MARKET REVIEW

First homeowners are becoming an increasingly important factor in the residential property market. That’s good news for developers and good news for the property market generally.

Property prices in Sydney and Melbourne rose sharply again in November 2019. In fact, the median Sydney dwelling price registered its best growth since 2003, lifting an incredible 2.7%. Melbourne’s median price wasn’t far behind, also rising an impressive 2.2%.  All up, this means Sydney and Melbourne property prices have grown an average of 6.2% and 6.4% respectively in the past three months.

This kind of growth may be reminiscent of the 2015-to-2017 property market boom (between March 2016 and July 2017 alone Sydney property prices rose 19.4%). However, one factor that separates the current growth cycle from that one, is the composition of buyers in the market.

During the previous boom, much was made of first home buyers being locked out of home ownership as housing affordability became a serious issue. Today, the data shows a very different story.

The REIA Housing Affordability Report for the September 2019 quarter found that the total number of new loans to first home buyers rose 13.6% over the September quarter compared to a rise in loans generally of 10%. It also found the percentage of first home loans to all loans stands at 29.4% – the highest percentage since December 2011.

The key reason for this is that buying a home is now more affordable than it has been for some time. Successive interest rate cuts and increased competition among lenders has made borrowing cheaper. Meanwhile, falling prices mean buyers need to outlay less too. As a result, the REINSW report the proportion of average income needed to meet average home loan repayments had fallen to 36.2% in NSW and 32.2% in Victoria.

This is welcome news for developers. First home buyers are a natural target for new developments, and Government incentives such as the NSW and Victorian first home owner grants actively encourage first home buyers into newly built properties.

We expect the trend to continue well into 2020 as the Commonwealth Government’s First Home Loan Deposit Scheme comes into effect – encouraging even more first home buyers onto the property ladder.