First homebuyers drive market – but for how long?

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Low mortgage rates, easier access to credit, and relatively lower house prices have paved the way for first-home buyers to break into the market. The question, however, remains — will the pick-up in first-home buyer activity last?

First-home buyers recorded their largest share of national owner-occupier mortgage activity since 2012 in August, according to the finance data from the Australian Bureau of Statistics.  They comprised 29.8% of the national market for owner-occupier loans, higher than the decade-average of 25%. This trend was reflected in every state.

CoreLogic head of research Tim Lawless said a variety of factors had provided first-home buyers with a leg up into the housing market. 

"Housing affordability has improved through the recent housing downturn, mortgage rates have come down, home loan servicing rules have been relaxed and some states have provided additional incentives for first home buyers in the form of stamp duty exemptions or discounts as well as existing first home buyer grants which generally apply to the purchase of new dwellings across most states," he said.

Recent first-home buyers also faced less fierce competition with investors.  In August, investors comprised only 26% of mortgage demand, well below the decade average of 34%.

First-home buyers were the most active across the Northern Territory and Western Australia, where this segment of the market comprises 45% and 37%, respectively, of owner-occupier mortgage demand.

"These are also the two regions where housing values have fallen the most, providing a substantial improvement to housing affordability.  Dwelling values are down 27% since peaking across the Northern Territory and 23% lower since peaking across Western Australia," Lawless said.

In New South Wales and Victoria, first-home buyers also increased their presence, with their share of mortgage rising from 21.1% to 28.1% and from 27.1% to 32.8%, respectively.

However, Lawless said their share of mortgage demand will likely moderate as investor activity picks up and house prices rise.

"Housing prices are once again rising across most regions of the country while growth in household incomes remain sluggish, which will create renewed housing affordability pressures in markets where home values are rising faster than incomes," he said.

BIS Oxford Economics Robert Mellor shared similar insights, adding that while there are healthier levels of activity from first-home buyers compared to two years ago, a boom in the segment is unlikely.

"First home buyers were really left on the sidelines by the surge in investor demand because they were competing for similar properties to what the majority of investors buy," he told The Australian Financial Review.

"We're seeing some recovery, but we haven't seen that much price movement in the lower end of the market, which tells me there's no first home buyer boom," he added.

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