Want to know the hottest market in 2018? This one.
Who’s market is it right now?
Would you believe first time buyers?
Poor first-timers – the smooshed avocado munchers sleeping under bridges – have been the victims of the market for years now – priced out buy cashed up foreigners or nasty investors.
But right now, they’re one of the main pillars of support holding up the national market, and the NSW market in particular.
That’s what CoreLogic’s Cameron Kusher reckons:
“…affordability [in Sydney] was stretched, more properties had been put up for sale and investors were finding it more difficult and expensive to take out a mortgage, all of which was weighing on the market.
The previous round of clamps on investor lending in late 2014 had also slowed the Sydney market, but the difference this time was that the extra interest rate cuts that had fuelled the market last time were unlikely to be repeated, he said.
The falls this month could have been even worse if the NSW government hadn’t removed stamp duty for properties priced up to $650,000, with discounts for homes up to $800,000, he said.
“That could have lessened the slowdown, because first homebuyer numbers jumped,” Mr Kusher said.”
It is certainly true that prices in Sydney seem to be easing. Prices are lower quarter on quarter for the first time in a few years.
But given regulators have thrown everything and the kitchen sink at investors this year, this perhaps isn’t surprising. In fact, this “moderate easing” is probably exactly what the regulators were aiming for.
But the interesting thing about these restrictions is they’re aimed at tilting the market away from investors, which by default means towards owner-occupiers.
They weren’t necessarily trying to favour owner occupiers, but that’s what happened. The banks still have money they want to get a return on. They want to lend it out. To them, it’s all the same whether an investor or an owner-occupier is paying the mortgage.
As long as the money’s coming in…
And so banks are gearing themselves up, all their marketing and what have you, to capture more of the owner-occupier share.
So this has given us some ideal conditions for first time buyers. Banks are more willing to hear from our young folk, and mortgage brokers are more willing to give them the time they need to get their applications together.
At the same time, softer market conditions have given buyers a bit more bargaining power. Property’s aren’t quite selling like hot cakes, and first timers are feeling like they might actually have a look-in.
What’s more, we have state government’s throwing money at first time buyers. Not quite literally, like we saw with the first generation of first home owner grants, but through stamp-duty concessions.
But make no mistake. This works exactly like cash in the pocket of first time buyers, so we can think of it as FHOG 2.0.
That’s having a couple of predictable consequences.
The first is that first time buyers now make up a growing share of home purchases. The early-read, finance commitments, has shown a surge in NSW in recent months.
They’re now the highest they’ve been since the FHOG 1.0 induced spikes in 2011 and 2008.
The kids are back baby.
We’re also seeing more heat in the entry-level market segments, as young buyers start bidding up the prices of entry-level homes.
I found this chart here particularly fascinating. This looks at the price changes we’ve seen in the most expensive 25% of Melbourne homes, and the cheapest 25%.
So we can see that the trend price growth evident is the cheapest 25% of homes is unbroken. In fact, it’s just getting stronger. The cheapest 25% of homes in Melbourne are now growing at 15% pa!!
The top 25% on the other hand maxed out at around 13% in May, around the time the APRA restrictions kicked in, and price growth has now eased back to about 8%.
Boom! (I know it’s almost half as much, and a bit silly saying boom again, but still 8%. That’s still a boom-time figure.)
So the market pivot to first time buyers in in full effect.
But there’s an echo here.
Think about the people who used to own the houses the first time buyers are buying. They’ve now seen solid equity gain, and are ready to probably upgrade their digs.
They’ll probably buy closer in to the city, at a higher price.
So there’s likely to be an echo boom here, as the stimulus injected into the first home buyer segment works its way through the market.
So watch out for that.
But for now, all the action is going to be at the affordable, cheaper end of the spectrum.
Expect this theme to dominate the first half of 2018.
Seeing any entry-level action where you are?