First home buyers feel price squeeze

by Mathew Dunckley, LuciUe Keen
and Jonathan Barrett

Investors have ploughed back into the
property market in the past six months,
taking advantage of falling interest
rates and underpinning a building
surge in house prices.
At the same time, first home buyers
have remained on the sidelines as a combination of affordability issues and the loss of some government stimulus
keeps their numbers at nine-year lows. Official figures released on Wednesday
by the Australian Bureau of Statistics
confirmed the continuing strength
in demand from investors with a O. 7 per
cent increase in trend terms during the
month of June to $8.4 billion.
This compared with $15.3 billion, up
1.5 per cent, for a owner-occupation
purchases, first-home and otherwise.
The statistics also showed a slight lift
in the proportion of loans going to first home
buyers, which in original terms
rose to 151 percent from 14.6 per cent in
The figures have sat in that range
since late 20l2. and the last time first home
buyers made up such a small part
of the market was in July 2004. A year
ago first-home buyers made up 19.2 per
cent of the home loan market
Economists said it was not unusual
for falling interest rates to favour investors
with an asset base behind them
ahead of first-home buyers, who were
chasing the market’s lower rungs.
“Certainly investors have been more
Banking Corp senior economist
Matthew Hassan said.
“In terms of what that has done to
prices is it has lifted prices nationally
5 per cent over the last year and that’s
not just due to investors. [But] first home
buyers are largely absent from
the recovery story,” Mr Hassan said.
“It is nota situation like 2002 or 2003
where we had red-hot investor activity
bidding up prices very aggressively. It is
a pick-up in investor activity but from a
fairly subdued starting position.”
He said it was unlikely the current
market dynamic was producing an
investment bubble despite the positive
“In the past if we had the current mix
of prices and interest and incomes the
housing market would be well and truly
off to the races,” he said.
“I think what we are seeing is a fairly
standard response, maybe a little bit of a
slow response to low interest rates.”
Mr Hassan said compared with a
year ago, the value of loans to first home
buyers had fallen by 10 per cent
while loans to investors and those refinancing
existing loans on their own
homes rose by 18 per cent and 21 per
He said the massive government
incentives on offer during the global
financial crisis had brought forward
Significant demand and it would take
time for the next cohort of first-home
buyers to save their deposits.
AMP Capital chief economist Shane
Oliver said property investors, rather
than first-home owners, generally benefited
from failing rates.
“It’s the first-home buyers who tend
to be squeezed by lower interest rates.
Any benefit of low rates is more than
offset by the higher house prices they
are subject to,” Dr Oliver said.
In contrast. investors with a property
portfolio benefit from rising prices and
the ability to negatively gear their
However there is evidence that buyers
have not yet piled into property as
quickly as they did during other periods
of falling rates, such as 1996, 2001 and
2008. In the year to June, the house
price index rose 5.1 per cent. according
to the ABS, which is less than rises
recorded in the other three prolonged
periods of rate cuts.
Gavin Hegney, of Perth-based valuers Hegney Property Group, said a
bubble could emerge quickly given the
abundance of rate cuts.
‘The rate cut this week means that
rates have fallen almost 30 per cent in a
year-that’s significant
“It runs the risk of a property bubble
if interest rates are left at these levels
and confidence returns.”
More immediately, Mr Hegney
believes that investors would be enticed
into non-residential property investments,
including higher-yielding commercial
property and blue-chip shares,
to make use of cheap debt
“The reason it is in dangerous territory is
that rates are well below yields on
blue-chip investments,”
One potential first-home buyer.
Michael Gilhen, said people like him
were being priced out of the property
market by investors. The radiation
adviser to a large mining company said
he had been looking for the past six
months but was now facing the reality
he would not be able to afford to buy in
the area he wanted to live, close to the
city in Melboume.
Now renting in North Melbourne,
Mr Gilhen said he went to an auction
for a two-bedroom apartment in the
block off flats he is living in, but missed
out when it sold for almost$75O,OOO.
In Sydney, Kelly Hawkins and her
Fiancé Chris face the same battle searching
fora two-bedroom apartment in the
relatively expensive eastern suburbs of
Double Bay, Bellevue Hill and
“We have the money in the bank to
buy but we’ve been to about three auctions
where not only have there been a
lot of investors with money from self managed
super funds, the prices have
gone crazy,” Ms Hawkins, an executive
assistant at an investment bank, said.
“It’s disheartening. Six months ago
we thought we could spend about
$600,000 to $620,000 but, in such a
short period, we’re looking at the
$650,000 to $700,000 bracket investors
add another tougher element and
another set of eyes.”
Tracey Chandler, a home-buyers’
agent from Sydney, said first-home
buyers and investors had always been
“big competition”.
“Only difference is one buys with
their head, one buys with their heart,”
Ms Chandler said.