This is a bit of a scoop. Quite frankly, I don’t know how the main press and media have missed this… Maybe they did it on purpose. Maybe they’re just dumb and stupid.
…What you’ve been hearing about the struggles of the first home-buyer is B.S.
There is a whole new class of property investors that will shock you when I reveal the research, stats and data.
There’s been a quiet revolution in the way the property market works. Now, many first time buyers are going straight to the upper rungs of the property ladder. We’ve never seen anything like it…
2014 was filled with sensationalist headlines like ‘First Home Buyers go on strike’. “Investors squeeze new buyers out of the market”, and “Boomers eat their children.”
Now I know you’re not going to believe this, but the media got it wrong!
There’s a newsflash for you. (Actually no, there isn’t.)
This was the narrative doing the rounds and a lot of people bought into it. Prices had gotten so out of hand that first home buyers simply couldn’t afford to get into the market.
They just couldn’t compete with investors (greedy, evil bastards), or was it the Chinese?
As a result, first home buyers went on strike, and the share of FHBs in the market tanked.
Exhibit A was the mortgage approvals data:
Tracking the yellow line, by the end of last year, first home buyers made up just a little over 10% of the market – the lowest level on record.
But to people like me, this just didn’t quite add up. Why would FHBs keep themselves out of a market like this?
It was clear that with the end of first home buyer grants around the country, there had been a ‘pull forward’ of demand ahead of the cut-off dates. So some drop off after the deadlines was to be expected.
But FHBs never came back. The share just kept going lower and lower.
Sure property prices were high, and clearly moving higher, but the truth was that most affordability measures were fine, if not improving. And that’s because interest rates have such a major impact on weekly mortgage repayments and therefore ‘ability to pay’.
And interest rates were at historic lows, and only going lower.
So the ‘they can’t afford it’ line just didn’t make sense.
So were they simply choosing to stay out of the market? But that doesn’t make sense, unless you thought that a major price correction was imminent. I’ll admit there was a lot of talk of that in the media for a while after the GFC, but by the middle of last year, that idea had been shown to be the empty shell it was.
The property market had clearly started another bull run.
And in a bull run, what do you gain by waiting? Nothing. You only run the risk of missing out on getting in on the ground floor.
My advice to FHBs at the beginning of last year, especially in Sydney, would have been do whatever you can to get in on the property ladder now. You’ll be kicking yourself if you wait.
Now I’m not particularly smart. I think most potential FHBs would have seen the writing on the wall.
So f you thought even a little about it, it didn’t make a whole lot of sense, but the media didn’t even give it that much thought. Young families locked out of the great Australian dream was just too tasty a story to pass up.
But then comes the revelation at the end of last year that the ABS didn’t trust their own data. Turns out they were letting the banks self-report the mortgage data, and if it didn’t have a first home owners grant attached to it, then there was a good chance that mortgage fell through the cracks.
The ABS had been under-reporting FHBs.
Well, that made a lot of sense, but how much? Nobody knew.
Thankfully Martin North and Digital Finance Analytics has been doing some excellent survey work – actually going out there and finding out what FHBs are up to.
And what he finds is that when you adjust for the under-reporting, there never was a drop off in FHB buying
There were about 10,000 FHB mortgage applications at the end of last year – a number pretty much in line with post-GFC averages. It should also bump FHBS back up around 15-20% of the market – again, that’s fairly normal.
But the really interesting part of this story, and the thing that is different this time around is that FHBs have got a taste for investing.
FHBs are jumping the usual primary place of residence stepping stone and going straight to investorship.
Before the GFC, practically no first home buyers bought investment properties. Now, a massive 35% of FHBs are buying investment properties.
That’s 1 in 3!
This changes everything. This flips the traditional property model on its head – the one where you buy your first home, save and save and save, buy a nicer home in a better suburb, save and save and save, and then maybe buy a investment property to give you a bit of cash flow in retirement.
That’s so last century.
Now more and more FHBs are using property investment to get a foothold in the market. They buy somewhere they can afford, but don’t necessarily want to live. They then use the cash flow and capital gains to build a deposit for their real first home – often staying at home to really accelerate their savings plan.
It is not that poor old FHBs are priced out of the market, pathetic wall-flowers on the sidelines of the dance. Rather, FHBs are switched on and savvy. They know they need to build wealth to buy the house they want to live in, and they know that property investing, in today’s market, is one of the best ways to do it.
They’ve seen the wealth potential in property, and are going for it. Good on ‘em.
Don’t worry about the kids. They’re ok.
The question I have for you is, if struggling first home-buyers have seen the property investment light, what are your plans for 2015? Are you a buyer or a seller?