First home buyer trends

Posted on 19/11/2011  

The good news for real estate is that trends were turning positive before the Melbourne Cup day interest rate cut.

Finance commitments to buy homes have risen for six consecutive months and there is evidence of increasing numbers of both first-home buyers and investors. One mortgage brokerage has declared: “First-home buyers are back - and are now the dominant section of the market for inquiry.”

This is based on data in September and October, before the Reserve Bank’s cut to the official rate – passed on in full by all the major lenders except the NAB.

The trend for housing finance was negative until March but since then the graph has been rising steadily. The number of loan commitments to buy owner-occupied dwellings has risen from 47,000 per month to 52,000, with a further rise 2.2 per cent in September.

According to the latest AFG Mortgage Index, first-home buyers and investors are returning to the market at the greatest rate since September 2009.

First-time buyers comprised 16.4 per cent of all loans processed in October – a big jump for this buyer category compared to October 2010 (11.8 per cent).

First-home buyers were particularly active in New South Wales, where they were 21.1 per cent of the mortgage market in October, Queensland (17.9 per cent) and Western Australia (17.3 per cent).

They were particularly active in NSW, where 21.1 per cent of home loans were arranged for them in October, as well as QLD (17.9 per cent) and WA (17.3 per cent).

More mortgage buyers opted for fixed rate loans in October than in any month since March 2008.

Fixed rate loans comprised 20.4 per cent of all home loans processed in October, says AFG, a stark change considering they were just 7.9 per cent of home loans as recently as July.

This reflects the impetus real estate can get from competitive interest rates – with lenders competing strongly in recent months by offering reductions to interest rates for fixed-rate loans. That bodes forb markets following the 1 November cut to the official rate.

The rising tide of investors and first-home buyers has been also detected by brokers Loan Market, which says these segments have dominated housing finance inquiries recently.

Inquiries from first-time buyers have hit their highest level in two years – representing 51 per cent of total inquiries.
Loan Market chief operating officer Dean Rushton says first-timers were prominent in every state and territory.

In Tasmania (were Hobart is the cheapest capital city market) they accounted for 71 per cent of inquiries.

“After a few years of hibernation, first home buyers are back and are now the dominant section of the market for enquiry,” says Rushton. “The softer real estate market is another encouragement for first-time buyers if they are in a position to be active in the market.

“We’re finally starting to see signs of optimism and more confidence from that segment of the market. And predicted further rate cuts from the RBA would help to build that confidence.”

All this confirms the stronger vibe I’ve been getting about real estate in recent months. The competitive interest rates environment is helping – but another cut would be handy.

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