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Why time could be ticking on the first-home buyer boom

ASSA | 2021-03-11 09:40:31

The latest ABS data shows that the value of lending to first-home buyers increased by 73.2% over the 12 months to January 2021, reaching an historic high value of $7.2 billion in lending over the month.  

The year-on-year increase in lending to first-home buyers has been much greater than the 22.7% increase in lending to investors and the 44% increase in lending to non-first-home buyer owner-occupiers. 

The federal government announced the HomeBuilder scheme in June last year, which has certainly contributed to the surge in first-home buyer demand. Since the announcement of HomeBuilder, the value of lending to first-home buyers has increased by 86.8%.

However, the $25,000 grant was reduced to $15,000 at the beginning of 2021 and the scheme is currently scheduled to finish at the end of March 2021. 

HomeBuilder is not the only contributor to the rise in first-home buyer activity in the market. Most state governments have some type of incentive for first-home buyers, borrowing costs are at historic lows and international borders have seen dreams of overseas holidays dashed, leading some Australians to use their savings to buy property instead. 

HomeBuilder is nearing its end

While first-home buyer volumes have undoubtedly strengthened, one of the challenges for this market is that at any given time there is only a finite number of potential first-time buyers. 

Of course, there is also a finite number of upgraders/downgraders and investors in the market at any given time, but each of those cohorts already has ownership of property and greater ability to purchase another one. 

First-home buyers on the other hand are more reliant on conditions that make it easier for them to enter the market, such as government grants like the HomeBuilder scheme. 

Given this, the end of HomeBuilder will likely see a significant reduction in first-home buyer numbers. 

For first-home buyers sitting on the fence about whether to purchase a home or not, the opportunity to access HomeBuilder is closing fast.  

The federal government’s HomeBuilder scheme is scheduled to finish at the end 31 March 2021. 

Another consideration for first-home buyers is what is likely to happen to property prices and the cost of constructing a new home, which many first-home buyer grants are linked to, over the coming months. 

Property prices are increasing throughout the country rising by 5.9% over the 12 months to February 2021.

With borrowing costs set to remain low for several years, it seems likely that property prices are going to continue to rise with the rate of growth potentially accelerating, which means first-home buyers may have to pay more to enter the market. 

First-home buyers could soon be priced out of the market. Picture:

HomeBuilder has also led to a strong pipeline of new construction and work for tradespeople. This may also lead to increases in the price of constructing a new home. 

Investors are coming back

Finally, the volume of borrowing from investors has been trending higher over the past year, just not as substantially as the lift in lending by first-home buyers. 

Investors and first-home buyers often compete for similar housing stock and once HomeBuilder is removed, it is likely investor lending will continue to climb while lending to first-home buyers falls away.