greater affordability, now would be an almost perfect time for those in the rental market to consider the purchase of their own home.”