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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. These days though, 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 accounting for 30.7 per cent of total first-home buyer income these days!
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’s 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, over 8 per cent intended to do so with family or friends!
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Home buyers are flocking back to variable rate mortgages which now account for 91% of the residential lending market, their highest proportion in four months.
Mortgage broker Mortgage Choice reported in April basic variable mortgages accounted for 48.15 per cent of all home loans approved - up nearly one per cent from March, while standard variable mortgages comprised 42.77 per cent of the market, down 1.47 per cent from March.
Basic variable loans generally have fewer loan features than a standard variable loan.
Fixed rate loans accounted for four per cent of all approvals up a percentage point from a month earlier.
Basic variable loans have been the most popular loan type though for four months after overtaking standard variable for the first time in January 2009!
Rates charged on variable home loans move in line with interest rates as set by the Reserve Bank of Australia (which has successively cut its overnight cash rate since September last year to a 49-year low.
And despite interest rates being at their lowest in decades, the sensitive global and domestic economic climate is having a strong influence over loan product preferences.
Consumer conservatism with rates and fees continues to win out against loan flexibility and extra features.
Line of credit loans in April, popular with property investors, posted a fall, five per cent down from the previous month.
Commitments for owner-occupied housing rose 4.9 per cent in March, seasonally adjusted, to 59,793, Australian Bureau of Statistics data showed this month.
Total housing finance by value rose 6.7 per cent in March, seasonally adjusted, to $20.688 billion, based on the latest data available.
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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.
Vacancy rates across Melbourne are reasonably steady having been between one and 1.4 per cent for 12 months. However it‘s significant that there’s a noted improvement in the outer suburbs.
The improvement could be due to the number of first homebuyers moving from their rented accommodation into their own homes 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 very popular with first homebuyers.
It‘s great news for renters if a by-product of the grants, bonus and boosts is an improvement in availability of rental accommodation, however monitoring of the situation over the next few months will tell of any continual improvement..
We’d consider that the rental market would be in balance once we reach a Melbourne-wide vacancy rate of three per cent.
The last month’s REIV members figures 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.
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It’d seem the stars are aligned: low rates, population growth, low vacancy rates, strong rental market and a shortage of housing in the majority of capital cities.
Since the latter 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.
Partly, the reason is that investors aren’t getting the first-home-owner grant, and when you’re laying 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 anytime 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’re 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 can tell, whether or not 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!
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The value of Aussie homes increased in the first quarter, bucking a global trend downwards!
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 down 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 Australian housing 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 too much better either, 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, ending June 30th, has acted like a catalyst for new home buying in Australia, but lower interest rates are sustaining the market’s growth.
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Increasing rents 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 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 an 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.”
Housing affordability improved since the Reserve Bank rate cuts,although 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 the time for those in the rental market to consider the purchase of their own home.”