First timers add to the optimism

By Terry Ryder, 14th January 2012

One cause for optimism about the housing market in 2012 – one of many – is the return of first-home buyers in large numbers.

The growing body of anecdotal evidence from mortgage brokers, who are reporting big increases in inquiry from first-time buyers, is now being confirmed by official data.

October delivered the largest number of borrowers entering the market in almost two years, according to Australian Bureau of Statistics figures. October was the seventh consecutive month with rising numbers of loans to home buyers.

ABS figures also show that first-home buyer numbers rose 22.5 per cent in the 12 months to October.

This is significant because it all pre-dates the interest rate cuts in November and December.

Damian Smith, CEO of financial comparison website RateCity, says the first-home buyers' market is still a long way from the highs of 2009 – when a combination of low interest rates, competitive prices and government incentives encouraged first-timers and many others into the market.

But Smith suggests the latest interest rate cuts and the recent fall in home prices in many locations – and average of 4 per cent across the nation in the past 12 months - may put some impetus under the latest upturn.

"First-home buyer numbers have been increasing for the past three months, with the October figures reaching the highest we’ve seen for over 20 months, since December 2009,” he says.
 
It’s the trend that is important – and most of the residential real estate trends point to much stronger markets in 2012.

As I have often written in this column, the influence of first-home buyers is over-rated by many commentators who seem to see them as the core element of the residential property sector.

I see them as one factor among many and far from the most important. Even at their peak in 2009, first-home buyers comprised only a quarter of sales.

Change-over buyers – home buyers other than first-home buyers – are far more numerous and more influential in terms of pressure on prices.

Of all the types of buyers in the market – first-home, change-over, investor and foreign buyers – change-over buyers are the ones with the financial capacity and motivation to pay top dollar for a home.

Strangely, they are never discussed in debates about why are our property prices rise. Everyone else in the mix gets blamed but the biggest factor is the activity of home buyers other than first-home buyers.

So, the rising tide of first-timers is not the key driver but is one of a number of factors that point strongly to rising markets this year.

Financial commitments have been rising month by month, interest rates have been cut twice and we have the greatest upturn in resources activity in the history of the nation just getting started.

Economists, who put much of their energy into identifying negatives so they can predict something dire, have made Australians fearful about events in Europe.

Everyone seems to be talking about Europe although few can articulate why it matters to Australia.

The greatest potential problem I can see is a drying up of funds for home lending, but senior Australian bankers like ANZ CEO Mike Smith say they have sufficient liquidity to avoid any credit squeeze experienced on the other side of the world.

In 2009, while the world was in crisis and economists were predicting recession, double-digit unemployment and a collapse of our home values, Australian property markets rose strongly as buyers of all types took advantage of the lower prices and the successive interest rate cuts.

The government incentive element was over-rated at that time. Three-quarters of buyers in the market were not first-timers and so were receiving no grants or stamp duty concessions from federal and state governments.

We have similar conditions in 2012 and I see a positive year for residential real estate.

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