28 February 2020
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First home buyers abandon the market

Craig James
22 May 2013

Consumer confidence; Housing Finance

Home loans down: The number of new owner-occupier housing loans fell by 1.5 per cent in January, the fourth straight decline. The number of loans stands at 16-month lows.

First home buyers: In January, 14.9 per cent of loans were taken up by first home buyers. In NSW there were just 773 first home buyers in the month, the lowest level in 31 years of records.

Consumer sentiment: The Westpac/Melbourne Institute index of consumer confidence rose by 2.0 per cent to 27-month highs in March.

Banks in favour, but shares up: In the March quarter, 34.0 per cent of consumers believe that the wisest place for new savings is in the bank. But the biggest improver was shares with 8.6 per cent believing that the best place for new savings was to invest it in the sharemarket, up from 6.4 per cent in the December quarter.

What does it all mean?

In theory, the switch in eligibility of first home buyer grants from existing properties to new homes made sense. The idea was to encourage building of new properties. In practice, it hasn’t worked – at least not yet. First home buyers have shown a lack of interest in building their first home, preferring to rent or buy an established property.

In part it is a timing effect – the new homes (houses or apartments) must be planned and built. And if first home buyers don’t elect to build new homes themselves, they must rely on investors or developers to do so. The question is whether investors or developers are sufficiently interested in building new houses or apartments to market to the first home buyer segment.

You would expect low interest rates, government grants and improved confidence to eventually lead to more homes being built. But the timing is uncertain, and that makes it difficult for builders and material suppliers.

It is hardly rocket science. Interest rates are stable, the Aussie dollar is healthy and both share prices and home prices are rising. Add in the absence of bad news from abroad and lo and behold Aussie consumers are more optimistic. The mistake made by analysts in recent months has been to expect that rate cuts would lift confidence. But with depositors outnumbering borrowers, the best news for consumers of all types is for interest rates to be left on hold. Two months of stable rates and confidence is up almost 10 per cent.

What do the figures show?

Consumer sentiment:

The Westpac/Melbourne Institute index of consumer sentiment rose by 2.0 per cent in March to a 27-month high of 110.5. The index is up 15.1 per cent over the year – the strongest annual growth in almost three years.

The current conditions index rose by 0.4 per cent, while the expectations index rose by 3.2 per cent.

Four of the five components of the index rose in March:

  • The estimate of family finances compared with a year ago rose by 3.9 per cent;
  • The estimate of family finances over the next year rose by 3.1 per cent;
  • Economic conditions over the next 12 months rose by 0.8 per cent;
  • Economic conditions over the next 5 years rose by 6.0 per cent;
  • The measure on whether it was a good time to buy a major household item fell by 1.6 per cent.

Consumer confidence across states: In original terms, the readings in March were NSW 113.4 (up 2.0 per cent); Victoria 112.1 (up 6.2 per cent); Queensland 99.9 (down 4.0 per cent); Western Australia 113.9 (down 7.5 per cent); South Australia 108.1 (up 8.1 per cent).

Gender & demographics: Men (index reading of 115.1, up 0.3 per cent) remain more optimistic than women (106.1, up 4.2 per cent). Young people (18-24 years) were more optimistic in March (index up 8.5 per cent to 134.9). Across the other demographics: 25-44 years, (index 113.2, up 5.1 per cent); 45 years plus (index 104.2, down 1.7 per cent).

By home ownership status: Confidence amongst tenants rose by 1.2 per cent; confidence by those who own their homes was up 3.0 per cent; while confidence levels by those paying off home loans rose by 3.0 per cent.

Homes & Cars: The “time to buy a dwelling” index rose by 1.6 per cent in the March quarter to 144.5. The “time to buy a car” index rose by 2.9 per cent in the March quarter to 142.5.

Wisest place for savings: Banks remain the wisest place to put new savings according to the survey. But while 34 per cent believe the wisest place for savings was in the bank, the result was down 0.9 percentage points (pp) over the quarter. Next highest was real estate (21.3 per cent, down 2.7pp), followed by Pay Debt (18.0 per cent, down 1.4pp), and shares (8.6 per cent, up 2.2pp).

Housing Finance:

The number of new owner-occupier housing loans fell by 1.5 per cent in January – the fourth straight decline. Excluding the refinancing of dwellings, loans were down 1.9 per cent in January. The value of loans rose by 1.3 per cent (excluding refinancing, up 1.6 per cent).

The number of loans for the construction of homes fell by 0.2 per cent and the value of loans fell by 3.5 per cent.

The number of loans to buy newly-erected dwellings rose by 2.3 per cent and the value of loans rose by 3.0 per cent.

The number of loans for the purchase of established dwellings fell by 1.9 per cent but the value of loans was up by 1.8 per cent.

The number of refinancing transactions fell by 0.7 per cent but the value rose by 0.6 per cent.

The value of new housing commitments (owner occupier and investment) rose by 2.4 per cent in January, the first rise in three months. Owner-occupier loans rose by 1.3 per cent with investment loans up by 4.4 per cent.

The proportion of first home buyers in the market was steady at an 8½ year low of 14.9 per cent in January. Fixed rate loans fell from 13.6 per cent of all loans to 12.2 per cent in January. And the average home loan across Australia stood at $307,100, up 3.7 per cent on a year ago.

Why is the data important?

Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.

Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.

What are the implications?

NSW and Queensland will need to re-visit decisions to change first home owner grant schemes.

Gen Y aren’t as keen as their parents were on buying or building homes with many preferring to travel and change jobs rather than being stuck paying a mortgage for 30 years. It is up to builders, material suppliers, governments and policymakers to better understand the changes occurring in the housing market.

If developers or investors build homes for the first home buyer segment they will need to do their homework very well to ensure the right type of homes are built where buyers actually want to live.

There is no pressing need for the Reserve Bank to cut rates at present.

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