First home buyers are leading the charge… thanks to their parents.
So one of the interesting things about the current boom is that it has been first home buyers leading the charge.
I think I made this prediction a few years ago – that if we ever saw prices fall, it would be first home buyers that would step in and hold the market up.
You can’t have thousands of people “priced out of the market”, and any real sustained fall in prices.
At each leg down, you’ll have newly-empowered and hungry buyers willing to step in and give the market support.
And this is sort of what we saw. Prices teetered a little in the early days of Covid, but they never really fell that much.
But first home buyers were waiting in the wings, ready to pounce. They thought that this was the chance they were waiting for.
Prices didn’t really fall, but with interest rates tumbling, houses did become more affordable.
And so first home buyers pounced.
The value of first home buyer mortgages soared to record levels:
And as a share of the mortgage market, first home buyers ramped it up. And for a little while there, there were more mortgages being issued to first home buyers than investors.
That’s not something that happens very often.
A lot of this was supported by the government’s HomeBuilder program, and the sale of new homes went off the charts:
But I reckon it was mostly an affordability story, as super low interest rates gave first home buyer purchasing power a massive boost.
But another thing happened to.
The Bank of Mum and Dad opened for business again.
That is, more and more first home buyers started leaning on their parents with support for their deposit.
As it stands now, Digital Finance Analytics reckon that a full 60% of first home buyers are relying on the folks to chip in some cash.
The average amount they’re “borrowing” has also picked up, to $90,000. And that’s the average, which means that many people will be borrowing a lot more.
And DFA reckon this is well up on contributions we saw just 10 years ago, when the average contribution was closer to $20,000.
None of this is too surprising. For many people, it’s the deposit that’s the real barrier to home ownership.
Falling interest rates have meant that the serviceability requirements are much more manageable.
So the choike-point is the deposit.
So people are obviously trying to scramble together whatever they can.
And that’s great if your parents have the capacity it chip in.
But not everyone has parents that do. Many people have parents that don’t even own their own house.
The risk here is that we start sending inequality down the generational line. If your parents don’t have wealth that can send your way, then you have to buy later and start your own wealth journey later as well.
I’m not sure what the answer is.
Maybe qualifying for first home owner grants and things like that should be means-tested, but maybe your parents should be means-tested as well?
(I don’t see that flying!)
But it’s something to watch out for.
And my hope is that first home buyers take the time and look into the options that are out there. Leaning on your parents is one way to get into a house…
but it’s not the only way.