When I read the paper, I am often faced with stories about struggling first home buyers.
The idea that first home buyers are struggling to get onto the property ladder is reinforced by data from the Australian Bureau of Statistics which shows that first home buyers accounted for just 13.2 per cent of all home loan approvals in June – well down on historical averages.
According to the Australian Bureau of Statistics, first home buyers have traditionally made up more than 20 per cent of all home loan approvals.
So why is the proportion of first home buyers entering the market shrinking?
If the papers are to be believed, rising property prices are making it harder for first home buyers to purchase property.
According to recent research conducted by RP Data, Australian property values climbed 10.1 per cent over the 12 months to July 2014.
And while there is no denying this growth is significant, it should be noted that the 10.1 per cent property price growth was largely driven by Sydney and Melbourne.
Over the last year, Sydney’s property prices have spiked by almost 15 per cent, while Melbourne’s property values have surged 11 per cent.
But while prices are surging in both Sydney and Melbourne, the story is a little different in Perth, Adelaide and Canberra, where property values climbed just 3.0 per cent, 4.3 per cent and 1.9 per cent respectively over the past year.
Further, when you look at how Australia’s capital cities’ dwelling values have changed from the previous market peak, the results are surprising.
While Sydney’s median property value has climbed by an incredible 18.7 per cent since the last market peak, other capital cities have actually gone backwards.
Adelaide, Darwin, Brisbane and Hobart have all recorded negative growth since the last market peak, with median dwelling values falling 1.7 per cent, 3.3 per cent, 4.6 per cent and 8.9 per cent respectively.
When you combine this fall in dwelling values with the fact that we are currently enjoying historically low rates, it may be fair to say that it is now actually easier for some first home buyers to get onto the property ladder.
The trick to being a successful first time property buyer is to keep an open mind. While many potential first home buyers may have their hearts set on buying a property to live in, depending on where they wish to buy, they simply may not be able to afford it.
But just because potential first home buyers may be unable to purchase where they want to live, that shouldn’t stop them from buying altogether. At Mortgage Choice, we are seeing an increasing number of first home buyers purchasing an investment property before an owner-occupied property.
According to the latest First Time Investor survey, 21.1 per cent of respondents purchased an investment property before an owner -occupied property – up from 18.2 per cent in 2011.
First home buyers shouldn’t be afraid of buying an investment property before an owner-occupied property, especially in this market.
With new data showing the residential property market is now Australia’s single largest and most valuable asset class, there really are significant benefits to be gained from investing in property.
Better yet, provided first home buyers invest wisely and buy in an area that boasts great rental yields and property price growth, they may be able to build equity in their investment property in no time at all, providing them with the opportunity to buy an owner-occupied home in their dream location.
Of course, before diving into property ownership, it is important for first home buyers to do their due diligence and make sure they are making the right investment for them and their future needs.