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FHBs undeterred by property price rally

The rapid rebound in residential property values has not been enough to dampen the spirits of first home buyers who remain intent on entering the market, new research has found.

According to customer-owned lender ME’s fourth Quarterly Property Sentiment Report – which involves a survey of 1,000 Australians in the first quarter of 2020 (1Q20) – more than half of first home buyers (FHBs) are planning on purchasing a home in the coming 12 months, up from 46 per cent in the previous quarter.

This comes despite the sharp rebound in dwelling values over the past quarter following an 18-month downturn in the housing market that saw national home values decline by 8.4 per cent.

The latest data from property research group CoreLogic revealed that national home values have now risen by 4 per cent in the three months ending December 2019, driven by Sydney and Melbourne, where values increased by 6.2 per cent and 6.1 per cent, respectively, over the same period.

Reflecting on the continued interest from FHBs in spite of property price growth, ME’s general manager, home lending, Andrew Bartolo, said resurgent market conditions have sparked a “fear of missing out” (FOMO) among FHBs.  


“Rising property prices carry the risk of squeezing first home buyers out of the market. However, they also signal a healthier market that presents a worthwhile long-term investment,” he said.

“In the case of first home buyers, the recent property price recovery has likely nudged them to get in while they can – as though it’s ‘now or never’ – and has created a sense of FOMO.”

Mr Bartolo added: “Low interest rates and commentary in the market for the support of first home buyers may have also contributed to an increase in home-buying intentions.”

Speaking to Mortgage Business, Mr Bartolo said he expects this trend to continue over the coming quarters, despite 55 per cent of survey respondents expecting prices to continue climbing over the coming year.

“[My] expectation is that we’ll still see some strong first home buyer activity in the market,” he said.


“I think [rising values] are actually spurring those first home buyers to question how long they wait, particularly if they're expecting prices to keep dropping.

According to Mr Bartolo, the federal government’s First Home Loan Deposit Scheme (FHLDS) would also support FHB demand over the medium term.  

“While small in relative terms, I think it will still provide a little bit of support in the coming months,” he said.

ME’s general manager added that he expects policymakers to consider extending the “breadth and reach” of the FHLDS to support a larger number of FHBs, with the survey reporting that 92 per cent of respondents believe housing affordability remains “a big issue in Australia”.

However, when asked if he would support other government-led initiatives to improve housing affordability, like the removal of stamp duty, Mr Bartolo said such intervention could come at a cost.    

“I’m a little nervous with too much intervention, and we’ve seen this in the past, where it can either bring forward demand or have an impact on house prices, which goes counter to addressing the affordability question,” Mr Bartolo told Mortgage Business.

“I think that’s why it’s a sensible place for where the government has started because I wouldn’t want to see a well-intended policy to actually have adverse impacts in terms of affordability for first home buyers.”

Mr Bartolo said that policymakers could consider boosting the supply of housing as an alternative to direct assistance, with 57 per cent of FHB respondents lamenting a lack of choice in the market.

“Housing supply has picked up slightly. But with prices rising and demand outweighing supply, there’s no wonder that almost one in two Aussies don’t think there’s enough choice available,” he said.  

“With so many first home buyers planning to buy in 2020, yet most stating choice in the market is a barrier, addressing this issue should be a focus in the year ahead.”

General market sentiment on the rise

Positive FHB intentions coincided with an overall pick-up in property market sentiment among respondents across all segments, with sentiment increasing to a net positive 21 per cent, up 3 percentage points from 4Q19, and up 14 percentage points from 2Q19 when the report was first published.  

“Considering a combination of market factors, including the buzz of home value growth, a solid spring selling season, plus rate cuts and signs from the RBA that rates will stay lower for longer, it’s no surprise overall property sentiment has improved,” Mr Bartolo said.

However, the ME survey found that investor sentiment dipped in 4Q20, which Mr Bartolo attributed to the pick-up in prices.

“I suspect that a lot of investors through the period that house prices were dropping were [thinking] about getting into the market so they can capitalise on future growth and obviously drive a better yield,” he said.

“I suspect right now that investors are going to be looking back and going to be more nuanced in where they invest and looking for value given that generally, prices are on the rise.”

No evidence of wealth effect

The ME survey has also revealed that despite the general improvement in property market sentiment, fewer respondents are “willing to spend on discretionary items”, down from a net negative 3 per cent to a net negative 8 per cent over the past quarter.

“Despite market positivity and a stronger sense of wealth, there’s less willingness to spend on discretionary items – a trend that bucks the wealth effect theory,” Mr Bartolo observed.

“Much broader economic dynamics are obviously at play.”

In light of broader weakness in the economy, Mr Bartolo expects the Reserve Bank of Australia to announce further cuts to the cash rate in the medium term.  

“My expectation at this point is that there’s going to be a hold in February, but I’d say at some point in 2020, we’ll see another cut to the cash rate,” he said.

[Related: Property resale profits rise to $18.7bn]

FHBs undeterred by property price rally

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Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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